One Pill Makes You Larger......

I've been thinking about drugs lately.

Not recreational, although my recreational drug of choice wine, is fermenting along quite nicely thank you.

No, I've been thinking about medications. Three recent experiences have put the issue front and center.

First of all, I take several perscription medications and my drug costs have risen steadily over the last several years. One in particular, Protonix (for GERD), has been a pain in the butt as my insurance is continually hassling me over payment. My stomach prefers the "little purple pill", Nexium. But it costs a couple of bucks per day, so I use the alternative as my insurance "insists" that I use the cheaper drug. But that's a whole other post.

The second experience was this article via the ever interesting HealthCentral:

WEDNESDAY, Nov. 2 (HealthDay News) -- Prescription drug prices continue to outpace the rate of inflation, although the rate of increase is slightly less than it has been in the past two years.

"The overall trend for many years now is that drug prices go up substantially more than the rate of inflation, and that continues to be the case," added Sharon Treat, executive director of the National Legislative Association on Prescription Drug Prices (NLARX). "Even though it's up less than in the previous quarter, it is still a substantial increase, and this is added on to increases from previous quarters."

Sounds like the oil companies.

That drug companies have been increasing prices faster than inflation is really not news. The fact that the rate of increase has slowed is likely reflective of competition from the world market via the internet. For example, I use the medication Nasacort. If I buy it locally using my insurance, the cost is around $40/month. I can buy it from Britain for $30 including shipping, without a perscription.

The third recent experience really pushed me over the edge, driving me to research and write about big Pharma. It was this PBS series on world health difficulties entitled, "Rx For Survival, Global Health Challenge." The series is partially sponsored by the Merck Foundation. Not suprisingly the pharmaceutical industries are treated with abundant kindness throughout the four part series.

In the broadcast, this really struck me. In one segment (but repeated throughout the broadcast) on antibiotics, a theme is presented:

The costs of drug research are enormous hence the high costs of patented drugs to recover the costs; and drug companies need loosened regulation to make it easier for the development of new medications.

It seemed to me further evidence of a shift of PBS to the right. Here we have a PBS program devoted to highlighting the difficulties in world health in essence borrowing that old saw from General Motors, "what's good for big pharma is good for all of us". This is not a particularly new meme and seems to have been more or less swallowed whole by politicians and by Americans. But being highly suspicious of large corporations who tell me they're doing something for my good, I decided I wanted to know more.

That's when I ran across this:

New York Review of Books, The Truth About the Drug Companies,

By Marcia Angell

Here's Marcia's bio from the New York Review of Books web site:

Marcia Angell is a Senior Lecturer in Social Medicine at Harvard Medical School. A physician, she is a former Editor in Chief of The New England Journal of Medicine. Her latest book is The Truth About the Drug Companies: How They Deceive Us and What to Do About It. (October 2005)

So this author is not just some hack blogger, such as myself, bloviating about drug companies. Much of what I discovered and quote below, unless otherwise noted, comes from this article.

The Politics of Pharmaceuticals

The budget and dollars involved in drug sales are notoriously difficult to pin down. The SEC filings of the drug companies are loaded with vague language and mixes of geography making it difficult to know exactly what's happening in America. It's estimated that Americans now spend around $200 billion a year on prescription drugs, a figure that is growing at a rate of about 12 percent a year (down from a high of 18 percent in 1999). It is important to note that this figure does not include drugs purchased in hospitals, clinics, nusing facilities or over-the counter sales. Worldwide sales are estimated at $400 billion spent on just perscription drugs, as above. It appears that the United States makes up roughly half of all perscription drug sales, whatever the amount.

Laws passed in the 1980's under the Reagan administration made it possible for government funded private institutions to patent drugs and then enter into partnerships with drug companies (leaving taxpayers out). These new regulations also extended patent periods and loosened requirements for new patents. Thus the drug companies themselves have been spared much drug development costs while making larger profits on those drugs they patent. And of course, you and I pay for that.

The so-called "me-too" drugs have particularly proliferated as a result of the ability of researchers to make minor changes to a drug molecule in order to receive a new patent. One example, the statin drugs, are enormous cash cows for the drug companies because the ease of minor molecular changes, the need for patients to continually take the drug, and an aging American population. Lipitor, Crestor, Pravachol, and Zocor are just a few examples of these drugs. With little investment in new research, new patents are periodically attained on the "latest" statin, whereby the drug companies then reap windfall profits. And the use is enormous. My stepfather recently had stents implanted. His cardiac surgeon, a young Australian man of his mid-thirties, admitted to taking Lipitor to protect against heart disease. He'll likely take this drug for over thirty years.

Innovation and Profits

Contrary to the myth and as evidenced by the me-too drugs:

The pharmaceutical industry is not especially innovative. And as hard as it is to believe, only a handful of truly important drugs have been brought to market in recent years, and they were mostly based on taxpayer-funded research at academic institutions, small biotechnology companies, or the National Institutes of Health (NIH).

...

At least a third of drugs marketed by the major drug companies are now licensed from universities or small biotech companies, and these tend to be the most innovative ones.

And the profits are impressive:

In 2001, the ten American drug companies in the Fortune 500 list (not quite the same as the top ten worldwide, but their profit margins are much the same) ranked far above all other American industries in average net return, whether as a percentage of sales (18.5 percent), of assets (16.3 percent), or of shareholders' equity (33.2 percent). These are astonishing margins. For comparison, the median net return for all other industries in the Fortune 500 was only 3.3 percent of sales. Commercial banking, itself no slouch as an aggressive industry with many friends in high places, was a distant second, at 13.5 percent of sales.

Drug industry expenditures for research and development, while large [in dollars], were consistently far less than profits. For the top ten companies, they amounted to only 11 percent of sales in 1990, rising slightly to 14 percent in 2000. The biggest single item in the budget is neither R&D nor even profits but something usually called "marketing and administration"—a name that varies slightly from company to company. In 1990, a staggering 36 percent of sales revenues went into this category, and that proportion remained about the same for over a decade. Note that this is two and a half times the expenditures for R&D.

And then there's the ubiquitous CEO pay issue:

According to a report by the non-profit group Families USA, the former chairman and CEO of Bristol-Myers Squibb, Charles A. Heimbold Jr., made $74,890,918 in 2001, not counting his $76,095,611 worth of unexercised stock options. The chairman of Wyeth made $40,521,011, exclusive of his $40,629,459 in stock options.

Clouds on the Horizon

But lately, there's a fly in the ointment:

In the past two years, we have started to see, for the first time, the beginnings of public resistance to rapacious pricing and other dubious practices of the pharmaceutical industry. It is mainly because of this resistance that drug companies are now blanketing us with public relations messages. And the magic words, repeated over and over like an incantation, are research, innovation, and American. Research. Innovation. American. It makes a great story.

Yes. Plenty of ads. Like this fun ad campaign:

"Big Pharma's trade association, the Pharmaceutical Research and Manufacturers of America, or PhRMA, has finally gone all the way, commissioning a novel about mid east terrorists who plan to murder thousands of Americans by--are you ready?--poisoning drugs imported from Canada by US citizens fed up with obscene drug prices," writes Revere, noting that coincidentally, this is exactly the BS they tried to sell congress.

All those ads are very carefully crafted. HealthCentral:

The U.S. Food and Drug Administration is weighing whether it should revisit its policy on direct-to-consumer (DTC) ads; it relaxed restrictions on broadcast and print ads in 1997, a move that has led to a marketing explosion. Pharmaceutical companies now spend an estimated $4 billion a year promoting products this way on TV and radio, in print, and on the Internet.

...

Duke University researcher Ruth Day said DTC ads lack the fair balance required by the FDA. In one of her studies, 80 percent of those queried could remember what the drug was supposed to treat, but only 20 percent could describe the side effects. And ads often obscure risks by employing distracting graphics, such as the flapping wings of a bee in an ad for the allergy nasal spray Nasonex, Day said

And those companies are All-American. Right?

Interestingly, many of the members of Big Pharma aren't even American companies. Half of the top ten largest drug companies are based in Europe and include: the British companies GlaxoSmithKline and AstraZeneca; the Swiss companies Novartis and Roche; and the French company Aventis (which in 2004 merged with another French company, Sanafi Synthelabo, putting it in third place). All are much alike in their operations. All price their drugs much higher in the U.S. than in other markets. And the American based companies are international, not simply serving the United States.

How is the pharmaceutical industry responding to the public outcry over prices, attacks on ad campaigns and a grumbling public?

One could hope drug companies would decide to make some changes—trim their prices, or at least make them more equitable, and put more of their money into trying to discover genuinely innovative drugs, instead of just talking about it. But that is not what is happening. Instead, drug companies are doing more of what got them into this situation. They are marketing their me-too drugs even more relentlessly. They are pushing even harder to extend their monopolies on top-selling drugs. And they are pouring more money into lobbying and political campaigns. As for innovation, they are still waiting for Godot.

Reform

Perscription medications are no longer an option for good health. The drug companies, in essence, are enjoying a welfare relationship with the government. Like the much cliched welfare moms, they gladly and insistently collect government subsidies via taxpayer funded innovation, use the innovation to privately collect maximum profits, use public health as blackmail for abusive pricing, while moaning about the costs of doing business. And the kicker is this. Like any good con game, it's self-perpetuating. Those enormous profits provided by taxpayers are used to buy more political influence to gain more free innovation/looser regulation and increase profits.

This sounds about right to me:

Yet, unlike other businesses, drug companies are dependent on the public for a host of special favors—including the rights to NIH-funded research, long periods of market monopoly, and multiple tax breaks that almost guarantee a profit. Because of these special favors and the importance of its products to public health, as well as the fact that the government is a major purchaser of its products, the pharmaceutical industry should be regarded much as a public utility.

The me-too market would collapse virtually overnight if the FDA made approval of new drugs contingent on their being better in some important way than older drugs already on the market. Probably very few new drugs could meet that test. By default, then, drug companies would have to concentrate on finding truly innovative drugs, [including new antibiotics?] and we would finally find out whether this much-vaunted industry is turning out better drugs. A welcome by-product of this reform is that it would also reduce the incessant and enormously expensive marketing necessary to jockey for position in the me-too market. Genuinely important new drugs do not need much promotion (imagine having to advertise a cure for cancer).

One way or the other, there will be reform as our country cannot simply continue of the current path. Medical care costs are not going down in the near future, and perscription drugs are going to play an increasingly important part in those costs. Hopefully, when we get adults back into government leadership positions, some smart reforms can be crafted that spur real innovation while maintaining fairness to consumers. Until then, don't be fooled by the slick advertising and insidious demands for more and more handouts from Big Pharma.