Health Care & Big Pharma I: The Case Against "BP"

I've decided that the best place to begin outlining the debate will be in briefly sketching the arguments made against "Big Pharma." To present this case, I have chosen Marcia Angell, former editor of the New England Journal of Medicine and author of The Truth About the Drug Companies, as a "spokesperson." As I have not been able to read her book, I have used her identically titled July 2004 article published in the New York Review of Books to derive her essential arguments.

Angell's argument is best summarized by this paragraph contained within the aforementioned article:

Over the past two decades the pharmaceutical industry has moved very far from its original high purpose of discovering and producing useful new drugs. Now primarily a marketing machine to sell drugs of dubious benefit, this industry uses its wealth and power to co-opt every institution that might stand in its way, including the US Congress, the FDA, academic medical centers, and the medical profession itself.

To my mind, she finds four central faults with the current situation.

1) Not enough money is put into research and development (R&D): Big drug companies spend more on marketing and administration and reap more in profits than they spend in R&D. Finally, the prices they charge for drugs are vastly disproportionate to the amount spent on their developing, to the advantage of the drug companies' bottom line.

According to Angell, "For the top ten companies, [R&D expenditures] 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. . . .These figures are drawn from the industry's own annual reports to the Securities and Exchange Commission (SEC) and to stockholders, but what actually goes into these categories is not at all clear, because drug companies hold that information very close to their chests. It is likely, for instance, that R&D includes many activities most people would consider marketing, but no one can know for sure. For its part, "marketing and administration" is a gigantic black box that probably includes what the industry calls "education," as well as advertising and promotion, legal costs, and executive salaries—which are whopping."

2) Drug companies lack innovation - Too Many "Me-Too" Drugs: Only a few truly innovative drugs have been developed in recent years. Most are so-called "me-too" drugs, which are drugs that are not substantially different than those already on the market. There are two reason for creating these drugs, both related to market share. First, they are those created by competing drug companies in hopes of cutting into the market share of an existing drug that was developed by a competitor. Second, they are created by a company to replace an existing drug that the same company had created but whose patent, and thus monopoly, is ending soon. (As and example, Angell offers drug-maker Schering-Plough's attempt to market and replace Claritin with an "improved" version called Clarinex).

3) Drug companies lack innovation - Tax Payers Generate Their Revenue: Most of the few innovative drugs were brought to market as a result of either tax-funded research at academic institutions or the National Institutes of Health (NIH) or from small biotechnology companies. These organizations then licensed their findings to the larger companies and received royalties based on this research. This has resulted in a sort of biotech incubator, mostly centered around universities, where a symbiotic relationship between Big Pharma, academic institutions, small biotech companies and the NIH uses tax dollars to generate revenue. Further, the barriers between "pure" research for knowledge and research for profit have been broken down and a "pro-industry" bias has crept into academic institutions.

4) The pharmaceutical industry is not an example of American "free enterprise.": Big Pharma is excessively reliant on a "government granted monopoly," via patent rights and Food and Drug Administration (FDA) approval of their drugs, to maintain profitability. Through the FDA and the U.S. Patent office, as well as legislations such as the Hatch-Waxman Act, the effective life of a patent has been extended from eight to fourteen years since 1980. To maintain this situation, pharmaceutical companies have become particularly good at political lobbying and have retained an army of lawyers to press their case. Finally, many "American" drug companies are really just components of foreign-majority owned international corporations.

However, Angell believes that not all is rosy for Big Pharma and that though they still have vase reservoirs of wealth, there is potential trouble on the horizon. Drug companies became increasingly reliant on prescription co-pay provisions in company health care plans. In the '90's, as tax revenue increase, these provisions were particularly increased in government worker health programs. With the decline in revenues brought about by the recent recessions, various government entities have taken steps to reduce the burden of drug prices on their plans. Thus, the profits of drug companies have taken a hit.

There are additional problems. American consumers are increasingly looking "offshore," to Canada and Europe, for cheaper drugs via reimportation. Many successful drugs will be coming off their patents in the next few years with no similar inovative drugs to replace them. The pharmaceutical companies are putting too much faith in the human genome mapping project to generate genetic-based "miracle" drugs to cure ills. Finally, the industry is under a slew of investigations, "overcharging Medicaid and Medicare, paying kickbacks to doctors, engag-ing in anticompetitive practices, colluding with generic companies to keep generic drugs off the market, illegally promoting drugs for unapproved uses, engaging in misleading direct-to-consumer advertising, and, of course, covering up evidence."

In her article, Angell outlined two suggestions (there are more in her book). First, she suggests the FDA become more stringent in approving new drugs. Simply put, if they offer nothing new, then they shouldn't be approved. This would eliminate the "me-too" drugs and encourage innovation. It would also decrease the necessity of marketing one's version of the same drug to consumers, making more money available for R&D. Her second suggestion amounts to drug companies being required open their books so that what exactly such designations as "marketing and administration" cover can be discovered. Besides these two, she also alludes to breaking the dependency that academic researchers and medical professionals have on Big Pharma and to lessening the "inappropriate control drug companies have over the evaluation of their own products."

Next up will be the case for Big Pharma (or perhaps more appropriately, against Angell).