THE TRUTH ABOUT THE DRUG COMPANIES

The big drug companies want us to believe that soaring drug prices are necessary to cover their research and development (R&D) costs – a claim that implies that they spend most of their money on R&D, and that after they pay for it, they have only modest profits left over.  Curtailing prices, they say, would choke off R&D and stifle innovation.  The real story is very different.  Here are twelve key facts that together show an industry not at all like the one depicted in its public relations.     

1.  The pharmaceutical industry claims to be a high-risk business, but year after year, drug companies are at or near the top of the most profitable industries in the U. S.   In 2005, the top nine American drug companies – those in Fortune magazine’s list of the 500 biggest companies in the U. S. -- had a median profit margin of 16 percent of sales, compared with 5.9 percent for all the Fortune 500 industries.  

2.  Contrary to popular belief, big drug companies spend less on R&D than they have left over in profits and far less than they spend on marketing.  By their own figures, in 2005 (when profits were 16 percent of revenues), the top nine American drug companies spent only 15 percent of revenues on R&D and a whopping 33 percent on the combination of marketing and administration (of which the lion’s share went to marketing).  The industry claims to spend over a billion dollars to bring each new drug to market, but independent analysis shows that the true figure is a small fraction of that.  But in a sense, it doesn’t really matter what they spend on R&D; if they spend much more on marketing and even have more left in profits, they can hardly claim to be strapped to cover R&D.

3.  The pharmaceutical industry portrays itself as a model of American free enterprise, but it’s anything but that.  Of the top ten companies, four are European, and the drugs are manufactured all over the world.  And while the industry is free to decide what drugs to develop and to price them as high as the traffic will bear in this country, it’s utterly dependent on government-funded research and government-granted monopoly rights and other special favors.

4.  The industry claims to be innovative, but only a small fraction of its drugs are truly innovative.  In the six years 2000 through 2005, the FDA approved 506 drugs.  But fully 80 percent of them were judged by the FDA as likely to be no better than drugs already on the market to treat the same condition, and 73 percent weren’t even new drugs at all, just old ones in slightly new forms or combinations.  Of the handful of truly innovative drugs that did come to market, most didn’t even come from major U. S. drug companies, but from European companies or small firms here and abroad.      

5.  The industry’s principal output is minor variations or combinations of old drugs -- called “me-too” drugs.  There are whole families of me-too drugs, and no good reason to believe one is better than another at equivalent doses.  These drugs cash in on already established, lucrative markets.  For example, the top-selling drug in the world, Pfizer’s Lipitor, is the fourth of six cholesterol-lowering drugs of the same type.    

6.  New drugs are not required to be any better than old ones, and there’s usually no way to know whether they are.  Drugs have to be tested before the FDA will approve them so they can enter the market, but they don’t have to be compared with older drugs for the same condition, only with placebos.  That means we don’t know whether new drugs are better or worse than old ones.  They just have to be reasonably safe and better than nothing – a low standard indeed.  This loophole in the FDA regulations opens the door for an unlimited number of me-too drugs, which are easier to develop than innovative drugs.

7.  Drug companies often promote diseases to fit drugs, instead of the reverse.  They use direct-to-consumer ads to persuade essentially normal people that they have medical conditions that need ongoing treatment.  Why?  Because there are more normal people than sick ones, so the market is bigger and more easily expanded.  Thus, millions of Americans come to believe they have dubious or exaggerated ailments like “social anxiety disorder,” “erectile dysfunction,” “acid reflux disease,” and “premenstrual dysphoric disorder.” Criteria for treating disease precursors like high blood pressure and high cholesterol are expanded so that more people take more drugs.  Ads for drugs for such conditions increase sales for the whole family.   

8.  Even while the pharmaceutical industry turns out families of me-too drugs for relatively mild conditions in affluent people, it pays almost no attention to serious diseases in poor people – like malaria.  It also gives short shrift to less profitable drugs in this country, so there are now shortages or some vaccines and life-saving drugs. 

9.  The industry’s most innovative and important drugs stem from research done at government or university labs.   Even within me-too families, the original drug is usually based on government-funded research, often done decades ago.   For example, the first of the Lipitor-type cholesterol drugs, Mevacor, stemmed mainly from university research and came on the market in 1987.  After that, it was a relatively easy matter to turn out me-too versions with new patents.  So Americans pay twice for their drugs – once for the research, and then at the drugstore.  And most of the top-selling drugs now on the market have progenitors that go back to the 1980’s or even earlier.    

10.  The pharmaceutical industry has an iron grip on Congress and the White House.  It has one of the largest lobbies in Washington, with more lobbyists than elected representatives to lobby, and it contributes heavily to political campaigns.  Over the past two decades, Congress has enacted a series of laws that practically ensure windfall profits to the pharmaceutical industry, at public expense.  For example, the Medicare prescription drug benefit specifically prohibits Medicare from negotiating prices.  That’s an amazing concession in view of the fact that Medicare sets doctors’ fees and hospital and nursing home reimbursements.   

11.  The part of the FDA that approves new drugs receives half its support from drug companies in return for quick reviews.  That means the agency is dependent on the industry it’s supposed to regulate, and it puts too many of its resources into rushing brand-name drugs to market and too little on making sure they’re safe.  It takes twice as long to approve generic drugs as brand-name drugs.  The FDA’s advisory committees are also on the industry’s payroll, since many members work as consultants for drug companies.  

12.  The U. S. is the only advanced country that does not regulate drug prices in some way, and other countries spend only about half as much for the same brand-name drugs as Americans.  In essence, these countries require reasonable pricing in return for patent protection.   (They don’t regulate the prices of generic drugs.)  Still, drug companies do not sell at a loss there.  

Anyone looking at these facts objectively would have to conclude that Americans are getting nowhere near their money’s worth from the pharmaceutical industry.  Nearly every one of the problems I’ve highlighted could be remedied by Congressional legislation or the repeal of old legislation, but so far Congress has been unwilling to take on this industry.  It will be up to the public to hold its feet to the fire.

Marcia Angell, M. D.

Senior Lecturer in Social Medicine, Harvard Medical School

Former editor-in-chief, New England Journal of Medicine