Are these prices neccessary to cover the costs of drug research, development, promotion,etc…or is it really merciless profiteering?
I’m currently working on my first research project (Canada’s Pharmacare program) and having some trouble finding the facts about what happens to the money that individual taxpayers/drug consumers and private insurers pay for extremely expensive prescription drugs.
I hope to discover how healthcare budget pressures can be resolved by means other than reducing government subsidy for patients. The government claims it is doing all it can to protect us from the high costs of the medicine deemed neccessary to maintain our health. I have a feeling more could be done to alleviate the budget problems by looking more at the source of the costs.
Looking at pharmaceutical company websites, I’ve gathered that they claim much of that money covers their expenses but I’m still under the impression that they are one of the wealthiest industries on this continent, are they not? I found their financial records very confusing. What is a good source of factual information/numbers that is less likely biased in the interest of big business?
Can anyone more knowledgeable in this area clarify these issues for me? Any suggestions or info. much appreciated.
I think Grabowski and Vernon have done some research into drug prices, at least after patent prices. I would suggest searching the economics literature regarding prices since it is essentially an econ. question. Try searching medical economics and pharmaceutical economics. This site may offer a starting point. I don’t know how partisan they are, but it should be a start. Here’s a couple more from google:
www.pharmacy.arizona.edu/centers/hope/hope.shtml
www.cptech.org/ip/health/econ/
www.lse.ac.uk/resources/experts/expertise/international_pharmaceutical_economics.htm
www.usc.edu/schools/pharmacy/graduate/pharmecon/ (Go to faculty websites for research paper titles.)
Naively, the prices are high because drug companies have patents so they can charge monopoly prices. Also, third party payment removes the cost from the end user which produces too much demand. Since research costs are sunk, I am skeptical that they actually affect prices.
If searching the econ. literature doesn’t yield anything, I’d suggest knocking on some office doors in your university’s econ. department and seeing if there’s anything to offer.
Hope that helps.
One year, my single biggest client was Schering-Plough. This was during the year that Claritin was approved by the FDA. Shows how long ago THAT was, now Over-The-Counter Claritin is available. It was back in 1993, IIRC.
The costs of developing new medications and then wending your way through FDA approval truly are daunting. I understand that the process with the FDA has been streamlined somewhat, but overall there are a few years lost from initial Patent filing to being able to skip on down to your Antihistaminatorium and get a fistful of relief.
The majors are responsible for showing a profit, covering the costs of development and laying the groundwork for new drug research.
I’m actually not at all a fan of the process, I find them to be whores kneeling at the feet of outrageous profit margins, while millions of people worldwide die every year from lack of cheap access to drugs. However, this is the way it works.
Cartooniverse
I worked for the pharmaceutical association in Washington, DC for some time (about 15 years ago, before they changed their name to PhRMA). I can tell you that regardless of what they would like you to believe - the vast majority of high drug prices can be attributed to one thing - PROFIT.
Patents on drugs are for 20 years - that’s NOT to protect the unsuspecting public from uneducated use - it’s for PROFIT. Many drugs, of course, should only be by prescription always - but generics are cheaper (even though they are EXACT duplicates of the branded versions, no matter what the guys holding the brand want you to believe), and all the over-the-counter meds we find that use to be “by prescription only” are now available NOT because they are safer than they use to be, or offered in lower dosage - but because the patent expired and the patentholder wasn’t granted a new one. But you can bet that in 20 years of having exclusive control over the formula and being able to charge whatever they could get, the drug companies do OK.
Of course R&D is important, but the drug companies ROUTINELY charge thousands of % more than it would take to recoup their costs and make a good profit.
AZT - the early AIDS drug - is a great example of what goes on. The formula was bought in a batch containing several formulas for different drugs by the American drug company that ended up marketing it for AIDS. It was bought in a formula auction (with bidding and everything - common practice in the industry) from a British company who had tested the drug for controlling blood pressure.
Almost accidentally, and with very little research, the company found that it was an effective treatment for AIDS. Their investment was small, and because there was a desperate need for AIDS treatments, the FDA approval process was expedited. Each AZT pill cost this drug company 15 CENTS to make - and they sold each pill for a modest $250 apiece - nope, no typo - $250 a pill. This was widely known in the industry as a stellar success story. These are the guys to whom the health of the American public is entrusted.
This example is pretty typical - the cost/profit ratio for almost every drup out there is astronomical.
The drug companies have one of the most successful lobbies in America and defeat just about every effort to control their greed. When I worked for them (in the lobbying division, by the way) we were DELIGHTED to have defeated an “orphan drug” bill introduced by Ted Kennedy which would have compelled the drug companies to commit to a certain small percenage of R&D efforts to develop drugs to treat deseases that affect fewer than 100,000 people a year in the US. So many of those strange exotic diseases you see on TV or read about for which “there is no treatment,” are untreatable because the drug companies figure they can’t make tsunami-sized profits on them and don’t bother with them - it’s really as simple that.
I do not understand why the citizens of the wealthiest country on earth (and that once had the best medical care) continues to tolerate a healthcare system that is so deplorable that thousands die needlessly each year. There are many problems with the system, but I can tell you that the drug companies have a HUGE share of the responsibility.
And no, I am not a disgruntled ex-employee - I left on seeming good terms, but I left because I was deeply offended morally by their practices and by what was expected of me in my job.
[West Wing] “The second pill cost them four cents. The first one cost them four hundred million dollars.”[/West Wing]
I have heard that drug companies have the highest profits of any other business, but have not been able to find a reputable cite.
A couple of decades ago, when I first started requiring insulin to live, I was alarmed that the price doubled in about three years. I called Eli Lilly & Co. and asked why. I was told that many types of insulin are in the R&D process, and that costs money.
About 6 years ago, one of those two (maybe the rest are still in R&D twenty years later?) new insulins was introduced, and I was shocked to find out it would cost 4 times what my current one costs. I once again called Eli Lilly & Co. and asked why, and was told it cost alot of money to bring that new drug through the R&D process.
So, the way I figured it, they got me coming and going.
One of the reasons that prescription drugs cost so much is…profitability!!! Let’s examine what is going on with prescription drugs lately. In the past few years, many medications have lost their brand name patents and have suffered from generic manufacturer competition. So, what are these brand name manufacturers (not naming names, but think Pfizer, Merck, etc.) to do? Instead of coming up with new and innovative drugs that could really help, they figure out a way to extend the patents on their soon-to or recently expired brand name drug patents. Let me give a few examples. Augmentin, a popular antibiotic, just lost its patent, so the parent company rolled out Augmentin XR (an extended release version) which has a whole new patent and is protected for many years to come. This scenario has also been seen recently with such drugs as Paxil (Paxil CR, extended release), Glucophage (Glucophage XR, extended release), and Prozac (Prozac Weekly, extended release). Even more nauseating is reformulating existing drugs which are about to lose their patents and trying to create “new” drugs which are supposed to be better than their predecessor’s, but are really the same darn things. Claritin (loratadine) lost its patent last year, so Schering-Plough came out with Clarinex (desloratidine), which is the same thing as Claritin once it is metabolized in your body. Same holds true for “new” drugs such as Lexapro (which is the new and improved version of Celexa which has a generic coming out soon, but is really just an isomer of the original drug), as well as Nexium (is anybody else sick of Astra-Zeneca’s ads touting the “new” purple pill, when their own Prilosec is same exact thing but since it now has a generic, it is no longer any good?). Is it in our public interest that these companies spend our tax supported funds to find a way to extend patent life for their drugs or maybe, just maybe, would it be wiser to try to steer them towards trying to find new cures for diseases?
There is a bill currently before Congress to encourage generics - (S. 812- http://www.congress.org/congressorg/webreturn/?url=http://thomas.loc.gov/cgi-bin/query/z?c107:S.812). There are now 3 versions under consideration, no action has been taken on it since last September. Here is the introduction of the first bill under consideration:
(a) FINDINGS- Congress finds that–
(1) prescription drug costs are increasing at an alarming rate and are a major worry of American families and senior citizens;
(2) enhancing competition between generic drug manufacturers and brand-name manufacturers can significantly reduce prescription drug costs for American families;
(3) the pharmaceutical market has become increasingly competitive during the last decade because of the increasing availability and accessibility of generic pharmaceuticals, but competition must be further stimulated and strengthened;
(4) the Federal Trade Commission has discovered that there are increasing opportunities for drug companies owning patents on brand-name drugs and generic drug companies to enter into private financial deals in a manner that could restrain trade and greatly reduce competition and increase prescription drug costs for consumers;
(5) generic pharmaceuticals are approved by the Food and Drug Administration on the basis of scientific testing and other information establishing that pharmaceuticals are therapeutically equivalent to brand-name pharmaceuticals, ensuring consumers a safe, efficacious, and cost-effective alternative to brand-name innovator pharmaceuticals;
(6) the Congressional Budget Office estimates that–
(A) the use of generic pharmaceuticals for brand-name pharmaceuticals could save purchasers of pharmaceuticals between $8,000,000,000 and $10,000,000,000 each year; and
(B) generic pharmaceuticals cost between 25 percent and 60 percent less than brand-name pharmaceuticals, resulting in an estimated average savings of $15 to $30 on each prescription;
(7) generic pharmaceuticals are widely accepted by consumers and the medical profession, as the market share held by generic pharmaceuticals compared to brand-name pharmaceuticals has more than doubled during the last decade, from approximately 19 percent to 43 percent, according to the Congressional Budget Office;
(8) expanding access to generic pharmaceuticals can help consumers, especially senior citizens and the uninsured, have access to more affordable prescription drugs;
(9) Congress should ensure that measures are taken to effectuate the amendments made by the Drug Price Competition and Patent Term Restoration Act of 1984 (98 Stat. 1585) (referred to in this section as the `Hatch-Waxman Act’) to make generic drugs more accessible, and thus reduce health care costs; and
(10) it would be in the public interest if patents on drugs for which applications are approved under section 505© of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355©) were extended only through the patent extension procedure provided under the Hatch-Waxman Act rather than through the attachment of riders to bills in Congress.
And here is what PhARMA (the drug companies) says about it:
The Schumer-McCain Bill –
Senators Schumer and McCain have introduced a bill (S. 812), titled the Greater Access to Affordable Pharmaceuticals Act of 2001, which its sponsors say is intended to speed approval of generic drugs by the Food and Drug Administration (FDA). The principal means by which the bill attempts to do so are: (1) denying effective remedies to holders of patents infringed by generic drugs; (2) changing the standards to allow FDA to approve generic drugs that could not be approved under current law because they are not duplicates of innovator drugs; and (3) creating new requirements designed to deter outside parties from submitting scientific information to FDA that could be adverse to generic drugs. In addition, the bill would revise the current system for rewarding generic companies that challenge patents on innovator drugs in a way that would result in unnecessary litigation and keep many generic drugs off the market for a six-month period.
The Bill Would Cripple Effective Remedies for Patent Infringement
Under current law, FDA is barred from approving a generic drug that is involved in patent litigation for up to 30 months. This provision was enacted in 1984 as part of the Hatch-Waxman legislation to offset advantages given to the generic drug industry by that law — Hatch-Waxman permits generic manufacturers to infringe innovator drug patents during their product development and testing period, and generic companies are allowed to rely on what had previously been the innovator’s proprietary safety and effectiveness data to support FDA approval of their products. The 30-month bar to FDA approval was also intended to protect innovator companies from small generic companies that could potentially be subject to hundreds of millions of dollars in damages for patent infringement but be unable to pay the court judgment.
Schumer-McCain would simply abolish the innovator’s right to litigate patent disputes prior to FDA approval. Although an innovator could still theoretically seek a preliminary injunction from the court against the generic product, preliminary injunctions are rarely granted in patent infringement suits because courts view money damages as an adequate remedy. As a result, even though generic companies would continue to enjoy the benefits of Hatch-Waxman that were created at the expense of innovator companies, the innovator industry would be denied the effective protection against patent infringement that Hatch-Waxman enacted to balance those advantages.
The Bill Would Permit Generic Drugs That Do Not Duplicate Their Reference Drugs
Present law prohibits the use of studies, other than bioequivalence data, to support an abbreviated new drug application for a generic drug. The premise of the law is that the generic drug must be the same as the innovator drug in all material respects, and therefore the only issue is showing that it is absorbed by the body at the same rate and to the same extent as the innovator drug. Schumer-McCain would make two changes to loosen the standards and allow FDA to approve generic drugs that are not the same as their reference innovator drugs. Both changes would substitute an FDA judgment that some unspecified differences don’t matter for the current objective requirement that generic drugs must be the same as the reference innovator drugs.
The first change would allow FDA to require limited confirmatory tests on the generic. This change would allow FDA to approve generic drugs that differ somewhat from the innovator drug because the testing would purportedly show that the differences do not matter.
The second change would in effect override the current specific definition of bioequivalence in the statute and allow FDA to approve a generic product if FDA concludes, by any measure it may establish, that no significant differences in therapeutic effects are expected. This flexible language is intended to give FDA authority to approve generic products that differ from the innovator based on a judgment that the differences can be overlooked.
The Bill Would Inhibit the Submission of Citizen Petitions
Schumer-McCain would impose new requirements on use of the citizen petition, which is the mechanism by which an outside party can request an official FDA decision on a scientific or other issue. Under the bill, the Federal Trade Commission (FTC) would be required to open an investigation of any person submitting a citizen petition to FDA if anyone alleges that the citizen petition has been submitted for an improper purpose. In addition, anyone submitting a citizen petition to FDA must notify the FTC of the source and amount of any compensation received for submitting the petition.
These provisions would deter persons from submitting citizen petitions to the FDA containing scientific information regarding a competitive product, since an FTC investigation, accompanied by a subpoena for documents, would seem to be the inevitable and immediate result. In addition, the requirement for automatic financial disclosures to the FTC appears designed to suppress submissions by law firms and consultants. Congress and FDA should welcome a process for airing scientific issues, rather than trying to inhibit discussion.
The Bill Would Revise Generic Drug Exclusivity to Keep More Rival Generics Off the Market for Six Months and Permit Unnecessary Litigation
In an apparent inconsistency with its stated objective of speeding generic drug approvals, Schumer-McCain would enhance the ability of the first generic drug company that challenges an innovator patent to keep all other generic products off the market for six months. A provision for six months of exclusivity exists in current law but has been made less valuable to the first generic company by recent court decisions. Schumer-McCain would overrule those decisions.
In addition, the bill would allow generic companies to sue innovator companies for a declaratory judgment that the innovator’s patent is invalid or not infringed. Such suits would generally not be permitted under current law if the innovator does not assert infringement. The reason for authorizing wasteful lawsuits appears to be simply an administrative device to trigger the exclusivity right for generic companies.
I encourgage anyone who has a serious interest in finding out why the cost of drugs is so high to read the text of the bill and make up your own mind. PhARMA’s website is at http://www.phrma.org/.
“This example is pretty typical - the cost/profit ratio for almost every drup out there is astronomical.”
How about the many drugs that are brought to market at great expense and then taken off the market because they turn out to have rare but serious side effects or because another, better drug comes along to displace them?
How about ivermectin, a drug developed by Merck and Company that is the drug of choice for treating onchocerciasis (river blindness)? Since there is no market in rich countries for onchocerciasis treatments, Merck decided years ago to provide the drug free to poor countries where onchocerciasis is a problem. They are not all greedy all the time.
“Of course R&D is important, but the drug companies ROUTINELY charge thousands of % more than it would take to recoup their costs and make a good profit.”
What’s a “good profit” to you may not be a good profit to the “widows and orphans” who depend on the dividends from their pharmaceutical stock holdings. Sure the drug companies, in general, make money hand over fist but compared to Microsoft, they are no more dedicated to profit than was Mother Theresa.
“I do not understand why the citizens of the wealthiest country on earth (and that once had the best medical care) continues to tolerate a healthcare system that is so deplorable that thousands die needlessly each year. There are many problems with the system, but I can tell you that the drug companies have a HUGE share of the responsibility.”
What do the “thousands” who die needlessly each year die of? And could we have a cite for your figure of “thousands”? If you’ve know so much about what is wrong with “the country that used to have the best medical care on earth” (who, by the way, has the best medical care on earth now?), then how about sharing with us your solution?
“The drug companies have one of the most successful lobbies in America and defeat just about every effort to control their greed.”
Just to put things in perspective I’d add that you can say the same thing about the automotive industry and several others.
“…while millions of people worldwide die every year from lack of cheap access to drugs.”
Even more people, rich and poor, die every year from lack of access to drugs because nobody has developed the drugs and brought them to market.
The fact is that the drug companies do a critical service and are responsible for saving untold millions of lives worldwide every year. Perhaps they are better compensated for it than they should be. Perhaps they are greedy. In that case, come up with a better scheme. Write your congressional representative and tell them the government should get into drug R&D. (Government agencies have, in fact, developed several terrific drugs over the year, nystatin and warfarin come to mind.)
Well, don’t know quite what to say. I’ve been immersed in the day to day activities of the industry association which were dedicated in EVERY way to total resistance of any modification of their practices - and seemed to have an endless pocketbook to accomplish that. What I’ve written here is only part of it.
I don’t think any reasonable person who has had any need for the pharmaceutical industry’s products could fail to wonder about the cost and difficulty of procuring much needed medicines for most people. I don’t have hard statistics of how many die due to the inability to pay for these drugs - but it’s been well-reported from many sources that many, many people suffer in this country from lack of access to proper treatment. Ivermectin - Merck’s great gift, by the way, is a HEART WORM & MANGE medicine for ANIMALS , and has been on the market for 20 years or more. It was only approved for LIMITED use in humans in this country in 2000, but Merck has been giving it away in developing countries for 13 years. It also has not been shown to BE an effective treatment in river-blindness. http://www.cochrane.org/cochrane/revabstr/ab002219.htm
So why do you suppose Merck was giving away a veterinary drug to be used on humans in developing countries for all those years? Maybe good and CHEAP PR?
You don’t need a cite - they are all public companies with publicly available financials. I looked up a few companies’ earnings as a % or revenue, drug makers and not:
Pfizer: 25%
Bristol Myers Squibb: 15%
Microsoft: 25%
GE: 10%
Wal-Mart: 4%
IBM: 6%
Exxon Mobil: 5%
So, the drug companies are certainly profitable, but nothing to indicate they are charging more than 10 - 15% over the going rate - this is hardly the extortion indicated by some other posters.
Thanks, amarone. What I was meaning to say was that I don’t understand “financials” (never took economics, can’t make heads or tails of my 401K literature) and had looked for a site (sorry, I said cite in the previous post) that spelled it out in plain english for us dummies. Much like you did.
“I don’t have hard statistics of how many die due to the inability to pay for these drugs - but it’s been well-reported from many sources that many, many people suffer in this country from lack of access to proper treatment.”
If you don’t have evidence, but only know that “it’s been well-reported from many sources …” Then why are posting on GQ? There are other boards where rants are welcome. GQ is supposed to be for the straight dope.
“It [ivermectin] also has not been shown to BE an effective treatment in river-blindness.”
Do you think we are idiots here? You cite a Cochrane review with the following Objectives: “The aim of this review is to assess the effectiveness of ivermectin in preventing visual acuity and visual field loss in onchocercal eye disease. The secondary aim is to assess the effects of ivermectin on lesions affecting the eye in onchocerciasis.” The aim of the Cochrane review was NOT to assess whether or not ivermectin is an effective treatment for
onchocerciasis. Evidently the World Health Organization hasn’[t caught on because they are still using ivermectin as part of their program for river blindness control (http://www.who.int/ocp/index.htm), EVEN THOUGH IVERMECTIN IS ALSO AN EXTREMELY VALUABLE VETERINARY MEDICINE! veterinary medicine I’m sure they wil
http://www.cochrane.org/cochrane/revabstr/ab002219.htm
that many, many people suffer in this country from lack of access to proper treatment.
“So why do you suppose Merck was giving away a veterinary drug to be used on humans in developing countries for all those years? Maybe good and CHEAP PR?”
Oh, oh! The shame of it. Merck has bought good and cheap PR!!! Arggh!!
if i charge twice as much as would be fair for a luxary car, ppl will simply buy other cars.
if i charge twice as much as would be fair for a type of champaigne, ppl will buy wine.
but if i charge twice as much as would be fair for something that you need to stay alive/healthy and no alternative treatment exists, ppl will meet my demands.
Some might reply that without the opportunity enjoy patent protection, the drug would have never existed in the first place.
BTW, some (most?) drug companies give the meds to the poor. While it still had patent protection, Eli Lilly would give Prozac to the depressed poor under the Lilly Cares program.
It certainly is a tragedy when a person is unable to get access to an extant medical treatment. But that fact alone does not imply that the current system is sub-optimal given the constraints of the real world. If patent protection were removed, the potential profits simply may not justify the risk of dropping over half a billion dollars to bring a drug to market. I don’t know if a better system potentially exists, but pointing out the flaws of the current one doesn’t prove that a there is something better.
BTW, re: the OP, here’s a book I found googling for “pharmaceutical economics”: www.starvingmind.net/detail/0195105249.html
http://www.familiesusa.org/PPreport.pdf - Families USA is a non-partisan health advocacy group. This is their report entitled
“Profiting from Pain: Where Prescription Dollars Go.” It appears to be a very well-researched report. The introduction states:
"Data gathered by Families USA demonstrate that the major pharmaceutical companies spend significantly more on marketing, advertising, and administration than they spend on R&D. The pharmaceutical industry has been the MOST (emphasis mine) profitable industry in America for each of the past 10 years and, in 2001, was five 1/2 times more profitable than the average for Fortune 500 companies. The industry is also very generous to its top executives, offering them millions of dollars in annual pay, supplemented by even larger company stock options.
This is the second in a series of reports prepared by Families USA that looks at spending and profits in each of the U.S. drup companies that market (or is the parent company of the company that markets) the top 50 drugs prescribed to seniors. IN ORDER BASED ON ANNUAL REVENUE, THE COMPANIES INCLUDED IN THIS REPORT ARE #!: Merck & Company…" That would be the charitable Merck that is giving away free dog medicine to the third world.
There is a big difference between revenues and profits.
Please look on page 5 of the above referenced report for an overview of revenue/profits/expenditures for the top drug companies.
The points I’ve raised here should be intellegently considered as they affect every single person in this country. If you don’t wish to believe the evidence I’ve presented, fine. That’s what critical thinking is all about - but the emphasis should be on “THINKING” not “critical.”
I don’t think it’s useful or intelligent to nit-pick syntax, toss insults or belabor minutia as some respondents to my comments have done.
The statistics I’ve presented are a matter of fact. The fact that the drug companies have enjoyed unprecedented profits while the cost of medicines has reached unprecedented heights is a matter of public record and not in dispute.
The respondents here must either be really young and healthy or have great medical insurance - may that always be the case.
“The statistics I’ve presented are a matter of fact. The fact that the drug companies have enjoyed unprecedented profits while the cost of medicines has reached unprecedented heights is a matter of public record and not in dispute.”
It is also a fact that the drug companies have produced hundreds of drugs that improve the quality of life of hundreds of millions of people all over the world and save the lives of many millions more. It would be nice to have a cheaper way to do this but ranting against the drug companies for trying to maximize the return on the investments of their shareholders doesn’t contribute anything. Would someone like to suggest a way to do it cheaper?
“The respondents here must either be really young and healthy or have great medical insurance - may that always be the case.”
Or maybe they are just much better informed than you are. There are also people on this board who are old enough to remember when the treatment for ulcers was major surgery, not a pill, when the diagnosis of leukemia was a death sentence, when AIDS patients could count on being dead in two years, etc, etc.
Yeah, I don’t think that Violet9 is questioning that “the drug companies have produced hundreds of drugs that improve the quality of life of hundreds of millions of people all over the world and save the lives of many millions more.” Since she used to work for one of their lobbies, asking her to get more informed is just silly. She probably knows much more than she ever wanted to.
What I think she is questioning is why my friend’s asthma breather costs her $80 here in the US (no insurance), but on an extended stay in Thailand same exact breather ---- $14 (again, no insurance).
Why do masses of elderly people hire a charter bus to Canada to see a Canadian Dr. and get fill the presciption cheaply?
http://collection.nlc-bnc.ca/100/201/300/cdn_medical_association/cmaj/vol-164/issue-2/0244.htm
http://www.healthfinder.gov/news/newsstory.asp?docID=510450 (a little bit down the page)
Nah, couldn’t be greed.
It’s simple, they have a monopoly, and the people who can’t afford the drugs, don’t have the voice to get anything changed about it. Sure there’s AARP, but I bet you they don’t have the money that PhARMA does to get the attention of the lawmakers.