December 29, 2004

Health Care & Big Pharma II: In Defense of Drug Companies

Marc Comtois
PROEM: This is a continuation of a series on Health Care & Big Pharmaceutical companies. For more, see the Introduction and Part 1.

In my last post I laid out the case against big pharmaceutical companies as portrayed by Marcia Angell, former editor of the New England Journal of Medicine and author of a recent book that has garnered some acclaim for taking on "Big Pharma." Angell has put forth many arguments against pharmaceutical companies, but some of her most strident accusations are that:

1) Not enough money is put into research and development (R&D).

2) Drug companies lack innovation and create too many "Me-Too" drugs.

3) Drug companies rely too much on tax-payer dollars to generate revenue.

4) The pharmaceutical industry is not an example of American "free enterprise" and is protected by the FDA and the U.S. Patent Office.

While I didn't include some of Angell's secondary claims (or solutions) in the above list, they can be briefly summarized as follows: drug companies should spend less on advertising and either pass the savings on to consumers or invest in more R&D, drugs should be imported from other countries, drug price controls should be implemented, and finally that drug companies are greedy and not philanthropic enough.

There are those who believe Angell's portrayal of the pharmaceutical industry is misleading and that her solutions are wrongheaded. Dr. Elizabeth M. Whelan, president of the American Council on Science and Health (it has a blog, too) has offered a concise refutation of Angell's work. For instance, Whelan has countered Angell's charges that the drug companies "lack innovation," produce unneeded "copycat" drugs and have produced no "new" drugs.
Over the past decade, pharmaceutical companies have conducted hugely sophisticated research at the molecular and cellular levels to uncover many new treatments for disease. In the past ten years, over 300 new drugs have been approved by FDA — including vaccines, medicines to treat AIDS, modest steps toward treating Alzheimer's, a spectrum of antidepressants, and of course miraculous cholesterol-lowering drugs. [Angell's assertion that] [t]he copycat or "me-too" drugs offer no benefits over existing drugs. . . is false as well: It is in the consumer's interest to have a variety of drugs to choose from when looking to treat a condition. Some will work better than others for various individuals and afflictions; some will be tolerated more, with fewer side effects. Can you imagine if only one statin (cholesterol-lowering) drug were available for your physician to prescribe for you — and you were allergic to it?
To further illustrate that new drugs, and not just "me-too" drugs, are being developed, The Pharmaceutical Research and Manufacturers of America (PhRMA), an advocacy group for pharmaceutical research and biotechnology companies, just reported that there are currently 109 separate drugs for mental illness now being developed, all of which "are either in human clinical testing or awaiting approval by the Food and Drug Administration." (Additionally, their FAQ "The Real Truth About Drug Companies" offers an informative counterpoint to many of the common charges made against them).

Angell make's much of tax-payer money funding research that in turn benefits private companies. To this, the PhRMA counters
The research-based pharmaceutical industry spends more ($32 billion in 2002) on biomedical R&D than the NIH, whose total 2002 budget was $24 billion. . . . the U.S. Government funding contributes substantially to general advances in the health sciences, including basic research, but there is still a distinction to be made between basic research and start-to-finish development of a new drug therapy.
Additionally, according to Whelan,
In a report issued to Congress in 2001, the National Institutes of Health dismissed the contention that government pays for most of the research for the best-selling drugs. Indeed, statistics indicate that the research-based drug companies spend more on research and development than NIH does, develop the vast majority of U.S. medicines, and are responsible for over 90 percent of the entire world's new drugs each year.

Along these lines, Angell challenges the widely regarded estimate that the cost of developing one new drug is approximately $802 million (this number comes from a peer-reviewed scientific journal). Instead she quotes a non-peer-reviewed study by Ralph Nader's Public Citizen organization, which claims that the real number is only $l00 million (an odd and shaky citation for the former editor of a prestigious, peer-reviewed medical journal).
This would seem to counter Angell's claim that pharmaceutical companies don't spend enough of their own money on R&D. As to her contention that they spend more on marketing and advertising than R&D, the PhMRA's most recent publication (PDF), which includes complete sources, details the misconceptions surrounding the marketing of drugs.
In 2003, PhRMA member companies alone spent much more on R&D—an estimated $33 billion—than the entire industry spent on all combined drug promotional activities, $25.3 billion. Of this amount, pharmaceutical companies distributed over $16 billion worth of free samples to office-based physicians. . . The entire industry’s direct-to-consumer (DTC) advertising accounts for just $3.3 billion of total promotion, or 10 percent of R&D spending by PhRMA members alone—a percentage consistent with the spending levels of other major industries. The remaining $5.7 billion the pharmaceutical industry expended on marketing and promotion in 2003 was spent on office promotion, hospital promotion, and journal advertising. ["Pharmaceutical Marketing & Promotion," p.5]
Further, according to the aforementioned PhMRA FAQ,
Industry critics often mistakenly cite a category from Securities and Exchange Commission (SEC) filings as the amount spent on marketing, but this category includes many expenses other than traditional marketing expenses.

This category includes, for example, free medicines provided to medically indigent patients under companies’ patient assistance programs; systems and IT support; distribution and shipping expenses; and corporate functions, including legal, communications, dues, procurement, plus utilities and property taxes.
Additionally, many who defend the drug companies contend that advertising is an important informational tool that enlightens potential health care consumers. For instance, Whelan contends that
most observers familiar with "direct to consumer" advertising say it plays an essential role in consumer education. Many people who have serious diseases or risk factors like hypertension, elevated cholesterol, asthma, and depression are not being treated. These ads can prompt consumers to discuss medication with their physicians.
Angell believes some relief for American drug consumers can be found in importation of drugs from other countries. These drugs are cheaper because other countries, such as Canada, impress price controls on drug companies. However, with price controls come limited quantities. According to Robert Goldberg
The fact is, there is only a limited amount of drugs that can be supplied at price-controlled levels worldwide. No degree of safety and surveillance can change the laws of supply and demand. Europeans and Canadians are able to get quality drugs at lower prices only because Americans pay free-market prices that fuel research and development.

The task force notes that the high level of pharmaceutical R&D ultimately depends on revenues: Cut drug-company revenues, and you necessarily cut R&D. Its report goes on to estimate that “importation could result in between four to eighteen fewer new drugs being introduced per decade.”This estimate is supported by a recent Manhattan Institute study which found that applying relatively moderate price limits just to purchases under the new Medicare drug benefit — so not to all drugs — would reduce new drug investment by over $300 billion over the next two decades. This drop would consequently deprive many millions of ailing people of potential cures.

Government price controls are already shortchanging Europeans and Canadians. They have led to a decline in investment, with venture capitalists investing 15 times more in biotech companies in America than they do in the same number of European firms. Health systems and consumers must also spend more to treat chronic illness there because they don’t get new medicines as quickly or as widely as we do. German and British patients, for example, are less likely to receive new cancer drugs than Americans. Indeed, British cancer patients are still waiting to use Gleevec for leukemia. If we import price-controlled drugs, we will import these shortage-created side effects too.
Further, again according to Goldberg and others, price controls take away the drug companies' incentive to conduct research or to provide basic medications. This was illustrated with the recent flu vaccine shortage. Because of price controls, few companies found it profitable to produce the vaccines. As such, when one company's batch of vaccines was found contaminated, there weren't sufficient vaccine producers to step in and immediately fill in the gap. Similarly, if drug companies are required to give away drugs for free, they will lack the incentive, and resources, to embark on the innovative research so desired by Angell and others. Most importantly, as Don Hawthorne recently posted right here at Anchor Rising, any time government gets involved in health care, disaster ensues.

As it is, the accusations made by Angell and others that the pharmaceutical companies are greedy should be tempered. Deroy Murdock writes, citing a report by the Hudson Institute ["A Review of Pharmaceutical Company Contributions: HIV/AIDS, Tuberculosis, Malaria and Other Infectious Diseases," Carol Adelman and Jeremiah Norris], that "nine major drug companies donated $2.135 billion worth of products and services to combat HIV/AIDS, TB, malaria, and other tropical ailments." Additionally,
Despite the alleged avarice of the "mean, nasty" drug companies, this $2.135 billion in medical charity far outpaced the financial commitment of "caring, loving" government agencies that reputedly "put people, before profits." Compare Big Pharma's foreign aid with that of public-sector donors in 2003:

The U.S. Agency for International Development's Global Health Budget stood at $1.374 billion.

The World Health Organization's budget was $1.37 billion.

European Commission spending on HIV/AIDS, TB, and malaria totaled $451 million.
Hence, an industry accused of profiteering has contributed generously to those in need, far outstripping so-called charitable institutions.

Finally, and quickly, drug companies do face a threat to their bottom line: trial lawyers are seeking to generate their own revenue from lawsuits against Big Pharma, much as they did against Big Tobacco. As an example, the recent Vioxx controversy has placed Merck directly in the line of fire of Big Trial Lawyers.

Next up is a more acute presentation regarding the "solutions" of foreign drug importation and price controls.