29 June 2004
Big drug companies geared to profits rather than research
Washington: For the last 20 years, the American pharmaceutical industry has become more of a marketing machine than a discoverer of new and useful drugs.
The industry now sells drugs of dubious benefit using its wealth and power to co-opt every institution that might stand in its way, including Congress, the Food and Drug Administration, academic medical centres and the medical profession itself, according to an expose in the current issue of New York Review of Books.
Americans spent $200 billion on prescription drugs in 2002 through direct purchases at pharmacies and mail order. The figure includes the 25 percent markup for wholesalers, pharmacists and other middlemen and retailers, but not the large amounts spent for drugs administered at hospitals, nursing homes or doctors' offices. Total worldwide sales for prescription drugs in 2002 were $400 billion, 50 percent of them in the United States. Beginning in 1980, Congress enacted a series of laws designed to speed the translation of tax-supported basic research into useful new products to improve the position of American-owned high-tech businesses in world markets. Businesses and universities were also allowed to patent discoveries emanating from research sponsored by the National Institutes of Health, the major distributor of taxpayer dollars for medical research. Until then, such discoveries were in the public domain, available to any company that wanted to use them. This gave a big boost to the nascent biotechnology industry. Small biotech
companies proliferated. They worked in association with universities for drug development, hoping for lucrative deals with big drug companies which could market the new drugs. This freed the dug companies from relying on their own research for new drugs.
Few of the big companies now conduct their own research, relying on academia and small biotech outfits. Almost a third of the drugs now marketed by major companies are licenced from universities or small biotech companies, and these tend to be the most innovative ones. Universities and teaching hospitals have been transformed by the profit factor into "partners" of Big Pharma, as the major drug companies are called. "As the entrepreneurial spirit grew during the 1990s, medical school faculty entered into other lucrative financial arrangements with drug companies, as did their parent institutions," said the report. One of the results has been a growing pro-industry bias in medical research. In 1984. Congress passed another set of laws that were just as big a bonanza for the pharmaceutical industry as the earlier legislation had been. These laws extended monopoly rights for brand-name drugs. Generic drugs or copies can only enter the market after the original patent has expired. The price of the "copy" is often 20 percent of the bran
d-name drug while its efficacy is the same. More laws in the 1990s also extended the life of the patents and thus the profits of the big companies. The effective life of the patents increased from eight years in 1980 to 14 years in 2000. Drugs like Lipitor, Celebrex and Zoloft could thus add billions of dollars in profits for their companies.
In 2002, the profits of Big Pharma fell from 18.5 percent to 17 percent of the combined profits of Fortune 500 companies. However, the combined profits of the 10 drug companies were more than the profits of the other 490 businesses put together. The next year, the profits of the Fortune 500 drug companies dropped to 14.3 percent of sales, but still well above the median for all industries of 4.6 percent for that year. The top 10 pharmaceutical companies spent only 11 percent of what they earned in sales on research and development in 1990, the figure rising to 14 percent in 2000. The biggest item in their budget is "marketing and administration, which accounted for 36 percent of their sales revenues in 1990. The proportion remained unchanged over the next decade.
Lately, though the American public has indicated that has had enough of this. An estimated one to two million Americans buy their medicines from Canadian companies over the Internet, though according to a 1987 law, it is illegal. There is also a brisk traffic in bus trips for people living in border states, particularly the elderly who travel to Canada and Mexico to buy the drugs that they need at much cheaper prices. Another problems facing Big Pharma is that some of the top selling drugs with combined sales of $35 billion are scheduled to go off patent within a few years of each other. The drop-over began in 2001 with Prozac, the same year Prilosec went off the patent list. For some companies, it may prove to be a disaster. Claritin, the allergy drug, for instance, represented one-third of the profits of Schering-Plough before its patent expired in 2002.
Of the 78 drugs approved by the Food and Drugs Administration (FDA) in 2002, only 17 contained new ingredients and only seven of these were classified by the FDA as improvements over older drugs. The other 71 drugs approved that year were variations of old drugs or deemed no better than those already on the market. So, for the first time in a few short years, Big Pharma is finding itself in serious difficulty. While its profits are still astronomical, they have fallen, and quite steeply for some. This is going to affect the investors. Some stock or share prices have plummeted. While genetic discoveries will lead to treatments, the fact remains that it will probably be years before the basic research now in progress will pay off with new drugs. "In the meantime, the once-solid foundations of the big colossus are shaking," according to the analysis.
Daily Times - All Rights Reserved
By Khalid Hasan
Daily Times, 6/29/04
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