Free Market Failure?
March 27, 2001 12:33 PM Subscribe
The pharmaceutical companies profits have been rising faster than the S&P Industrials as a whole, mainly due to huge profits from drug patents. Not only are the drug companies milking American consumers, but their stranglehold on IP rights to new drugs prevents much-needed medicines from being affordable in many third-world countries. But, we can't take away patent rights or investors would flee the drug scene and new drugs wouldn't be developed at all. How do we solve this problem? The only institutions with the financial resources to do the same research as drug companies are national governments. And they have the obligation to protect the social welfare. Should we turn over pharmaceutical research and development to government?
On the other hand, government inefficiency may be preferable to corporate exclusion of the benefits of new drugs.
posted by Loudmax at 12:43 PM on March 27, 2001
In fact, if you look at the financial statements of well-known pharma companies, you'll see that they spend more than twice as much on marketing as on R&D. In some cases, they spend more on marketing than on production expenses. R&D is a relatively small expense item, as a percentage.
Pharma companies have always argued that because of their high R&D burdens and high risk, they deserve high profits. Maybe, but how is it high risk if you never show a loss?
Government takeover of drug development is not the answer here; they'd just farm it out to someone else anyway. I think the answer is in shorter periods for patent protection, so that competition kicks in a lot sooner.
Pharma companies are not going to stop developing new drugs if they face more competition. Their profits may decrease somewhat, and their market capitalization may decline significantly, but they'll still make plenty of money.
posted by anapestic at 1:13 PM on March 27, 2001
They already do. The NIH gives grant money to universities. Those universities pay researchers. Those researchers sometimes make discoveries, which then get licensed to pharmaceutical companies. Witness a few meaningful paragraphs from this newspaper story about AIDS drugs and sub-Saharan Africa:
In South Africa, the only sub-Saharan country where New York-based Bristol-Myers has patented Zerit, the company had earlier argued that it could not bypass patents because of an agreement with Yale University, which developed the drug and then licensed the company to manufacture and distribute it.posted by snarkout at 1:19 PM on March 27, 2001
Yale came under pressure from Doctors Without Borders and group of its own law students to make the drug available. Last week the university reached agreement with Bristol-Myers to "remove any obstacles" on patent and price issues, Yale said in a statement yesterday. "As far as Yale is concerned, anybody who wants to give it away, all the time, it's fine with us," said spokesman Tom Conway.
Goddamn the Pusher Man: Why does everybody seem to hate the pharmaceutical industry?
posted by StewV at 1:20 PM on March 27, 2001
No it isn't. Maximum R&D of new drugs and maximum distribution of the resulting medications is preferable. (No, not socialist distribution, maximum distribution. Sorry, but saving millions of lives in the industrialized world only is preferable to being "fair" and letting everyone die everywhere.) The only way to get these drugs created in the first place is through private enterprise.
A couple weeks ago, two drug companies agreed to offer their AIDS medications to African countries for $1/day. That's far less than the average American pays for his allergy medicines, and is a mind-bogglingly low price for medications as expensive to create as these AIDS drugs. It was a massive capitulation on the drug companies' part. Result? The activists cried foul. Not good enough. A publicity ploy. Not only do they want the drugs for free, they want the drug companies to pay for the honor of providing it, including all costs related to distribution. That's the point where I officially gave up caring. You can't win with these people.
And it's pointless to discuss this matter at all without paying close attention to that distribution problem. Africa isn't like the US, where if the medications were paid for they'd be at every clinic in the country tomorrow morning. The corrupt regimes there use medications like this to make money, to buy weapons, and to play favorites (you support me, you get the drugs; you oppose me, you get nothing and like it).
Those researchers sometimes make discoveries.
As snarkout said, we already do. Plenty of my friends doing doctoral and post-doctoral research are working in affiliation with pharmacorps, are personally sponsored by pharmacorps, or become part of startup pharmacorps when their group leader decides there's money to be made from the big boys.
quirked: capitalism in pharmaceutical research wouldn't work better if it were deprived of its publically funded training schemes in the world's universities. After all, Merck and Glaxo don't recruit researchers off the streets: those "occasional" discoveries in the university lab are the basis of every single bloody PhD.
It's a question of balance, I think: do the corporations make more money from "lifestyle" treatments (anti-obesity, anti-smoking, certain anti-depressants) than AIDS drugs? Because I'd be happy to see people pay through the nose to treat their own self-imposed illnesses, if the money could be redirected towards "charitable" treatments. What worries me is that time and money is spent coming up with yet another tweak of an established drug, often just in order to satisfy the patent lawyers, when they could be working on something more innovative. (Think of all the variations on the Prozac theme.) At least academia doesn't place the profit motive at the top of the priority list, which gives it greater scope to do that innovating.
posted by holgate at 1:37 PM on March 27, 2001
Since WHEN is depression a "self-imposed illness"? Since WHEN is obesity always a "self-imposed illness"?
At least academia doesn't place the profit motive at the top of the priority list...
You're dreaming.
posted by aaron at 1:43 PM on March 27, 2001
For numerous diseases -- malaria is the one that springs to mind -- government- and university-funded research is the only way anything will ever be developed, because the paying market is too small. And huge amounts of private-sector research boil down to work based on public-sector grants; this Federation of American Societies for Experimental Biology paper reports that "of the 21 drugs with the greatest therapeutic effect introduced between 1965 and 1992...only five (24%) were not based on a key enabling discovery made in the public sector."
Mind you, I don't see anything wrong with turning those drugs over to the private sector; neither Yale University nor the NIH should be in the business of marketing pharmaceuticals (and as a shareholder in a giant health products corporation, I have a vested interest in seeing that system work; I think it does, at least for most people in the industrialized world). But the idea that "[t]he only way to get these drugs created in the first place is through private enterprise" isn't wholly accurate.
(And I've never seen a breakdown of the $500 million per drug figure -- how much of that is improved delivery methods and the like designed to increase the life of pharmaceutical patents?)
posted by snarkout at 1:46 PM on March 27, 2001
posted by snarkout at 2:17 PM on March 27, 2001
And I'll refine my last comment, just to make it pefectly clear: academic management may be looking for that next big corporate hookup (Oxford's getting none of my money now that they're pushing a MBNA credit card) but the people doing the research in the labs on a day-by-day basis aren't doing it for the money, particularly when they get cold-called every other week by corporations offering them jobs in the industry for ten times their academic salary.
Of course, give it a few years, and it'll be Glaxo College and Pfizer University.
posted by holgate at 3:32 PM on March 27, 2001
posted by Zool at 4:34 PM on March 27, 2001
I also want to point out that universities need corporate funding. There's no way academic labs could stay funded without grants from industry, especially since funding for basic science research has become less of a priority for national governments. For the most part, though, this grant money comes without strings attached. Pharmaceutical companies will award grants to investigators doing interesting, cutting-edge research and figure that the resulting scientific advances will benefit them indirectly, even if nothing immediately marketable comes from the research.
posted by shylock at 6:11 PM on March 27, 2001
Here are the US numbers for 2000 (from MedAdNews):
Cardiovascular drugs Ð $23.66 billion
Anti-infective agents Ð $20.70 billion
Psychotherapeutic agents Ð $15.29 billion
Gastrointestinal products Ð $15.28 billion
Respiratory therapies Ð $13.94 billion
Cholesterol reducers Ð $12.69 billion
Cancer and cancer-related therapies Ð $9.49 billion
Blood modifiers Ð $7.15 billion
Antiarthritic agents Ð $5.55 billion
AIDS and AIDS-related drugs Ð $5.21 billion
Diabetes and diabetes-related therapies Ð $5.16 billion
Anticonvulsants Ð $3.55 billion
Urinary tract agents Ð $2.98 billion
Biological response modifiers Ð $2.92 billion
Biologicals Ð $2.68 billion
Hormones Ð $2.50 billion
Immunosuppressive agents Ð $2.36 billion
Ophthalmic products Ð $2.16 billion
Analgesics Ð $2.08 billion
That's a lot of money, but patent protection issues aren't the only reason for that. The payer system is also responsible, to a great extent. There are many many drugs that are much more expensive in the US than anywhere else because the Insurance-company heavy system will bear the prices. An example is Allegra, which is a major (in terms of sales - it's top 5) prescription drug in the US but a relatively insignificant OTC product here in Canada. Because, at least partly, the market (insurance system) will bear high-priced drugs.
Also, don't be fooled by marketing costs. A very significant portion of the marketing costs are consumed by serious medical education to physicians. It's marketing, yes, but drug companies know (for the most part) they can't lie to (for instance) early-adopter regional knowledge leaders working in teaching hospitals (most of whom are involved in the trials in the first place).
It can take 3 to 5 years (or more) for even breakthrough drugs (that save lives) to make it from the major centers to smaller hospitals and clinics. The way to get them there - the only way - is through marketing (= continuing medical education, among other things). This delay happens to eat into the on-patent time a company has to market a drug, so it's in their interest to decrease this time - it can be worth billions. But it also has a clear positive effect on patients' lives as well.
If you think that just making something good is enough - that physicians will adopt it quickly and save lives with it - well, the world doesn't work that way, unfortunately. There is far too much material published for most doctors even to keep up with, let alone to consider and figure out how it might or should change their practices.
posted by mikel at 10:57 PM on March 27, 2001
But even at that, DTC isn't, on the whole, a huge proportion of the total marketing costs of any drugs, though obviously it's increasing big time in the US.
Again, though, that has to do with the payment system and political factors (litigiousness being one of them) as much as anything else. DTC works because then patients go to their doctors and demand a product, without knowing often whether it's the best thing for their condition. Physicians often prescribe because a) they'll be sued if they don't and something goes wrong (even something not associated with the non-prescription) and b) because the patient is covered and the price isn't an issue.
This is one of the reasons why the US healthcare is, on a per capita basis, by far the most expensive in the world. Also as a proportion of GDP (really just another take on the same reality), more gets spent in the US than anywhere.
posted by mikel at 11:08 PM on March 27, 2001
Well do I know this. Just last week I went to a pharmacy here in Paris and asked, on a whim, for allergy drugs. Not only did the pharmacist let me have them without a prescription--which is normally required; pharmacists are more authorized here--but they cost about one-fourth of what my insurance company at home pays.
Zyrtec, 15 10-milligram pills, costing 7.52 euros, equalling 49.30 francs, about 7 American dollars. It's probably true, however, that a good deal of that cost differential is due to state subsidy.
posted by Mo Nickels at 12:00 AM on March 28, 2001
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posted by quirked at 12:40 PM on March 27, 2001