No Thanks to Drug Companies

Published June 1, 2001

The growing AIDs crisis in Africa has put U.S. drug companies in the hot seat, creating for them both an ethical and an economic dilemma.

A number of people here and abroad want the pharmaceutical manufacturers that have developed drugs to slow the progression of AIDs—what’s known as an AIDs cocktail—to provide those drugs to millions of African AIDs sufferers at little or no cost. They usually justify their demands on two grounds.

Just How Profitable?

First, they claim the drug industry is the most profitable industry in the nation, so it wouldn’t hurt pharmaceutical firms to make a little less money. The evidence for this claim is Fortune magazine’s annual survey of the nation’s top 1,000 companies.

But a closer look reveals drug companies aren’t all that profitable compared to many other companies. The median profit of the 12 drug companies included in the Fortune list was 18 percent in 1999. Most of the non-drug companies on that list posted profits in the 15 to 20 percent range.

Nabisco, by contrast, reported a 36 percent profit in 1999. And for most of the 1990s, Coca-Cola had higher profits than the median drug company. Yet no one accuses Coca-Cola and Nabisco of price-gouging on soft drinks and cookies.

Even Gannett, publisher of USA Today, made 17 percent in 1999—right up there with the drug companies.

Are the drug companies profitable? Most are, but those profits are not out of line with many other successful companies.

Charging Too Much?

Second, critics claim the pharmaceutical firms sell their products for a whole lot more than it costs to produce them. That claim is true . . . but not at all unusual. How much do you think it costs to burn a copy of that new CD you’ll pay $18 for at the music store? It’s so cheap America Online gives its CDs away.

The difference between the actual production costs and the selling price of a music CD goes to pay the retailer, the artists, and those who produced the product. Some of it goes to research and development, to sponsor more ventures in the future.

And that’s precisely what happens with prescription drugs. The money drug companies make today is turned into new, life-saving drugs tomorrow.

Therein Lies the Dilemma

And that’s why drug companies face an ethical dilemma.

If they charge little or nothing for the drugs they create, there is no money to continue research on new drugs that will cure or prevent cancer, heart disease, Alzheimer’s, and a whole host of other human plagues. If the drug companies don’t find a cure for a disease, millions of people will suffer and perhaps die.

On the other hand, if those firms spend the millions of dollars it takes to create a drug, test it on patients, and get it approved, then some people will demand the companies give it away free.

Trying to balance the competing demands is no easy task. And as the AIDs crisis has demonstrated, it’s also a thankless one.

Dr. Merrill Matthews Jr. is a visiting scholar with the Institute for Policy Innovation and assistant editor for Health Care News.