On May 29, ABC aired an hour-long attack on the nation’s pharmaceutical industry masquerading as an objective documentary. Narrated by Peter Jennings, the program accused the industry of free-riding off taxpayers, earning “huge profits” by manipulating patents, marketing “me too” drugs instead of finding new cures, and suppressing research exposing the ineffectiveness or dangerous side-effects of its products.
The documentary’s title, “Bitter Medicine: Pills, Profit and the Public Health,” should have tipped off viewers that the program was not an objective view of a complex subject. Language used throughout the program was uncompromising and misleading.
Drug companies, Jennings said, earn “huge profits” partly by letting taxpayers finance basic research. Jennings said repeatedly, in a tone indicating he expected viewers to be shocked, that drug manufacturers are allowed to market new products that haven’t been proven to be better than those already on the market.
According to Jennings, the pharmaceutical industry is the most profitable in the country. The likely source for the assertion (Jennings didn’t say) is Fortune magazine’s annual ranking (in the April 15 issue this year) of the top 500 companies. The 14 companies that make up the “pharmaceuticals” category had a median profit (as a percent of revenue) of 18 percent, more than any other industry’s median.
Jennings did not report the profitability of individual companies. The most profitable drug company on the Fortune list is Amgen (28 percent). Three other companies came in at 24 percent. Pharmacia and Abbott both report 7 percent, according to Fortune, and Gemzyne was at negative 9 percent.
Compare this to Coca-Cola’s 20 percent profit; Bank of New York (19 percent); Mellon Financial (33 percent) (more than any drug company); Microsoft (29 percent); Oracle (24 percent); Gannett (publisher of USA Today) (13 percent); Knight-Ridder (15 percent); AT&T (13 percent); and SBC Communications (16 percent). Even the Washington Post earned a 10 percent profit, as much as or more than four of the 14 drug companies on the list.
Yes, most of the drug companies are profitable, but no more so than many other companies in other fields. There are companies in other industries that are even more profitable … and a Coca-Cola never saved a life.
“Bitter Medicine” suggested there are fewer original drugs being produced today than in the past. The actual record contradicts this: Twenty new drugs were approved by the Food and Drug Administration (FDA) in 1988 and 23 in 1989, compared to 27 in 2000 and 24 in 2001.
The pharmaceutical industry invests about 17 percent of sales in research and development, more than nearly any other industry and well above the average for all industries of 3.9 percent. Compared to drug companies, the computer software and service industry invests 60 percent as much, telecommunications companies just 29 percent as much, and the automotive industry just 24 percent as much.
One industry critic featured by Jennings claimed drug companies get a free ride from spending on basic research by the National Institutes of Health (NIH), and that all five of the best-selling drugs today were funded by the NIH. But according to the Pharmaceutical Research and Manufacturers Association (PhRMA), the trade association for the manufacturers of innovative drugs, industry outspent NIH $26 billion to $18 billion in 2000. According to NIH itself, only four out of the 47 best-selling drugs were developed in part with NIH funding.
How much of the industry’s spending on R&D goes toward new drugs? According to PhRMA, 78 percent is spent on innovative new products. More than 400 new medicines for cancer, 122 for heart disease and stroke, and 24 for Alzheimer’s are undergoing testing as this article is written.
Is this record “good enough”? No one can say how many new drugs “should” be discovered each year. We do know that regulations requiring extensive testing of new drugs before they can be marketed, discussed below, lengthen the time it takes for a newly discovered drug to reach the market and dramatically increase the cost.
It may also be true that as medicine finds more cures for more diseases, the “easy” diseases disappear from the list, and those that remain are tougher and take longer to find a cure. Another possibility is that many diseases without cures affect smaller populations, making it more difficult for drug companies and investors to justify the high cost of getting a drug approved.
New and Improved?
According to a study from a managed care advocacy organization cited by Jennings, 80 percent of “new” drugs are not “significantly different” or “proven to be more effective” than drugs already on the market. But it is impossible even for experts, much less television commentators, to characterize most or even some changes to prescription drugs as being medically “insignificant.”
Some of the doctors interviewed for the program did not think some new drugs are better than others. If he had wanted to present balanced coverage, Jennings easily could have found very respected doctors who believe some of the new drugs are better than others.
Doctors have different opinions about the best drugs and therapies available. That’s not greed or conspiracy; it’s medicine. No two patients are exactly alike, and no two doctors have past experiences so similar that they will always make the same diagnoses or prescribe the same medicine. In cases such as depression, where symptoms can change over time and are often elusive, the only way to determine the best drug for a patient is by trial and error.
One of the doctors interviewed sneered at the fact that one drug company had altered a drug so it needs to be taken only once a day. Yet, such a change is known to actually save lives. Getting patients, particularly those who are elderly, recent immigrants, or low income, to take their medication on a prescribed schedule can be very difficult. Moving from two pills a day to one, or one a day to one a week, improves patient compliance and can prevent serious medical complications.
Similarly, it is absurd to suggest that every new drug must be proven superior to drugs currently available before they can be sold. Such a requirement is imposed on no other industry because competition among producers, even of very similar or even identical goods and services, benefits consumers. It is by allowing producers to advertise the features and benefits of their products, and consumers to choose among firms competing to satisfy their wants, that markets produce the best products at the lowest prices.
Prohibiting companies from introducing new products unless a government bureaucracy declared them to be better than what is already on the market would be devastating to consumers and a violation of the rights of both consumers and producers. Should television commentators be required to prove their documentaries are better than those previously aired before being allowed to broadcast? Of course not.
Drug Patents and Generic Drugs
Jennings implied that patents provide drug companies with a monopoly so they can charge higher prices. However, later in the show he noted there are 170 drugs available for high blood pressure. Many of those drugs have existing patents. So which is it? Monopoly or strong competition?
The country’s Founding Fathers thought intellectual property rights were so important that patents and copyrights are the only property rights affirmatively protected in the Articles of the U.S. Constitution (Article 1, Section 8). Yet, one talking head on “Bitter Medicine” called patents “a government patronage system.” That’s a radical view … and just plain wrong.
Patents reward innovation by protecting inventors from competition during the 20 years following the granting of a patent. In the case of pharmaceutical drugs, approximately nine of those years will be taken up with testing, trials, and FDA delays. This leaves the companies with 11 years, on average, to recover their R&D expenses and earn a profit.
The patent system benefits consumers by giving inventors incentives to reveal the details of their discoveries so that others can study them during the patent-protection period and then imitate and improve on them after the patent expires. Without the protection of patents, many scientific discoveries would remain trade secrets and would be unavailable to consumers for much longer than 20 years.
Patents have worked well in the drug industry. Generic drugs—copies of the original patented drugs that are “bioequivalent,” meaning they are absorbed into the body at about the same rate as the brand-name drug and produce the same effect—have increased their market share rapidly in recent years and now account for nearly 50 percent by volume of prescription drugs.
In many cases there are numerous patented drugs for the same medical condition (e.g., Claritin, Allegra, or Zyrtec for allergies; or Vioxx, Celebrex, or Arthrotec for pain). Just because laws prevent you from making a copy of Coca-Cola and marketing it as Close-a-Cola doesn’t mean there isn’t competition in the soft drink industry.
A Conflict of Interest
Jennings interviewed some doctors employed by Group Health and HMO Kaiser Permanente, who complained that Vioxx and Celebrex are no better than pain killers already on the market but cost 10 times as much. There is nothing about the current system of patents or drug pricing that prevents or discourages HMOs from giving their patients access only to older and cheaper drugs. There is more than a little irony, though, in Jennings’ portrayal of these doctors.
Just a year or two ago, during the media-driven anti-HMO frenzy, few journalists would have shown sympathy for doctors working for HMOs claiming over-the-counter drugs are just as effective as expensive prescription drugs. Back then, Jennings would have demanded to know why the doctor was denying her patients the latest, most innovative drugs. Was it just to save money? Was she putting profits ahead of her patients’ best interests?
The doctors from Group Health and Kaiser may have believed that over-the-counter painkillers are just as good as Vioxx and Celebrex, even for patients who might suffer from gastro-intestinal problems. But who is surprised when HMOs come up with reasons not to pay for new, more expensive drugs? That’s why Congress has been trying to pass a Patients Bill of Rights for five years—because many members of Congress believe HMOs are inappropriately denying care.
New Drug Pricing
When any company releases a “new and improved” version of a product, most of us have a lingering suspicion that the only thing really new is a higher price. However, increasing competition is forcing drug companies to keep some prices lower. For example, after the release of the new generation of antidepressants such as Prozac in 1987, the “launch price” of the next six competitor drugs was between 7 percent and 45 percent less than the original. Schering-Plough priced its new drug, Clarinex, lower than the one it will succeed. Why? Competitors were hoping to gain market share over a more established and better known drug.
If Ford Motor Company came out with a new and improved car or truck and offered it at a lower price, consumers would be very pleased. Why, when drug companies do something similar, are they criticized?
Testing Against Placebos
Some of Jennings’ interviewees complained that new drugs are tested against placebos rather than existing drugs. But there is a good reason for that: That is what the FDA wants. Drug companies have little control over the drug approval process, so criticizing them when they are playing by the rules doesn’t make much sense.
The FDA’s drug approval process requires new drugs to be safe and more effective than placebos, not more effective than existing drugs. Even achieving this level of quality assurance is astonishingly time-consuming and expensive: It requires nine years and costs more than $800 million to get a new drug approved in the U.S.
“Phase III” trials, in which a new drug is compared to a placebo, often include 2,000 to 3,000 patients at 20 to 30 academic medical centers around the country. Additional trials comparing the effectiveness of different drugs are very expensive; the number of patients has to be considerably greater and the duration of the trials is longer. A large number of such programs would have a considerable impact on the price of health care by consuming the time of thousands of doctors, nurses, and other support staff.
Are FDA-approved drugs unsafe? Problems and side effects that might not show up in a sample of 3,000 people may show up when 100,000 or a million patients use the drug. When that happens, the drug companies may change the warnings on the labels or sometimes pull the drug off the market. No one can know all the possible side effects until a drug is distributed widely.
Corruption and Fraud
One of Jennings’ guests stated in strong terms that researchers are covering up side effects and problems because they make money off the research. However, research money from a drug company goes to the department of the medical school doing the research and does not enrich individual researchers. Moreover, researchers have to report back to the medical school’s Institutional Review Board (IRB) that oversees human research. The IRB gets a regular statement of “adverse reactions” and the researchers’ explanation for them.
If anything looks suspicious, the IRB can request an explanation or stop the protocol. Sometimes the researchers stop it. But these trials typically involve 30 academic medical centers, 50 or 100 doctors, and perhaps hundreds of nurses and support staff. To imply that all of these scientists, administrators, doctors, and nurses are in the pockets of drug companies, and that their IRBs are all asleep at the wheel, is both insulting and ludicrous.
What Jennings Overlooked
There is, in fact, growing controversy over the FDA’s clinical testing requirements, but it is not about the issue Jennings described.
Many medical ethicists believe clinical trials should compare a new drug to the standard of care (i.e., the drug most doctors would prescribe), especially in cases where use of a placebo could result in harm to the patient. Is it ethical to let patients with a serious mental illness go eight to 12 weeks without any active drug to control their condition, considering such people can be a threat not only to themselves but to others?
There is also mounting concern that the FDA is simply too slow and too risk-averse to act as a tribunal over the fast-paced and high-tech pharmaceutical drug industry of the 21st century. Henry I. Miller, M.D., a senior research fellow at the Hoover Institution and former FDA official, says “if we can end regulatory excesses, introduce competition into regulatory oversight, and redirect government involvement to those few activities where a central monopolistic role is essential, more patients will benefit from a greater number of drugs made available to them in a timelier way.”
Whether one drug is better than another is, and ought to be, decided by patients in consultation with their physicians. Only they can decide whether the trade-offs of benefits, costs, and risks are worthwhile. “Bitter Medicine” was full of people attempting to second-guess patients and their doctors. We should not go down that road.
The underlying theme of Peter Jennings’ program was that everyone—doctors, regulators, members of Congress, and especially patients—is getting duped by drug companies. Everyone, that is, except for Peter Jennings and the handful of people he interviewed. This is obviously implausible and demonstrably wrong. Jennings is the one who was duped, by a small group of anti-industry activists.
Jennings concluded the program by calling for the federal government to “close the loopholes” in patent law and FDA regulation of new drugs. There are few if any such “loopholes” to be closed. He conveniently overlooks the fact that too much heavy-handed and inept federal regulation has caused many of the country’s health care problems.
Can Jennings point to a case where more federal regulation has improved health care? Is Medicare a good example? That government-run health care program is so badly run doctors and other providers are fleeing! No, American health care consumers don’t need more of that bitter medicine.
Merrill Matthews Ph.D. is a senior fellow with The Heartland Institute, an assistant editor of Health Care News, and a senior fellow with the Lewisville, Texas-based Institute for Policy Innovation.