Drug pricing

...More and more, the fight for market share has taken some dubious, if not downright unethical, turns...

...While conceding these points, OTA still concludes that the profits from pharmaceutical R&D have more than offset the risks in recent years...

...The most mindless of the best-buy arguments holds that although prices may be steep, prescription medicines account for only 7 percent of our annual health care bill...

...Early in the decade, surplus * The OTA report—Pharmaceutical R&D: Costs, Risks and Rewards, OTA-H-522 — was published in Washington, DC, by the U.S...

...What OTA trenchantly asks, however, is whether today's level of R&D investment and the drugs it spawns are inarguably worth their cost to society...

...If a drug flounders early in the R&D process, relatively little money is lost...

...This makes it difficult for companies to estimate future R&D outlays, and bolsters the incentive for high drug prices as a hedge against uncertainty...

...Although there's truth to that claim, the industry can be disingenuous in pressing the point...

...Drug prices will also depend on whether the new technologies and medicines require more or less clinical testing, and more or less review by the Food and Drug Administration (FDA), two factors that affect the time it takes to get a drug to market...

...Never does it reveal, for example, that the data used to demonstrate the cost effectiveness of newer (read "more expensive") versus older (read "cheaper") drugs derive mostly from industry-funded research...

...And as the potential for profits accelerated, so did industrywide investment in R&D, which rose 10 percent a year in constant dollars throughout the decade...

...One of the biggest, Merck & Co...

...Simply to conclude that the pharmaceutical industry is rapacious in its pricing policies is to abdicate all responsibility for understanding the complex entity that is half science laboratory, half marketing machine...

...Yet to accept its claims that drugs are fairly priced is to elevate naivetd to an art form...

...The only sure way to escape the scalpel is to reverse atherosclerosis, the disease that clogs the arteries...

...Certain facts are not in dispute...

...Public discontent certainly has its sources—such as the 100 percent to 150 percent price hikes levied on some older medicines during the 1980s, the astronomical cost of the newer biotech products, or the attempts of a few firms to charge premium prices for drugs discovered and developed with public funds...

...Inc., has outlined a price control program that could save $9 billion in prescription drug costs over three years if everyone signs on...

...Given these unknowns, R&D costs per drug are inherently unstable...

...Others are scrambling to protect profits and privileges...

...It calculates that the drug industry realized 2 percent to 3 percent more in profits than other industries during the booming eighties...

...And how much goes to so-called "me-too," or imitative, drugs...

...Which is not to say that an oversized and pugnacious pharmaceutical industry is sinking into a sea of mea culpas...

...The worst of these offenses was committed by Burroughs Wellcome in 1987 when it sought to charge $10,000 a year for AZT, the first anti-AIDS medicine...

...Academics blame these practices on marketing personnel, who view economic analyses as a sales tool and, unlike scientists and researchers, make the exigencies of the marketplace—not the ethics of research methodology—their Holy Grail...

...But companies are showing signs of bendng under public criticism...

...The PMA, in yet another slippery statement, proudly notes that drug firms will devote 16.7 percent of their budgets to R&D this year, or about four times more than other types of industries...

...Government Printing Office in February 1993...

...When the Office of Technology Assessment (OTA) recently published a 360-page tome on drug costs and profits, seven companies, calling themselves Rx Partners and representing some of the industry's true giants, countered with a two-million-dollar, ninetyday public relations blitz intended to persuade Congress and the people of their fair pricing policies...

...Box 371954, Pittsburgh, PA 15250-7954...

...The PMA's line on cost effectiveness contains other suspicious statements...

...So far, it appears that Clinton may be more successful than Bush in bringing his own brand of drug barons to heel...

...Rx Partners, says a spokeswoman, is "trying to get out the word, contrary to criticism, of the good this industry does...

...On average, it takes twelve years to bring a new drug to market, with three devoted to safety testing, six to patient testing, and two to three to FDA review...

...If it goes the distance but fails to get FDA approval, the unrecoverable investment can be huge...

...Another incentive is the fact that only one out of eight new compounds ever makes it to market...

...Yet this much is clear: when a market is huge—as it is, say, in hypertension or high blood cholesterol—firms will devote big bucks to developing and promoting me-too drugs...

...But now there's Clinton, and for once real action, if not real change, may be at hand...

...The Pharmaceutical Manufacturers Association (PMA), a 112—member consortium, is showering seven million dollars on the same cause...

...And when reams of them appear on the same subject, citing mostly the same data, the effect is to bias the literature doctors rely on to keep abreast of medical developments...

...Among the proposals is one to roll back previous price hikes that exceeded inflation and to funnel such savings into a government fund for improving access to health care...

...If you limit our profits, cry the drug makers, you'll squelch R&D and halt the output of innovative medicines...

...The discrepancy stems partly from the industry's zeal in guarding its financial spreadsheets, leaving OTA to base its calculations on stale numbers and best-guess assumptions...

...The pharmaceutical industry may rant about runaway R&D costs, whine that reduced profits will kill innovative drug development, and carp about competition from generic drugs and lost patent protection, but little by little it's being made to play ball...

...Attempts by the General Accounting Office to audit companies under government contract have been defeated in decade-long court battles...

...Some of the academics hired to perform the analyses assert that companies often bias the fmdings —by funding only those projects likely to yield favorable data, withdrawing support as soon as negative results emerge, releasing only favorable data for analysis, and seeking to control the content and use of the final report, including the right to have it published...

...To many in the drug industry, it's bad press and not high prices that's really behind their current woes...

...It can be obtained for $18 by writing to the Superintendent of Documents, P.O...

...prescription drug sales have pledged to hold future price rises to the rate of inflation...

...Just how such changes will affect the prices of drugs now being developed—as well as potential profits—depends on whether they shorten or lengthen the R&D cycle, since a large part of R&D spending ties in to the long-term cost of capital and since returns can be gauged only years after investments are made...

...Although there is nothing factually wrong with the published papers, they can selectively present information...

...Of the ninety drugs that got FDA approval last year, 40 percent were me-toos...

...Yet AZT had been developed by scientists at the National Institutes of Health at taxpayer expense...

...can offer advantages in clinical efficacy, side effects, ease of use, or even cost...

...SUMMER • 1993 • 373...

...profits accounted for about 4.3 percent of the price of each new drug over its product life...

...In its recent report on the industry,* the OTA fully acknowledges that pharmaceutical R&D has grown more costly in recent years...

...Maybe, but that kind of thinking begs the question— SUMMER • 1993 • 371 which is whether or not individual drug prices are reasonable...

...In the world as it is, some are simply gate-crashers at the feast of monopoly profits...

...As of this writing, thirteen rums with over 443 percent of all U.S...

...According to the PMA, the average R&D outlay per new drug is $231 million, measured in 1987 dollars...

...In its position paper on prices and profits, for example, the PMA notes that drugs available by prescription (average annual cost, $1,000) are as effective as bypass surgery (average cost, $40,000) in preventing heart attacks...

...To answer that, we need to know just how R&D monies are spent...

...Public outcry forced the price of AZT down to $2,000 a year, but the taint of greed stuck...

...Still, the money lavished on marketing and promotion, which account for the "indirect" cost of drug development, equals the national debt of some small countries...

...The industry's biggest gun is the claim that research and development (R&D) costs have skyrocketed in recent years...

...Already, calls for mandatory price controls and curbs on promotional excesses have elicited more than PR pap from some quarters...

...A few are seeking to develop voluntary price controls...

...One health care economist estimates that in 1991 pharmaceutical firms spent $1 billion more on promotion than on R&D...

...Using 1990 dollars, the OTA puts the after-tax cost at $194 million...

...Drugs can rarely do this...

...As justification, the company cited development costs and the need to plow back profits into more research...

...One favorite is to underwrite educational symposia for doctors and then pay ghostwriters to prepare clinical papers on the material presented...

...Yet it fails to say that drugs don't prevent surgery so much as postpone it...

...So in this respect the drug makers appear to be right: if profits stay high, new drug development keeps pace...

...FDA chief David Kessler has taken steps to curb these abuses...

...Thus, to impose price controls would hardly make a dent in the bottom line...

...Congress has the power to subpoena the desired financial data but has never seen fit to do so...

...What it fails to mention is that another 20 percent will go to promotion, which is about two to ten times the amount that most consumer-based industries spend...

...Companies admit that price increases for existing drugs have topped inflation and that the cost of many new and innovative medicines can be astronomical...

...Later on, new drugs entering the market made more from sales in constant dollars than had previously been the case—a fact Wall Street quickly noted...

...These gambits complement the many programs aimed directly at physicians...

...How many were merely more expensive versions of older, cheaper, and equally effective drugs is anybody's guess...

...Thus, the most cost-effective approach to artery disease remains prevention, which should start in childhood, not drug therapy, which is usually life long...

...Me-toos are refinements of breakthrough drugs and, in the best of all possible worlds...

...But beyond that, consensus crumbles under a barrage of half truths and contradictory statistics...

...The PMA is touting the various program that companies have for "indigent patient assistance...

...Orders can also be placed by telephone (202-783-3238) or fax (202-512-2250...

...Direct marketing to consumers, prepackaged "news" stories from PR firms, even television 372 • DISSENT programs for physician cable networks (known to be watched by the public)—all are attempts to have patients push their doctors to treat such-and-such condition or prescribe such-and-such drug...

...Owing to rapid-fire changes in science and technology, drug discovery now depends more on biomedical research than on chance clinical observations and refinements of folk remedies, on molecular biologists and geneticists than on organic chemists and pharmacologists, on super computers and DNA sequencers than on test tubes and centrifuges...

...Assuming that the pharmaceutical industry is engaged in profiteering, Clinton will look the hero if he can bring it into line...

...Pharmaceutical firms justify drug prices as cost effective, pointing out that modem medicines can obviate the need for expensive operations, hospitalizations, or psychotherapy...

...Drug makers aren't popular, notes a recent Wall Street Journal/NBC News poll, which found that only 18 percent of Americans regard them favorably...

...The issue of me-too drugs is germane to understanding what competition, that capitalist mantra of the eighties, really means to the pharmaceutical industry...

...This makes it virtually impossible to determine just how R&D monies are allocated in the pursuit of new products: how much investment goes to "breakthrough" drugs, which treat diseases through entirely new therapeutic modes...