HEALTH - NOVEMBER 19, 2003

Lesson of mourning doves: Divided, conservation falls

Buy cheap drugs from Canada and condemn your grandchildren to death.

That’s the subtle scare tactic the U.S. pharmaceutical industry has been using as Congress considers laws that would make it easier for Americans to buy cheaper prescription drugs from Canada. Following a number of op-ed pieces on this theme, the arguments were trotted out again by Sidney Taurel, CEO of the drug firm Eli Lilly, in the Wall Street Journal (Nov. 3).

The basic argument goes: Most countries outside the United States negotiate deeply discounted prices for drugs so that their citizens pay maybe half or two-thirds what we pay. Thank goodness the industry can make up for this with hefty profits in the U.S. market. If it were not for those American profits, the industry would have to cut way back on research, meaning that the next generation will be without the drugs that might cure their cancers and other deadly diseases.

This argument sounds reasonable until you do the math. Independent scholars who study the documents drug firms have to file annually with the Securities and Exchange Commission have noted a pattern that has been remarkably consistent for about 20 years. The major drug firms spend about 11 to 12 percent of their revenue on research and development. They spend about 35 percent on the category called “marketing and administration.” And they usually take about 15 to 18 percent of their revenues as profit — about three times the average for major U.S. industries.

The firms don’t want you to know the details of what they spend marketing and promoting their drugs, and so they don’t list that separately. The best estimates are that about 5 percent of revenues actually goes to administration. Even if it were twice that much, it would still mean that companies spend 25 percent of their revenues on marketing. So we already see one anomaly that Taurel somehow fails to mention in his article – that the industry spends twice as much on marketing as it does on research. (The figures released by the drug industry’s main lobbying organization, PhRMA, claim that research expenditures are more than marketing costs, but no one outside the industry has been able to do the math on the SEC filings and make it come out that way.)

That means that if industry was really serious about continuing to discover new cures, it could divert some of marketing expenses into research, and right away with little sacrifice expand research efforts by a quarter to a third. But that’s not the main point. The party line claims they need the high profits to continue to do research. But those are separate items in the accounting. The companies historically have been able to spend their usual 11 to12 percent of revenues on research after they have already taken out their profits. That means that profits could fall substantially – as they have for some companies in the last year or two – and the companies could still spend that much on research, if they choose to.

Of course, it’s a free country, and they could choose to keep on reporting profits three times as high as most other industries, while cutting back on their research efforts. But people buying cheaper drugs in Canada didn’t “make” them do it.

Taurel in his Wall Street Journal article deals with another argument: just who discovers these groundbreaking new drugs? Taurel replies: overwhelmingly, these come from private industry and cites one report from the National Institutes of Health. But other scholars who have looked at the subject have come to the opposite conclusion. In areas such as cancer drugs, between a third and a half of major new drugs receive all or a substantial part of their research funding from federal sources. That means that the U.S. taxpayer foots a big part of the research bill, after which the companies market these new drugs at prices that an increasing number of U.S. citizens cannot afford.

Taurel also mentions an oft-quoted figure, that on average it costs the pharmaceutical industry $800 million to bring a new drug from the test tube to the drugstore shelf. This and other figures in his article comes from a research group at Tufts University, which is well known for getting most of its funding from – you guessed it — the drug industry. Again, when independent analysts try to do the math, they cannot make the numbers come out the way industry claims.

The real bottom line is contained in the headline of Taurel’s article: “Hands Off My Industry.” For all their fuming and fussing about how concerned they are about the people’s health and new scientific advances, the bigwigs of the American pharmaceutical industry increasingly run their affairs as if the business is nothing but their own private preserve for maximum profit making. So far, by spending more on lobbying than any other group, they have managed to have things pretty much their way.

Howard Brody, MD, teaches family practice and medical ethics at Michigan State University. You can reach him at brody@msu.edu.

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