Drug Money

Drug costs in the US have doubled since 1993 and are expected to double again by 2004. Much of the increase is attributable to people buying more pills for new medications rather than actual price increases, but that hasn't stopped the hue and cry for regulation, especially if Medicare is to pick up part of the tab. The pharmaceutical industry, in the meantime, is crying foul, claiming that it costs $500 million to develop a new drug, and that price controls (or the federal government exercising its considerable buying power) would direct investment elsewhere and undermine the ability of companies to research and develop new medicines.

"It's a tidy story," writes Merrill Goozener in The American Prospect, "but it falls apart under scrutiny. Every independent study that's ever looked at the sources of medical innovation has concluded that research funded by the public sector - not the private sector - is chiefly responsible for a majority of the medically significant advances that have led to new treatments of disease."

The article cites a National Bureau of Economic Research study showing that public research was behind 15 of the 21 drugs regarded as having the highest therapeutic value between 1965 and 1992. Another study found that government labs and noncommercial institutions were involved in 60 percent of 32 innovative drugs. The National Cancer Institute, for instance, spent $32 million to develop the anticancer drug, Taxol, which generates $1.7 billion in sales for Bristol-Myers Squibb and which Bristol-Myers sells to patients for more than 20 times its manufacturing cost.

Merrill Goozener notes that about half of industry research is directed at "me-too" drugs or drugs to replace one whose patent is about to expire rather than real breakthroughs, that marketing and advertising rival research budgets, and that profit margins are the highest for any industry group.

These and other arguments echo an editorial that earlier appeared in the June 22 New England Journal of Medicine. There, the NEJM noted that drug companies make profits of about 30 percent and last year realized an 18.6 percent return on revenues. Commercial banking, by contrast, was second with a 15.8 percent return. In addition, not only are the industry's research and development costs tax deductible, but so are its marketing expenses. This led the NEJM to conclude:

"The pharmaceutical industry is extraordinarily privileged. It benefits enormously from publicly funded research, government-granted patents, and large tax breaks, and it reaps lavish profits. For these reasons, and because it makes products of vital importance to the public health, it should be accountable not only to its shareholders, but also to society at large."

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