Drug companies whopping profits

Anna Pha

How often are we told that the pharmaceutical industry needs huge profits 
to fund expensive risky and innovative research and development of new 
drugs?

If patent protection were removed we're told, then there would be no 
incentive for the research and development into new life saving drugs.

A report recently released by Public Citizen revealed how major US 
drug companies and their Washington DC lobby group, the Pharmaceutical 
Research and Manufacturers of America (PhRMA), have carried out a 
misleading campaign to scare the public and policy makers into accepting 
this myth.

The Public Citizen report found that the drug industry's research 
and development does not appear to be as risky as companies claim.

Public Citizen took an oft-quoted figure of US$500 million for the 
cost of each new drug and found that the amount really spent on research 
and development was really around US$110 million.

Other calculations based on data provided by the industry would put the 
after-tax cost of research and devlopment at between US$57 — 71 million 
for the average new drug in the 1990's, including failures.

The drug industry is not doing too badly, since 1982 it has been one of the 
most profitable in the US, according to Fortune magazine's rankings.

Public Citizen reports that the industry's return on revenue (profit 
as a percent of sales) have averaged about three times the average for all 
other industries represented in the Fortune 500.

The drug industry was actually ranked "more profitable than any other" by 
the Fortune 500 analysis of America's largest companies last year.

On examining the details of the US$500 million estimate, Public Citizen 
 found that it did not allow for the huge tax deductions and tax 
credits the companies get from the government, nor did it take into 
consideration the fact that the many of the new drugs on the market are not 
new chemical entities, but are new combinations of existing drugs or new 
dosage forms — what are know as "copycat" or "me-too" drugs.

US food and drug administration figures show that between 1982 -91 more 
than half of new drugs approved were in fact of little or not therapeutic 
gain — "me-too" drugs.

The top 11 Pharmaceutical companies spent on average 30 per cent of their 
revenue on marketing and administrative costs, as against only 12 per cent 
on research and development.

Schering-Plough alone were US$6.8 billion last year,

As Fortune magazine point out — "never has an industry had brighter 
long-term prospects...pharmaceutical is highly likely to match or exceed 
last decades performance, in which it generated average annual returns of 
25 per cent. In a queasy economy, that's powerful medicine indeed."

These whopping profits and enormous costs on advertising, plus the millions 
more spent on lobbying parliamentarians and funding political parties, add 
billions every year to the health bill.

If publicly owned companies were producing the same products this health 
bill could be substantially reduced and pressure placed on these 
corporations to reduce their prices.

In fact the public sector plays a big role in the production of these 
whopping profits.

Apart from research subsidies, tax deductions and tax credits, the 
pharmaceutical industry enjoys many other forms of government assistance 
including patent protections, and the use of research carried out in 
universities and other public institutions.

Public Citizen's report finds that publicly funded researchers 
conducted most of the studies behind the blockbuster drugs.

A study by a researcher at the Massachusetts Institute of Technology found 
that of the most important drugs introduced between 1965 — 1992, publicly 
funded research played a part in discovering and developing 40 of them — 
67%.

Of the 50 top selling drugs between 1992 — 1997, 45 of them received 
government funding for some phase of development, according to an 
investigation by the Boston globe. 

In addition, taxpayer funded scientists not only do the basic research but 
they also conduct clinical trials as well.

Up until the adoption of the World Trade Organisation agreement on Trade 
Related Intellectual Property Rights (TRIPS), some 50 companies had refused 
to recognise patents in respect of drugs.

They were able to import parallel or similar drugs, or license companies — 
often public companies — in their own countries to produce vital drugs for 
the public at affordable prices.

Under the TRIPS agreement it became obligatory for governments to introduce 
legislation protecting the monopoly rights (patents and licenses) of the 
large pharmaceutical corporations.

As a result, the Pharmaceutical companies now enjoy a monopoly in virtually 
every country in the world, and exploit this to charge exorbitant prices.

The Pharmaceutical Benefits Scheme in Australia has countered some of these 
tendencies and kept prices down in Australia relative to many other 
countries. But this whole scheme is now threatened by the appointment of 
pharmaceutical industry representatives to the Pharmaceutical Benefits 
Advisory Committee.

The Australian Government is moving towards deregulation of pricing, and 
leaving it to these powerful rich corporations to determine basically who 
will receive the medications that they need.

The impact of this monopoly protection can be seen in the pricing in 
different countries of important drugs.

For example, the cost of a years supply of three key drugs used in the 
treatment of AIDS costs between US$10,000 and US$15,000 in the United 
States, but can be purchased from local companies in India for between 
US$350 — 600.

Zantac, a drug commonly used in Australia, varies in price depending on the 
country where it is purchased — from US$2 (India) to US$196 (Chile).

The differing prices of those drugs plainly show that "research and 
development costs" have no bearing on retail price.

The prices are deliberately set by monopoly corporations to maximise the 
profits they can bleed out of each country according to the economic 
circumstances of its citizens; through either private health insurance, 
government subsidised schemes, or from the desperately poor of the Third 
World.

To bring an end to the exponentially increasing cost of health care and 
give access to essential drugs to all in need, the TRIPS agreement must be 
abandoned.

Each country must have the freedom to use all scientific knowledge when 
providing for the health of its citizens.