Problems with the Pharmaceutical Industry Americas Other Drug Problem

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Problems with the Pharmaceutical Industry
Americas Other Drug Problem
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Outline

• Drug costs
• Research and development costs
• Marketing/Detailing
• Conclusions

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Rising cost of Drugs

• Expenditures on prescription drugs now roughly
  170 billion per year - constitute a rapidly
  growing fraction of our 1.4 trillion healthcare
  bill (Relman, 2002).
• Annual inflation rate of 14 on drug
  expenditures
• General increase in use of drugs.
• Higher prices for new drugs.
• Increase in the price of existing drugs on the
  market.

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• There is a lot of resistance to the escalating
  drug expenditures, and the pharmaceutical
  industry constantly struggles to limit the market
  for new, expensive drugs.
• PhRMA (Pharmaceutical Research and Manufacturers
  of America), which consists of almost all
  American and foreign manufacturers of brand name
  drugs, opposes regulation of expenditures for
  brand name drugs. They claim that high prices
  reflect high R D costs.
• PhRMA contends that high profits are a necessary
  incentive for undertaking the risky and arduous
  business of discovering innovative drugs
  (Relman, 2002).

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Research and Development

• According to PhRMAs annual report, last year 15
  to 17 of the large drug companies income was
  spent on R D.
• A study from the Tufts Center for Drug
  Development determined that a new drug requires
  802 million and 12 years of R D to produce a
  marketable, new drug.

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Problems with Tufts Study

• This only includes the cost of new molecular
  entities (NMEs) drugs whose active ingredients
  are newly discovered or synthesized molecules.
• The 68 drugs selected for the study are never
  named, nor are the manufacturers or the
  individual costs.
• The cost is based on sampling from a highly
  selective group of drugs.
• The cost is not the actual out of pocket cost,
  rather the capitalized cost.

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Problems with Tufts Study

• The study includes the revenue that would have
  been generated if the money spent on R D was
  invested in an equity market (opportunity cost).
• The opportunity cost is approximately 403
  million per drug.
• R D expenditures are deductible from a firms
  tax base, and therefore a firms R D costs
  should be reduced by this tax benefit by
  approximately 34.
• Therefore, the 802 million promoted by the
  industry, should actually be less than 266
  million.

8
Marketing

• According to data published in their SEC reports
  for 2001, the big drug companies spent on average
  35 of their income on what most of them call
  marketing and administration (Relman, 2002).
• More than 1/3 of the industries workforce is
  employed in marketing this is more than R D.

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Detailing

• This is direct promotion of drugs to doctors, and
  constitutes the largest piece of marketing
  budget.
• There are over 88,000 drug representatives who
  are paid aggregately over 7 billion per year.
• They give doctors free gifts, take them to
  promotional dinners, and handout free samples
  with over 8 billion per year.
• According to industry estimates, the drug company
  spent 15.7 billion on promotions in the year
  2001 (nofreelunch.org).
• The pharmaceutical industry spends an average of
  9000 per physician per year (Steinman et. al.,
  2001)

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Current Application

• The federal government investigation of
  AstraZeneca Pharmaceuticals ended with a 350
  million settlement from the company, and charged
  3 physicians as well.
• They all plead guilty for their role in billing
  Medicaid for the free Zoladex samples they
  received.
• The doctors could face five years in prison,
  250,000 fine, and three years of supervised
  release.
• The drug company plead guilty of violating the
  Prescription Drug Marketing Act, by knowingly
  providing doctors with free samples that were
  billed to government programs.

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• PhRMA claims that marketing is simply education,
  and in response to criticisms they adopted a
  voluntary code on interactions with healthcare
  professionals.
• According to this code, gifts should be under
  100, however if greater the gift should be
  related to the practice of medicine.
• The AMA also issued guidelines on accepting
  gifts, but like PhRMAs they are voluntary and
  permissive and have not been observed.
• There are currently two bills before congress
  regarding this issue, one of which is The Drug
  Company Gift Disclosure Act.

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The Drug Company Gift Disclosure Act

• This act would require drug manufacturers,
  packers, and distributors to disclose to the
  commissioner of food and drugs the value, nature,
  and purpose ofgifts made to covered health
  entities in connections with marketing
  activities (thomas.loc.gov)
• Violations would result in a maximum fine of
  10,000 per violation.

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Conclusions

• The drug companies claim that if people want new
  cures for diseases, they should give the industry
  free reign. However, often times the drug
  companies role is exaggerated.
• Most of the ground-breaking research done with
  support from the NIH, or other institutions,
  appears in scientific journal before the big
  companies become involved (Relman, 2002).
• Instead of spending money on scientific
  discovery, a majority of the drug companys money
  is spent on variations or new uses for drugs
  already on the market.

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• Last year the FDA approved 66 drugs for the
  entire drug industry. The agency classified only
  10 as a significant improvement. (Relman, 2002).
• Where does this leave us for the future?