WASHINGTON — Create a company. Raise money from investors. Spend billions of dollars. Develop life-saving products. Suffer the vagaries of the marketplace. Be vilified.
That seems to be the lot in life of pharmaceutical firms.
In early December a Washington Post article headlined: “Chemical Compound Shows Promise Against Tuberculosis: New Medicine Is Best Hope Against Disease in 40 Years.” But success is never assured: witness the decline in Merck’s stock price after it withdrew the drug Vioxx and the similar hit suffered by Pfizer when the same health concerns were raised about Celebrex.
And politicians never let up. Democratic presidential candidates criticized the drugmakers in the last election. Governors also bash them. Legislators continue to target them. Seniors demonstrate against pharmaceutical firms. Activists naturally attack them.
Even Marcia Angell, former editor of the New England Journal of Medicine and an otherwise sober analyst who made her name criticizing unfounded litigation over silicone breast implants, has joined the anti-industry crusade with her book: The Truth About the Drug Companies.
ANGELL’S ARGUMENTS AREN’T new. They center on the complaint that the drug companies are private, not public. That is, they are profit-driven, decide what to research, set their products’ prices, and advertise their wares.
That’s the way most of the economy works. But to some that seems unfair when it comes to pharmaceuticals. Which is why Angell, along with a gaggle of activists and politicians, would turn the drugmakers into public utilities and regulate prices.
It’s easy to sit in judgment of the industry. For instance, the drugmakers spend too much on administration and marketing, charges Angell. Companies produce too many “me-too” drugs. Patents are restrictive; advertising is excessive.
Too much and too many compared to what, however?
All firms in all industries spend money on administration and marketing. Unfortunately, no company has ever figured out how to operate otherwise. But the drugmakers devote a larger percentage of their resources to research and development than does any other industry.
Particularly curious is Angell’s criticism of company efforts to promote their products. Although one can legitimately question measures that bias treatment decisions, surely firms need not hide their products from doctors and patients.
Marketing is intended to sell medicine; otherwise there would be no money to develop drugs or get them in patients’ hands. Marketing and R&D are complementary. More products require more advertising; more advertising generates the demand for more products.
In the case of drugs, two-thirds of marketing expenses are free samples. Which usually end up as patient discounts, distributed by physicians for free.
ANGELL COMPLAINS THAT THE industry develops too many “me-too” drugs, that is, products treating conditions where other medicines already are available. It’s for the money, she says.
Of course it is. If there is a demand for competitive products, companies will meet it. That doesn’t diminish the incentive to create blockbuster drugs — like a new TB treatment — however.
Unfortunately, medical research is uncertain: developing new remedies is not like finding manna from heaven. Worthwhile discoveries require sorting through thousands of compounds, most of which end up dry holes.
Moreover, regulation and price controls would most discourage firms from investing to develop new products with more uncertain, though potentially more lucrative, payoffs. Blockbusters warrant higher prices because their discovery cannot be predicted and their success cannot be guaranteed. The European experience demonstrates that price controls drive companies toward the more certain reward of me-too products.
Anyway, me-too drugs often offer important therapeutic advantages. The more drugs available to treat a given condition, the more options a doctor has in treating a patient. A medicine that works well for most people might not help everyone; sometimes a slightly different formula proves substantially better for some consumers. “There’s a lot of patient variability,” explains rheumatologist John H. Kippel. “It’s not unusual for patients to try several options before finding one that works.”
The Food and Drug Administration encourages creation of competitive products. Observes Dr. Janet Woodcock of the FDA’s Center for Drug Evaluation and Research, the agency favors “a choice of drugs within the same class, since not every patient responds to every drug in the same manner.” The availability of many drugs has proved to be invaluable in treating AIDS, as treatment resistance increases.
The importance of having more than one option is dramatically illustrated by Merck’s decision to withdraw its COX- 2 inhibitor Vioxx because of adverse side-effects. Patients requiring relief from inflammation but vulnerable to stomach problems have an alternative: Pfizer’s Celebrex. But the future of that medicine is now in question, even though the company says it plans to keep it on the market (while discontinuing advertising). Happily, a half dozen more COX-2 inhibitors are being developed.
Further, “me-too” products help lower prices of existing therapies. One way to bring down the cost of patented products is to speed generics to market. The other is to encourage creation of competing drugs. If patients have no choices, they will pay much more.
One might as well ask: Why produce more than one brand of automobile or computer? We don’t need competing versions of the same thing.
Ironically, the New England Journal of Medicine, which Angell used to edit, recently published an article which observed that me-too drugs had driven down the price of statins. Added the NEJM, “Lower costs for me-too drugs are also seen in other commonly used classes of drugs.”
Finally, predicting which drugs will be blockbusters and which will not is impossible. Angell defines as innovative drugs “new molecular entities” which receive priority review by the Food and Drug Administration.
But not all NMEs end up as great medical advances; some seemingly less important products unexpectedly provide significant treatment advances. Boring drugs can develop exciting uses: Celebrex might be effective in preventing and treating Alzheimer’s Disease and colorectal cancers.
Angell’s desire to limit patent protection is similarly myopic. The length of patents is arbitrary, but drugs are no different from other products in this regard.
Patents provide a temporary monopoly to encourage innovation. Cut the patent life and cut the incentive. There’s no escaping that trade-off. Maybe the current compromise isn’t the best, but there is no inherently “right” answer.
ULTIMATELY, DR. ANGELL BELIEVES that patients should have no say in what medicines they receive: The FDA should approve fewer drugs, do so more slowly, and limit what consumers are told about their options. Yet every day a life-saving medicine sits unapproved or unused means more suffering and dying patients. FDA foot-dragging has been responsible for hundreds of thousands of unnecessary deaths over the years.
Angell is particularly critical of direct-to-consumer advertising. But patients should learn about available treatments; in many cases people didn’t even know that answers were available for their problems.
Anyway, doctors remain gate-keepers by prescribing medicine. Whatever abuses exist are not solved by restricting the supply of new drugs.
Angell dismisses the threat “Give us everything we want, or we might have to stop producing miracle drugs.” But medicines don’t spontaneously generate. Treating the industry as a public utility — remember the old monopoly phone company? — and controlling prices inevitably would discourage new drug development.
Nor can government planners or activist groups or medical journals conjure up the right drugs at the right prices. If they could, they would be doing so already. Market competition might not seem to be a great way of picking drug winners and losers, but politics is a worse way of doing so.
Pharmaceuticals, including generics, make up just ten percent of total health care spending — significant, but hardly the driving force in rising medical costs. In fact, hospital prices rose almost three times as fast drug prices last year. These medicines lengthen lives, improve the quality of life, and reduce hospitalization and surgery. Americans might prefer to pay less for their medicine. But they will be the biggest losers if they myopically kill the golden goose.
Doug Bandow is a senior fellow at the Cato Institute.
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