Politics & Policy

The Real Truth about Drug Companies

Developmental issues.

I never knew my maternal grandparents. During the 19-teens, my maternal grandmother died of a wound infection following a routine gall-bladder operation. A few years later, her husband, my grandfather, suffered a fatal stroke brought on by untreated high blood pressure. Both were in their thirties.

Neither occurrence was uncommon back then, but a half century of new drugs has changed that. Thanks to a research-intensive (and, therefore, capital-intensive) pharmaceutical industry, pharmacy shelves now contain dozens of antibiotics and blood pressure medications. Similar treatments are available as well for other medical problems, such as arthritis, hypertension, abnormal lipids, and heart failure, and new vaccines have virtually eradicated many dreaded childhood illnesses. Moreover, greater understanding of the molecular mechanisms of disease has provided the wherewithal to make these drugs far safer and more effective.

These stunning successes notwithstanding, the pharmaceutical industry has become a lightning rod for critics. For example, Marcia Angell, former editor of The New England Journal of Medicine, blasted the drug industry in a much-publicized book, The Truth About Drug Companies, accusing it of profiteering and having become “a marketing machine to sell drugs of dubious benefit.” She charged that the pharmaceutical industry’s reputation for innovation is a myth, that in fact it “feeds off the NIH” and that new drugs “nearly always stem from publicly supported research.”

Many of these accusations are questionable, and some are blatantly unfair or untrue – in particular, the accusation that the drug industry merely exploits publicly funded research.

In 1999, the NIH thoroughly investigated whether its research funding commonly leads to the development of pharmaceuticals, the profits from which taxpayers might be entitled to share. Of 47 drugs that had earned revenues of $500 million or more, NIH support had figured significantly in only four, two of which were actually the same drug. The NIH supports primarily pre-commercial, fundamental research into the biochemistry, physiology, and molecular biology of cells and organisms, in health and disease.

This issue has been further and more comprehensively investigated by economist Benjamin Zycher and his co-workers, who published their results earlier this summer. They constructed “summary case histories of 35 drugs and drug classes (a group of drugs used to treat a given medical condition in similar ways) identified in the scholarly literature as important and/or that were among the most prescribed in 2007.” Among the 35 drugs and drug classes, which encompass every major group and individual medicine, private-sector research was responsible for “central advances in basic science for seven, in applied science for 34, and in the development of drugs yielding improved clinical performance or manufacturing processes for 28.” These advances occurred in basic science — the understanding of fundamental biological processes in health and disease; in applied science — the discovery of compounds that treat particular conditions; and in new methods for the purification, formulation and manufacturing of those compounds.

Zycher and his colleagues concluded that scientific contributions of the private sector were essential for the discovery and/or development of virtually all of the 35 drugs and drug classes researched, and that, therefore, few if any of the drugs and drug classes investigated would have been developed (or, at least, their development would have been delayed significantly) in the absence of the contributions and participation of the pharmaceutical firms.

The U.S. research-based pharmaceutical industry (that is, excluding companies that make generic drugs) currently spends upwards of $58 billion annually on R&D. Moreover, it invests in research and development a far greater percentage of sales (17.7 percent) than any other industrial sector, including electronics (6.0 per cent), telecommunications (5.1 percent), and aerospace (3.7 per cent).

The vast expenditures on R&D are not surprising, given the uncertainty of success of a new drug candidate and the huge costs of development. Only one of every 5,000 products screened is ultimately approved as a new medicine; the others drop out because of concerns about safety, efficacy or profitability. The direct and indirect costs to take a drug from discovery to the pharmacy are now over $1.3 billion. But the most sobering statistic of all is that because of the enormous expense of drug development, only one in five drugs that are approved and marketed ultimately produce revenues that recoup their R&D costs.

This state of affairs encourages drug companies to focus increasingly on financial blockbusters — usually treatments for chronic conditions that affect large populations — and to neglect products with more modest prospects, no matter how medically important or technically feasible they may be. For example, although they are much needed and highly cost-effective, antibiotics, and vaccines are out of favor, and one major drug company abandoned a promising new drug that prevents the rejection of lung transplants.

The pharmaceutical industry is far from perfect, to be sure. Drug companies develop too many “me-too” drugs that differ little from earlier products, and spend disproportionately on marketing and promoting them. And they have been woefully ineffective in lobbying for public policy that would create needed incentives for R&D.

But in large part these developments are the result of the industry’s being the victims of government policies, not beneficiaries, as some industry critics would have us believe. In spite of increasingly powerful and precise technologies for drug discovery, purification, and production, development expenses have soared.

One important reason for these debilitating costs is that an increasingly risk-averse FDA keeps raising the bar for approval, especially for innovative, high-tech products and technologies. The FDA is too often a reed in the political winds, and regulators now find themselves in a gale that is blowing them in the direction of a more imperious and adversarial posture toward drug companies.

We need public-policy strategies that will lower the costs and time of development. That would stimulate the formation of new companies (the number of which is now shrinking) and enable them to pursue more drug candidates, including some that are medically needed but offer only modest revenues. In the meantime, Americans will go on dying for reform.

Henry Miller, a physician, is a fellow at the Hoover Institution. He was an FDA official from 1979 to 1994.


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