“Big Pharma’s” defenders would likely argue that what happened with Neurotin was an aberration, not likely to be repeated. Unfortunately this is not the case. For example Takeda Chemical Industries and Abbott Laboratories joint venture, TAP Pharmaceutical Productions recently had to pay $875 million to settle civil and criminal charges stemming from a scheme that defrauded Medicare and Medicaid of millions of dollars.
The way the scam worked was that TAP sales personnel would give doctors free samples of its drug, Leuprorelin (known as Lupron in the U.S.). The TAP personnel would then help the doctors get reimbursements for the drug’s retail cost – even though they had paid nothing for it. Since each dose costs hundreds of dollars, it proved highly lucrative for the physicians involved. Of course, once a patient was started on Lupron with the free sample, they would generally continue to take the drug generating thousands of dollars in sales annually for each patient.
Free drugs were not the only inducement TAPS employees offered. They also provided “educational grants,” free trips, free medical equipment and a host of other gifts. Although in this case, as with Neurotin, the corruption was eventually discovered, the real question is in how many instances has it gone undetected?
A FATALLY FLAWED SYSTEM
In the end, the rapid rise in pharmaceutical costs is in actuality a symptom of a more fundamental problem: the unprecedented control “Big Pharma” and “Big Medicine” exert over healthcare in the United States. Their ability to manipulate every aspect of healthcare from research institutions to regulatory bodies to even the individual doctor’s office is evidence that the system itself is inherently flawed. If allowed to continue unchecked, what little remaining freedom we have regarding our health care choices will soon be lost. The time has come for each of us to stand up and be counted before it is too late.
DRUG RESEARCH: A CORPORATE CON JOB
In the movie “Wall Street” corporate raider Gordon Gekko proclaims “Greed is good!” much to the chagrin of his young prote;gé.
Gekko’s rapacious avarice however, pales in comparison with the real-life acquisitiveness of Big Pharma’s multinational drug behemoths. In a time of stagnant growth for most industries, pharmaceutical firms are again posting record profits.
Indeed, their return on investment – around 18.5 percent – is from three to five times the average of other industrial sectors.
Taken together, the over $20 billion drug companies earned last year is more that the total of the airline, entertainment, construction and railroad industries combined.
Of course, whenever their profits are questioned, the drug companies are quick to say they are necessary to fund research. Otherwise, Big Pharma asserts, we would never have the miracle cures for life-threatening disease created in their laboratories. On the surface if makes sense, except for one thing: it’s all a lie.
WHAT CONSTITUTES A “NEW” DRUG?
The convoluted and often confusing way in which the FDA defines what constitutes a new drug lies at the heart of the corporate research con.
The FDA has three broad categories under which it approves pharmaceutical products. The first of these are drugs classified as so-called “new molecular entities,” or “NMEs.” These NMEs are drugs contain an active ingredient that has never been approved by the FDA for the U.S. market. In other words, it is “new” in the common usage of the word.
A study by the National Institute for Health Care Management (NIHCM) reviewed FDA drug approvals during the twelve-year period between 1989 and 2000. It found that only 35 percent of the drugs approved by the agency were new molecular entities.
The second category encompasses what are termed “incrementally modified” drugs, or “IMDs.” These are drugs that rely on an active ingredient that is already approved by the FDA for the U.S. market, or a closely related chemical derivative of that ingredient that has been modified by the manufacturer. Because the provisions of the 1984 Hatch-Waxman Act allow drug companies to obtain a three-year extension on patent protection for incrementally modified drugs, Big Pharma often makes minor modifications in order to keep generic versions of popular products off the market. The NIHCM study found that fully 54 percent of FDA drug approvals during the period reviewed were for IMDs.
The third category is so-called “other” approvals which includes drugs already approved for use in the United States. This category is actually used for generic drugs. The purpose of this category is to ensure that a generic drug really is identical to its brand-name alternative. Between 1989 and 2000, 11 percent of drug approvals were in the “other” category.
So, at best only a little more than a third of the drugs approved during the twelve-year period were really “new.” But there is an even more important element in to consider.
In addition to distinguishing among drugs on the basis of their chemical make-up, the FDA also differentiates among them according to their putative value as either “priority” drugs or “standard” drugs. Being classified as a “priority” drug qualifies the applicant for an expedited “fast track” review – often saving years of delay, and greatly enhancing the value of a patent.
There are four ways a drug can receive the coveted “priority” status for its review:
- It is more effective the diagnosis, treatment or prevention of disease than existing alternatives
- It has substantial reduced side effects, or eliminates them entirely in comparison with existing alternatives.
- It has enhanced patient compliance – in other words patients are more likely to take it. Compliance is a major concern with many drugs.
- It is shown to be safe and effective for a new sub-population of patients – for example it could be used by children where other alternatives could not.
Looking at the FDA guidelines for “priority” approvals it would be easy to assume that any new molecular entity given a “priority” review represented a real therapeutic breakthrough of some kind. This assumption, however, would be false.
Because the guidelines are broadly interpreted, in many instances drugs that offer only marginal improvements in safety or effectiveness are able to qualify for “priority” review. For example, the anti-inflammatory drugs Celebrex and Vioxx both were given “priority” reviews. Both of these products are what are called “non-steriodal anti-inflammatory drugs” or NSAIDS. While many other NSAIDS such as ibuprofen (Advil) and naproxen (Alleve) were already on the market, the manufacturers claimed that their products had fewer side effects – particularly gastrointestinal bleeding – even though they were not more effective. Both of these drugs became hugely successful. In 2001 Celebrex generated $3.1 billion in worldwide sales and Vioxx sales topped $2.6 billion.
Ironically, recent studies concerning these two drugs show that they are not safer than the older, cheaper existing alternatives. Rather, the research presented to support this claim had been manipulated to make it appear that they were.
Both Celebrex and Vioxx represent examples of an increasingly common practice: the development of “me-too” drugs.
The market for analgesics (pain medications) is about TEN BILLION dollars a year in the United States alone. As the Baby Boom generation ages, the incidence of inflammatory diseases such as arthritis will dramatically increase, and therefore this figure can only grow.
Drug companies know that a new analgesic has the potential to be a “blockbuster.” As a result, the competition among pharmaceutical giants to come up with new and more profitable analgesics is intense.
But the practice of developing “me-too” drugs is not limited to analgesics. There has also been a rush to develop products for other crowded markets such as antihistamines, drugs to reduce stomach acid and oral diabetes medications.
Indeed, the increasing dominance of “me-too” drugs is evident in the ratio of “standard” drug approvals to “priority” approvals.
Bear in mind that drugs undergoing the “standard” approval process are ones that cannot demonstrate a significant improvement over existing medications. They are by and large “me-too” drugs. For the entire twelve-year period between 1989 and 2000, 24 percent of all drug approvals by the FDA fell into the “priority” category while 76 percent were “standard.” Even more remarkable, however, is the fact that between 1995 and 2000, the proportion of “standard” applications rose to 88 percent.
Even these figures, however overstate the amount of innovation that actually took place. The NIHCM review found that on close analysis, only 3 percent of the drugs approved between 1995 and 2000 offered new clinical benefits.
And don’t forget, that figure includes Celebrex and Vioxx!
The dominance of “me-too” drugs, however, is not the only problem with the drug approval process. An even more insidious problem is the manner in which Big Pharma manipulates the system to artificially extend the life of its patents.
In many instances, the applications for approval as an incrementally modified drug (IMD) is little more than a device to extend patent protection on a popular drug beyond the seventeen years allowed by law. Take for example the antiulcerant drug Prilosec.
Prilosec has been a blockbuster for its manufacturer AstraZeneca with over $3.7 billion in U.S. sales and global sales of $6 billion last year. It is the most widely sold pharmaceutical product in the world. AstraZeneca’s patent on Prilosec expired on October 5, 2001 opening the door to generic manufacturers. To cushion the blow, the company had introduced Nexium, which is the same medication, but is taken weekly instead of daily. But it did something else as well.
AstraZeneca began a series of legal maneuvers to keep generics off the market suing all ten companies that had expressed an interest in such a product. It claimed that the patents on other ingredients – including inactive ingredients – were still in force making any attempt to produce a generic version patent infringement. AstraZeneca claims that these secondary patents extend its exclusive right to produce the drug to 2007. It also has filed a series of complaints with the FDA claiming that the generic version planned for the U.S. market is not identical to its formulation, and therefore should not be approved. The manufacturer of the generic version, Andrx, disputes this assertion.
While every manufacturer does not fight as vigorously as AstraZeneca, it is a common practice for them to “tweak” a product in order to gain longer patent exclusivity. Even where such exclusivity on the original product is not possible, drug company salesmen are often able to convince doctors that the “new” product is better and to shift their patients to the new formulation. The result is higher costs to consumers.
To illustrate, the total increase in pharmaceutical spending between 1995 and 2000 was roughly $44 billion. Out of this total, $29.3 billion was for “me-too” drugs either as new formulations of existing products or copycat products that offered no therapeutic advantage!
Some might argue that the emphasis on “blockbuster” and copycat “me-to” drugs is unsurprising. After all, pharmaceutical companies are in business to make a profit and that’s where the profit lies. Besides, they might argue, such products provide the capital needed to conduct research to develop drugs that do treat life-threatening illnesses such as cancer and AIDS. It all sounds reasonable. The only trouble is, more often than not, it’s not “Big Pharma” that’s footing the research bill. It’s the taxpayer.
TAXPAYER SUBSIDIES OF DRUG RESEARCH
Whenever the subject of drug research comes up, the lobbyists for “Big Pharma” are quick to assert that it now costs $802 million dollars to win approval of a new drug. These enormous costs, they argue are why drug company profits have to be so high. Without them there might never be new treatments for cancer, AIDS and a host of other terrible diseases. What they don’t say, however, is that the $802 million figure is derived in a way that defies any reasonable accounting standard and that in a vast majority of the cases what was spent on research came largely from the government!
To illustrate, of the 77 anticancer drugs approved between 1949 and 1996, 50 – that’s right 50 – were the product of an investigational new drug application sponsored by the National Cancer Institute (NCI). Included among them were such widely used drugs as Taxol, Zoladex and Interleukin-2.
But it’s not just cancer drugs that benefit from government largesse. A study funded by the National Institutes of Health found that the agency had “played a critical role” in the development of the top five selling drugs of 1995. These included such familiar products as the antidepressant Prozac, the antiulcerant Zantac, the herpes drug Zovarix and the antihypertensives Capoten and Vasotec.
In another case, NIH provided Colombia University with a $4 million grant that led to the development of Xalatan, a medicine to treat glaucoma. The University sold the patent rights to the drug to the Multinational Drug Giant Pharmacia for $150,000. In 1999, the most recent year for which figures are available, Xalatan generated $507 million in sales revenues for Pharmacia.
Moreover, the raid on U.S. taxpayers isn’t limited to domestic firms. A drug used to treat Multiple Sclerosis called Copaxone was developed with the assistance of some $5 million in NIH and FDA money and then licensed to Teva Pharmaceutical Industries, an Israeli manufacturer.
In the first three quarters of 2000, the company had sales totaling some $175 million for the drug. To its credit, Teva has said it would be willing to reimburse the taxpayer investment in Copaxone’s development, something U.S. firms have failed to do. One of the most outrageous examples of corporate abuse of taxpayer subsidies is found in the drug Taxol. Taxol is used to treat various forms of cancer including ovarian cancer.
By January of 1991, research on it progressed sufficiently that it was in Phase III government-sponsored clinical trials. At this point, the huge multinational drug company Bristol-Myers Squibb (BMS) entered the picture signing a cooperative research and development agreement (CRADA) with the NCI. Just under two years later, on December 29,1992, Taxol was approved for the treatment of ovarian cancer, with receiving the license to manufacture it. BMS, however, did not know how to make the drug, and as a result subcontracted the manufacturing to Hauser Chemical, the company that had been manufacturing Taxol for the government-sponsored trials. As of 2000, BMS was selling a 300-milligram vial of Taxol for $1826.25. In that same year, BMS sold almost $1.6 billion of the product.
BMS claims that it spent $1 billion developing Taxol, yet it only took part in the final stages of the drug’s development. According to the National Cancer Institute, its cost for running a phase III trial was between $3,861 and $6,202 per patient. In order to spend the amount it claimed BMS would have had to enroll over 166,000 patients in the Taxol trial!
But that’s not all.
As it turns out, BMS applied for it’s approval for Taxol under the Orphan Drug Act, indicating it was to be used to treat Karposi’s Sarcoma, a rare form of cancer at that time. As a result, it was able to take a 50 percent tax credit for all R&D expenses related to Taxol.
And where does the $1 billion figure come from? Creative accounting that would make an Enron executive blush with shame!
BMS includes items like the cost of building a factory to manufacture Taxol and various expenditures for market research in its total. Most important, it also includes so-called opportunity cost – the cost of not having the money it spends on research available for other purposes – and uses a highly inflated rate of return to calculate that cost. Indeed, it is just such questionable arithmetic that is the basis of the $802 million figure “Big Pharma” claims is the average cost of bringing a drug to market.
BIG PHARMA’S NEVER-NEVER LAND MATH
So how does “Big Pharma” come up with its $802 million total? The figure comes from a Tufts University study funded by; you guessed it, “Big Pharma.” The calculations used to reach that total are truly amazing.