Why Drugs Cost So Much

##### "America’s Other Drug Problem" by Arnold S. Relman and Marcia Angell, in The New Republic (Dec. 16, 2002), 1331 H St., N.W., Washington, D.C. 20005.

To hear the pharmaceutical industry tell it, the sky-high prices for brand-name prescription drugs merely reflect the high costs of discovering and developing new treatments for disease. And the huge net profits the firms make are a necessary incentive for the risky and arduous research they undertake. Baloney! say Relman and Angell, both former editors in chief of The New England Journal of Medicine.

Big drug companies spend far more on marketing and advertising than they do on research and development (R&D), the authors point out. The industry’s trade association reports that its member firms in the United States and abroad spend about $30 billion on R&D annually—less than half their reported expenditures on marketing and administration. (Prescription drugs are a $170 billion business, accounting for more than 10 percent of health care spending.) And despite all their expenses, the 10 American drug firms on the 2001 Fortune 500 list had an average net return on revenues of 18.5 percent—compared with a median net return for other industries of only 3.3 percent. Drug prices "could be lowered substantially," Relman and Angell argue, "without coming close to threatening the R&D budgets of drug companies, much less their economic survival."

Nor are the pharmaceutical industry’s R&D resources devoted mostly to scientific discovery, they say. The vast majority of "new" drugs coming to market these days are really just "me-too" drugs—"variations on older drugs already on the market. The few drugs that are truly innovative usually are based on taxpayer-supported research done in nonprofit academic medical centers or at the National Institutes of Health." According to an unpublished NIH document, for instance, only one of the 17 key scientific papers leading to the discovery and development of the antidepressant Prozac and the four other top-selling drugs of 1995 came from the pharmaceutical industry.

Despite the free-market rhetoric the industry uses to fight unwanted government involvement, say Relman and Angell, it is critically dependent on "government-granted monopolies," in the form of patents and Food and Drug Administration (FDA) approval for exclusive marketing.

"Stretching that privileged time by a variety of stratagems is arguably the most innovative activity of today’s drug companies." In the case of the blockbuster antihistamine Claritin, Schering-Plough won FDA approval last November to change it from a prescription drug to an over-the-counter product, thus preventing generic competitors from jumping into the prescription market when its patent expired in December; meanwhile, the firm pushed prescription Clarinex, a supposed "improvement" that consists, say the authors, of nothing more than "the molecule into which the body converts Claritin, which accounts entirely for the action of the drug."

The pharmaceutical industry "uses its wealth and its political clout to influence all who might check or monitor its activities—including physicians, professional and academic institutions, Congress, and the FDA," say Relman and Angell. The needed reforms— from tightened patent laws to a more aggressive role for physicians’ professional organizations in educating their members about drugs—won’t come easily.