Where Are Drug Company Profits Really Going?
posted Fri, 26 Mar 2010
The leading trade organization for U.S. drug companies, Pharmaceutical Research and Manufacturers of America, or PhRMA, keeps telling American consumers that the high cost of drugs is due to pricey research and development costs, but what the organization fails to mention is skyrocketing salary payouts to its own directors and record high marketing and lobbying expenditures, which translate to crippling-high prices of drugs to the American consumer.
New drug development is often funded by private sources. In 2001, Donald Light, a economics professor at the New Jersey School of Medicine specializing in drug economics, released a study finding that more than 84 percent of drug research money around the world comes from public and charitable sources, not deep-pocketed drug companies who claim to be getting the hit.
The proof is in the pudding with the case of Thalidomide, a drug that was banned for decades before being brought back with publicly funded research. In the mid-1990s, Dr. Bart Barlogie, who runs the Myeloma Institute for Research and Therapy in Little Rock, Arkansas, found that Thalidomide could dramatically reverse the course of multiple myeloma, a life-threatening blood disorder. In 1999, he published his study results in the New England Journal of Medicine. Shortly thereafter, use of the drug was expanded from being completely banned to being used to treat leprosy and childhood leukemia. Dr. Barlogie’s study was primarily funded by the National Cancer Institute and American government grants. But the drug company was the one to profit.
In response to Dr. Barlogie’s groundbreaking research, Celgene, the manufacturer of Thalidomide, dramatically hiked prices. Before the research was published, Celgene was charging $400 for a month’s supply of the drug. Within six years, it was charging $3,600 per month, an increase of 900 percent!
Russell Williams, the president of the leading trade organization for Canadian drug companies Research-Based Pharmaceutical Companies, Rx&D, insists that drug development costs fall to the companies. Williams says it costs drug companies more than $1 billion to discover and develop a new drug.
But Dr. Marcia Angell, former editor in chief of the New England Journal of Medicine puts the price tag on R&D for a new drug at $100 million, which she calls "a charitable guess."
So where is Williams getting his billion-dollar number?
Williams was likely using a 2002 study by researchers at Tufts University in Boston who put the figure for new drug R&D at $802 million. But the study was performed using data from the drug companies themselves by economists that were funded by the drug industry, evidence that the drug industry was interested in massively inflating research and development costs to justify extremely high prices.
In Forbes’ list of the world’s leading companies, pharmaceutical companies have profit margins averaging 20 percent, whereas the average profit margin for the 2,000 leading companies worldwide is 8 percent.
Where is the money in the gap going then, if not to drug development?
Probably to the drug industry execs themselves.
Billy Tauzin made $4.48 million in 2008 as the top lobbyist for drugmakers in his position as CEO of PhRMA.
While PhRMA and drug company execs say huge R&D costs justify the high price of medication, are they really looking to justify their high salaries?
Drug companies seem to be benefiting by exploiting the very people they claim to be trying to help.
When will these profits start being redirected into drugs that can help consumers themselves?
Tell us your thoughts.