The Republic of T.

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Big Pharma’s Bitter Pill

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Every morning I swallow a bitter pill. Actually, the medicine itself isn’t all that bitter. It’s no different from any of the other medicines I take that make it possible for me to function at home and at work by controlling things like allergies and gastro esophageal reflux disease. It didn’t actually taste any differently this morning than it does any other morning. At least not in the literal sense.

I’ve been reluctant to sit down and figure out how exactly much my medicines cost me every month, but my co-pays add up to somewhere between $150 to $200 per month, after insurance. That’s not a whole lot compared to what many other people pay, I admit. Still, anytime there’s a chance of reducing a monthly expense, I’m happy.

So, I was happy to hear it when my husband (a doctor) told me earlier a few years ago that the medicine in question — the most expensive of my prescriptions, was set to go generic in 2010. It would mean lower prescription costs for me and my insurer. (Actually, it would have meant bigger savings for my insurer, though my co-pay for that prescription would go down by about half.)

Well, late last week, my husband gave me the bad news. After perusing the latest medical news, he informed me that the prescription won’t go generic for at least another three years. Why, because the big pharmaceutical company paid off the generic manufacturer.

Over the last few years, drug-makers have embraced a startlingly simple tactic for fending off competition from generic brands: paying them off. In a nutshell you can now buy pramiracetam , the company that holds the patent on a profitable drug strikes a deal with the maker of the cheaper generic brand: you hold off on marketing your generic for several years, and in return, we’ll give you a share of our profits on the drug.

The vehicle for these deals is patent litigation. When a generic drug is approved to come to market, the maker of the more expensive name-brand drug sues the generic for patent infringement. But instead of a conventional settlement, in which the generic pays the patent-holder to settle the claim that it infringed the patent, the payment goes the other way: the patent-holder pays the maker of the generic, in exchange for a pledge to delay bringing the generic to market. That suggests the patent-holder fears its patent wouldn’t hold up in court, as many don’t. And it runs counter to the intent of the Hatch-Waxman Act of 1984, which sought to speed the path of generics to market, and to provide a legal framework for these cases.

So common have these deals become lately that they’ve been given a name: pay-for-delay. The approach — a textbook anti-competitive tactic — is worth billions to drug-makers, because it essentially allows them to buy more protection than their patent confers.

Tell me again, about the wonders of the free-market. Talk about “profits over people.” To hear Big Pharma tell it, this is supposed to be a “win-win” situation.

The Pharmaceutical Research and Manufacturers of America (PhRMA) send along a lengthy statement explaining its opposition to congressional action on the issue. Argues the drug lobby:issue.

“Patent settlements between brand-name and generics companies can resolve expensive patent disputes to help foster innovation and improve access to medicines so that patients can live healthier, more productive lives.

Law and public policy have always favored settlements, including patent settlements. PhRMA continues to believe that legislation that would impose a blanket ban on certain types of patent settlements or otherwise prevent them could decrease the value of patents and reduce incentives for future innovation of new medicines. This is also unnecessary because the Federal Trade Commission (FTC) and others already have the authority to review and evaluate any patent settlement agreement between a brand name company and a generic company. The courts and enforcement agencies like the FTC are in the best position to review these settlements on a case-by-case basis to ensure that they are not harmful to competition. By imposing a general ban or imposing harsh disincentives, pending legislation would effectively remove the decision-making process from this appropriate venue.”

In other words, “pay-to-delay” settlements shorten lawsuits, thus theoretically lowering legal costs for the pharmaceutical companies, which then pass those savings on to consumers. Theoretically. But as Zach Roth points out above, the “pay-to-play” settlements strongly suggest that big pharmaceutical companies’ patently claims would not stand up in court. And big pharma seems to be jacking up prices anyway, to get get ahead of health care reform.

Even as drug makers promise to support Washington’s health care overhaul by shaving $8 billion a year off the nation’s drug costs after the legislation takes effect, the industry has been raising its prices at the fastest rate in years.

In the last year, the industry has raised the wholesale prices of brand-name prescription drugs by about 9 percent, according to industry analysts. That will add more than $10 billion to the nation’s drug bill, which is on track to exceed $300 billion this year. By at least one analysis, it is the highest annual rate of inflation for drug prices since 1992.

The drug trend is distinctly at odds with the direction of the Consumer Price Index, which has fallen by 1.3 percent in the last year.

Drug makers say they have valid business reasons for the price increases. Critics say the industry is trying to establish a higher price base before Congress passes legislation that tries to curb drug spending in coming years.

(It sounds alot like credit card companies raising rates left and right, taking advantage of the huge window of time they have before the reforms approved by Congress finally kick in.)

Note, that the cost of brand name drugs is what matters here, because big pharma still holds the patents to a good many of them. If they can keep their brand-name drugs from going generic and raise prices before reform kicks in, it’s another “win-win” — for the corporations involved, that is. For consumers — who are already cutting back on medicines and not-filling prescriptions because they already pay twice as much for some common medicines as citizens in other industrialized countries do — it’s just another way they’re getting squeezed in this recession.

The drug companies “can charge what they want – it’s not fair,” Eric White, the 42-year-old owner of a small jewelry store in Queens, said as he left a pharmacy recently.

Despite having drug insurance, Mr. White says he now pays $110 a month out of pocket for two brand-name allergy medicines, even as he has cut prices in his jewelry store by at least 40 percent to keep customers coming through the door.

He shook his head. “What can I do?” he said. “I need my medicines.”

The drug industry has actively opposed some of the cost-cutting provisions in the House legislation, which passed Nov. 7 and aims to cut drug spending by about $14 billion a year over a decade.

But the drug makers have been proudly citing the agreement they reached with the White House and the Senate Finance Committee chairman to trim $8 billion a year – $80 billion over 10 years – from the nation’s drug bill by giving rebates to older Americans and the government. That provision is likely to be part of the legislation that will reach the Senate floor in coming weeks.

But this year’s price increases would effectively cancel out the savings from at least the first year of the Senate Finance agreement. And some critics say the surge in drug prices could change the dynamics of the entire 10-year deal.

Not that I begrudge pharmaceutical companies their profits. I spend too much time working in HIV/AIDS prevention and care issues not to know how many lives have been saved by the development of new drugs. But, like many other other Americans, I’ve watched a parade of drug advertisements parade across my television screen for so long that they’ve become a kind of joke.

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It’s almost a joke that pharmaceutical put their profits towards research and development. That is, it’s almost laughable until you know the facts, and know how much the status quo has cost and is costing Americans.

What is their tactic?

They want to scare us into believing that their research and development (R&D) budget and their ability to invent the next great life-saving drug depend on their continuing to rake in enormous profits.

We want new life-saving drugs. Should we be scared?

No! They’re crying wolf. Here are the facts:

  • Drug companies were rated the third most profitable industry in the U.S. in 2007 by Fortune magazine. In 2007 alone, the top 12 drug makers reaped combined profits of $78,600,000,000 (billion). The industry’s most profitable member, Novartis, netted $11,900,000,000 (billion) in 2007, 67 percent more than in 2006. Pharmaceutical companies have plenty of revenues to cover R&D for a very long time.
  • In 2004, drug makers spent, on average, nearly one-third (32 percent) of their revenues on marketing, administration and advertising, compared with less than half as much (14 percent) on all R&D. With total industry revenue approaching an estimated $285 billion, that means more than $90 billion a year is spent on marketing, compared to about $40 billion is spent on R&D. And even some of the expenses they count as R&D are payments to doctors to conduct unnecessary clinical trials that are aimed not at research findings, but getting more patients on the latest more expensive medicines before they are FDA approved.
  • New ‘breakthrough’ drugs, actually account for only a small proportion of medicines produced by drug companies. The majority of drugs that the drug industry develops each year are so-called “me too” drugs—modified forms or new uses of existing drugs that do not provide needed medical advances.
  • Pharmaceutical companies have been developing more drugs for profit than for need. According to the Government Accountability Office (GAO), “Over the past 10 years, the trend in the pharmaceutical industry has been to focus on developing drugs that produce a high return on investment, which has reduced the numbers and types of drugs produced.” The GAO report further noted that “companies frequently choose to stop developing drugs that do not offer the same revenue-generating potential as blockbuster drugs, even though they could be highly innovative and offer therapeutic advances.”
  • The industry exaggerates the role of private drug companies in the R&D of ‘breakthrough’ drugs. Taxpayer-funded research, particularly by the National Institutes of Health (NIH), forms a significant foundation for R&D by private drug companies. Only 5 out of the 21 most influential drugs introduced between 1965 and 1992 were developed entirely by the pharmaceutical companies.
  • Across the country, pharmaceutical companies ply doctors with freebies—everything from free lunches to cash payments to fancy junkets—to encourage them to prescribe their brand of drugs. The cost of these giveaways is usually considered “education” not “marketing.” In Vermont, in two years alone, $2.28 million in such payments were disclosed under that state’s public disclosure law—and another $3.41 million in payments was shielded from disclosure on “trade secret” grounds. If they spend nearly $6 million in a small state like Vermont, can you imagine how much they are spending across the country? Imagine is all we can do because the vast majority of states do not require disclosure. And those are the legal payments. According to a 2004 article in The New York Times, “Pfizer agreed to pay $430 million and pleaded guilty to criminal charges involving the marketing of the pain drug Nuerontin… AstraZeneca paid $355 million last year and TAP Pharmaceuticals paid $875 million in 2001; each pleaded guilty to criminal charges of fraud for inducing physicians to bill the government for some drugs that the company gave the doctors free.” A new study estimates that drug companies spent $57 billion dollars on marketing to doctors in 2004 alone.

Of course they don’t just use the profits to advertise existing drugs, or tweak formulas enough to extend patents with “new” versions of the same drug (when they’re not just paying off generic manufacturers to stay out of the market). Some of it goes to paying off huge criminal fines for promoting drugs for unapproved uses. (A paltry sum, compared to their profits from the same activity that got them fined.) They invest some of it to keep 2.3 lobbyists for every lawmaker on Capitol Hill. And the return on their investment has been a deal with the White House that’s just loaded with giveaways and huge benefits for the pharmaceutical industry.

Call it what you want. But don’t call it “free market.”

Is there anybody who believes that America is about competition? If you believe that America and business love competition, please email me because I have some swamp land ocean-front property to sell you out in Idaho. Think about that period in American history after World War II. The big companies got bigger because of competition? No. Of course, there are a few exceptions but as a rule big companies split up the marketplace. Whether it was General Motors, Ford and Chrysler or, in steel, United States Steel, Republic and Bethlehem, these big companies split up the marketplace and made profits. There was no competition. None.

Now, it looks like we have more information on the pharmaceutical companies. They paid generic drug companies to keep their generics off the market. Is anyone really surprised? There is so much money in pharmaceuticals that drug companies are able to pay off these generic companies so that everybody makes money but, and this is important, the pharmaceutical companies make a ton more money and the consumers pay a ton more money. Everybody wins except the consumers.

The Senate is debating health care reform right now. All kinds of deals are apparently on the table and one of them is the White House deal with Big Pharma. Deals will inevitably be made, and perhaps the Big Pharma deal is one that shouldn’t.

Sen. Bill Nelson, a Florida Democrat, said on Sunday that if leadership doesn’t work with him on his amendment that would break the White House deal with Big Pharma, he won’t be there to support the bill.

On Saturday, Sen. Byron Dorgan (D-N.D.) said that his drug re-importation amendment was the only one so far guaranteed by leadership to get a floor vote.

Nelson’s amendment would work to close the “doughnut hole” by requiring the drug makers to give the government rebates on drugs sold to Medicare and Medicaid patients. It could cost the Pharmaceutical Research and Manufacturers of America (PhRMA) — and save the government — $106 billion over 10 years, according to the Congressional Budget Office. Nelson represents Florida, where elderly voters can make or break a political career.

PhRMA, the Senate Finance Committee and the White House agreed to oppose such extensive rebates and limit the drug-makers commitment to $80 billion over 10 years.

Nelson argues that the $80 billion commitment is a mirage and that the commitment is really only $22 billion, citing an analysis done by Morgan Stanley. Drug makers have been dramatically raising prices over the course of the last year so that when reductions come, they’ll be reductions from higher prices.

Dramatically raising prices ahead of reform, or paying off generic manufacturers to keep their less expensive products off the market, this particular brand of payola comes at a high price — and not just the one the customer faces at the pharmacy cash register, but the price payed in the lives of those who will walk back out of the pharmacy’s doors without their prescription. Or those who never make it to the pharmacy, but put their prescriptions in a drawer and try to figure out how to get by without them.

That’s because unlike any number of products we can do without or put off purchasing until things get better financially, people need their medicines. Some of them, like myself, need them to live better (and perhaps longer, considering that a reflux condition like mine can lead to esophageal cancer if left untreated). Some of us need them to live period. As Sen. Debbie Stabenow was reported to have said in the New York Review of Books article quoted above, “It’s not like buying a car or tennis shoes or peanut butter.”

If prescription drugs were like ordinary consumer goods, all this might not matter very much. But drugs are different. People depend on them for their health and even their lives. In the words of Senator Debbie Stabenow (D-Mich.), “It’s not like buying a car or tennis shoes or peanut butter.” People need to know that there are some checks and balances on this industry, so that its quest for profits doesn’t push every other consideration aside. But there aren’t such checks and balances.

Yes, people need their medicines. But apparently Big Pharma needs its profits, as does any private business. But in this case, if the quest for profits does “push every other consideration aside,” It’s not like those of us who have human bodies that rely on one medication or another can trade them in the way one would trade in an old car for a newer model, or even drive it a little longer and hope it holds up until we can trade it in.

Instead, we take our medicine, and some of some of us stretch them as far as we can by foregoing other necessities — like food and utilities — in order to get our medicines. And we will continue to do while prescription prices continue to rise. Because we have little other choice. The system seems to be designed not to give us any. It remains to be seen if or how that will change.

That’s a bitter, bitter pill to swallow.

photo credits:

http://www.flickr.com/photos/8011986@N02/

http://www.flickr.com/photos/8011986@N02/

2 Comments

  1. I had wondered why it seemed the time a drug took to go from brand name only to generic seemed to be getting longer all the time. Thanks for filling me in.

    I have no insurance (I’m one of the millions who doesn’t get it through my employer and has been refused been refused many times by private insurers due to “pre-existing conditions”, namely migraines). I pay at least $200/month for my medications.

    Like you I don’t begrudge pharmaceutical corporations their profits. I’d be lost without my Topamax and Relpax. But I would greatly appreciate if they’d be more reasonable and demand a smaller slice of pie for themselves. Living is necessary. Greed is not.

  2. Nice article, amazing looking blog, added it to my favs!!

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