Monday, May 09, 2005

Pharmas Have It Easy

Last month, former President Clinton’s foundation negotiated a deal with Indian generic drug manufacturer, Cipla, to produce anti-AIDS drugs at half the normal cost for children in developing countries.

The news provoked the question why how our current president, with considerably greater buying power and negotiating leverage, failed to get any concessions from U.S. drug companies on prescription prices for seniors.

Using this flip observation as a springboard, I started to dig into big pharma company claims about what was preventing them from allowing their drugs to be sold at reduced prices in sharply regulated circumstances. I even began to envision a global exhange — similar to the emissions trading system which allows power producers to swap pollution credits — that would give drug patent holders an additional period of protection on another drug to offset concessions on price to fight the AIDS epidemic.

The more I read about the complexities of international trade policy and the difficulties in administering programs and delivering treatment in third world countries, the more I decided I was getting out of my depth.

• The American Enterprise Institute, a conservative think tank, published a paper outlining why the numbers receiving HIV/AIDS treatment might be lower and the actual drug prices might be higher than press releases trumpet.

• We know that Bush's global AIDS program coordinator is a political contributor and former Eli Lilly exec, not an AIDS expert or third world advocate.

• An article in the Canadian press noted that country's legislation to export cheap drugs to poor countries hasn't resulted in a single pill being shipped — in part, because drug companies aren't charities, and the bill didn't build in enough financial incentive to make exporting worthwhile.

Even where demand is high, a real market for a product only exists where its developers can hope to recover their costs — and then some. Couple the economic realities with the political realities, and it became pretty clear we'd hear a lot of compassionate rhetoric, but no American leader would seriously take this on. So, I let it slide...

Then over the weekend, I ran across three other semi-related items, and decided to excuse myself from having to draw any conclusions. Sumbitted for your consideration as you hear about drug prices and pharma profits:

Day in the Life of a Drug Rep
McSweeney's founder Dave Eggers has a new book coming out this month, Teachers Have It Easy, a call for improving the working lives of public school teachers. One illustration of how hard they work presents a day in the life of a high school math teacher compared with how a pharmaeutical sales rep spent his day. You can see the comparison here. The drug rep mixes personal errands with five minute pitches to physicians, while the teacher follows a much more intense schedule.

Drug companies argue that their pricing is driven by high research and regulatory costs required to bring new drugs to market. Because many potential products don’t reach the market, they need higher profit rates and extended patent protection to recover costs on the non-starters. Tellingly, they do not argue that marketing, advertising and lobbying costs also inflate their overhead. The consumer advertising we see for popular drugs like Claritin or Viagra is a small drop in a very large bucket of direct promotion to the medical establishment. Just ask a doctor in any drug-prescribing specialty about the volume of elaborate promotional packages and samples delivered to home and office; the pastries and pizzas left at clinics by drug reps; and the steady diet of educational dinners and junkets sponsored by the drug companies.

By the Numbers
IDC analyst Jonathon Gaw produces a newspaper feature called By the Numbers. Last week's edition contained these:

55: Percent of the time that doctors prescribed an antidepressant in an experiment where actresses posing as patients pretended to have a mild form of depression, a condition that does not require antidepressants, and asked about a specific antidepressant that they had seen advertised on television.

10: Percent of the time that doctors prescribed an antidepressant when the actress posing as a patient did not mention an advertisement.

$3 billion: Approximate amount of money that pharmaceutical companies spend each year on direct-to-consumer advertising.

How to Make Money Overseas Without Selling Cheap AIDS Drugs to Africans
A story in the New York Times reported that drugmakers are expected to be one of the largest beneficiaries of the Bush Administration's one-year tax break that allows U.S. corporations to repatriate foreign profits and pay 5.25 percent tax rate, compared with the standard 35 percent rate. Drug companies are believed to be adept at taking advantage of loopholes that allow them to shelter profits from U.S. taxes by moving them overseas.

"[T]he drugmakers have told the IRS for years that their profits come mainly from international sales, even though prescription prices are far higher in the United States than elsewhere and almost 60 percent of their sales take place in America."

The article explains how the dodge works, primarily by assigning patents and manaufacturing to overseas subsidiaries, selling the drugs in the lucrative U.S. market, and then credit as much of the sale as possible to the subsidiary.


Blogger GreenSmile said...

Thank you. I probably would never come across those numbers. I hope come the next national election, some of these facts about who made out and who struck out with the bush league will still be on peoples minds...If votes really count, how many big pharma billionaires could there be? The rest of us are losing.

BTW, your profile would fit me to a T.

5:08 PM  
Blogger Charlie Quimby said...

For more on the American Jobs Creation Act, which repatriates profits at a low tax rate, without actually requiring job creation, see Big-Pharma Finds More Loopholes.

7:29 PM  

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