Book Review: The Truth About the Drug Companies

The drug industry has promoted itself as an engine of innovation claiming they consistently deliver powerful new drugs. They state that they spend enormous money on research and development that makes new drugs expensive, and that they are a shining example of American free enterprise. However, Dr. Marcia Angell, former editor-in-chief of the respected New England Journal of Medicine, challenges these notions. She argues that "what we think about the pharmaceutical industry is mythology spun by the industry's immense public relations apparatus" (p. 258). She is very critical of the pharmaceutical companies providing facts after facts to shed the light on industry's rhetoric of innovation, free enterprise, and research.

The first point of Dr. Angell's contention is the industry's claim that new drugs are extremely expensive to cover the high cost of research and development, or R&D. She doesn't deny the fact that R&D expenditures are large- quoting from DiMasi's $802 million to consulting firm Bain and Company's estimate of $1.7 billion for each new drug they bring to the market. However, this amount cannot be substantiated as the industry will not supply the necessary data, arguing that the information is proprietary. It is not known what activities are included under R&D as it is like a "black box" hidden from view (p.39). She insinuates it may include the large marketing budget that the industry is hiding from the public.

In 2001, the industry admits that it spent about 35% of revenues on marketing and administration. They reported their spending based on four categorized marketing expenses- $2.7B for direct-to-customer (DTC) advertising, mainly TV ads; $5.5B for sales pitches to doctors in their offices; $10.5B for free samples for doctors; and about $380M for advertising in medical journals. They state that "only" $19.1B is spent on marketing compared with $30.3B they spent on R&D on that same year. Dr. Angell challenges this statement based on companies' own SEC filings and the fact that there are significantly more employees working in marketing than in R&D. She estimates that the industry actually spent close to $54B- 30% of the $179B in revenues disclosed in PhRMA's annual report. Why is there a discrepancy?

The report filed in the US General Accounting Office (GAO) shows that the $19.1B doesn't include the "educational meetings arranged by pharmaceutical companies for physicians, which are not generally considered to be promotional activities" (p. 122). The drug industry provides financial support to the meetings of professional societies, like the American College of Cardiology. With the requirement for physicians' continuing medical education (CME) to retain their licenses, attending conferences and meetings is an integral part of doctors' lives. With the industry's role in educating the doctors, there is an apparent conflict of interest.

However, drug companies have ways of making it appear that they don't influence doctors' CME by hiding under the statement "an unrestricted educational grant," implying that drug companies don't influence the content of the programs (p140). They also use private agents, like medical education and communication companies (MECC) in providing the required education. In sponsoring this supposed-to-be education, they have an unparalleled opportunity to influence the doctors' prescribing habits. It has been shown that doctors prescribe more of the sponsors' drugs after these meetings, especially after flooding them with free samples and swaying them with "food, flattery, and friendship" (p. 142). With the estimated 300,000 pseudo-educational event in the year 2000 sponsored by the industry, and about 25 percent of which offered CME credits, the doctors are finding it hard to escape the influence of the industry's campaign of their 'latest and greatest' product.

The second myth that Dr. Angell points out is the industry's claim of being an engine of innovation. Her investigation shows that in a span of five years (1998-2002), the industry has come out with an average of 12 innovative drugs per year, only 14% of the total 415 new drugs approved by FDA. To make it worse, there is an alarming decrease of new drugs over those five years, with only seven in 2001-2002, compared with nine in 2000, 19 in 1999, and 16 in 1998. About 77% of the released new drugs are what Dr. Angell calls "me-too," or the derivative of existing drugs packaged differently to extend the patents of the blockbuster drugs (p.75). These "me-too" drugs are sometimes no better than drugs already on the market to treat the same condition, and worse, they can be less effective than the current drugs. But as long as they are more effective than a placebo (sugar pills), they can get FDA's approval.

The numbers of new drugs might not tell a lot because innovation is arguably hard to measure. But the disturbing fact she presents is that "the few innovative drugs that do come to market nearly always stem from publicly supported research" - by the National Institutes of Health (NIH) and its agencies, academic medical centers, and small biotechnology companies (p. 56). Since the passage of legislative acts Bayh-Dole and Stevenson-Wydler in the 80s, the Big Pharma begins to rely on government funded research. These legislations have allowed NIH-funded work to be patented and licensed exclusively to drug companies in exchange of royalties. Bob Ingram, CEO of GlaxoSmithKline even acknowledged this practice saying, "We're not going to put money in-house if there's a better investment vehicle outside" (p. 58).

At least a third of the industry's drugs are licensed or acquired from outside sources. For instance, AZT, the first drug to treat HIV/AIDS, was developed and clinically tested by the researchers at the National Cancer Institute (a part of NIH) and Duke University before GlaxoSmithKline was given the license to market it. Likewise, as a result of Bristol-Myers Squibb's cooperative R&D with NIH, they generated between $1B-$2B a year since they have obtained five years of exclusive marketing rights on Taxol, a drug for treatment of cancer of the ovary, breast, and lung. The list goes on: Epogen (from Amgen) for treating anemia on patients with kidney failure; Gleevec (Novartis) for halting a rare type of leukemia called chronic myeloid leukemia; Fuzeon (Roche), the latest advance AIDS drug; Cerezyme (Genzyme) for rare abnormality called Gaucher's disease. All these new drugs are discovered by NIH-funded researchers in different universities!

Arguably, public- private collaboration is needed to bring these innovative drugs to market. However, the work done by the industry, like sponsoring the clinical trials and distributing the final product doesn't justify the inflated price the Americans are paying. Other than the fact that they take the credit for being innovative, they are double-charging the public- first by paying for the research fund through the tax money and then paying an exorbitant amount for the new drugs. With the elderly being the majority consumer of the new drugs, the federal-funded Medicare pays an excessive amount for government-funded privatized drugs!

Equally, Dr. Angell disputes the Big Pharma's claim that the industry is a shining example of American free enterprise. She highlights the fact that roughly half of the largest drug companies are based in Europe, which is the "very essence of a global enterprise" (p. xxv). Similarly, the United States is the only advanced country that permits the pharmaceutical industry to charge exactly what the market will bear, and there is no form of price control. In addition, the drug industry is utterly dependent on industry-friendly Congress and government-granted monopolies in the form of patents and FDA exclusive marketing rights.

The pharmaceutical industry is taking advantage of the patents that are usually given for 20 years. Excluding the clinical testing, they have about 14 years of market monopoly when there are no generic drugs that can enter the market, which adversely limits the consumers' choices. They can sell their brand-name drugs without fear of competition and they can charge an exorbitant amount to cover their claimed R&D. They also maneuver the system, employing copious ingenious lawyers to file multiple lawsuits against generic drug makers to prevent them from entering the market before the company's patents expire. One stock analyst comments: "The anti-generic strategy by pharmaceutical companies has probably the highest rate of return to any business activity they do right now" (p 174).

Dr. Angell presents extensive data in her book to prove that the drug industry is proliferating myths- their incantation on innovation, free American enterprise, and research- to justify the exorbitant prices of new drugs. She points-out that this industry has been the most profitable in the United States with the combined profits for the ten drug companies in the Fortune 500 ($35.9B) more than the profits of all the other 490 businesses put together ($33.7B). Why do they still get tax breaks from the government? Why can't the government regulate the prices to reduce the staggering $200B/year Americans are spending on prescription drugs? Can the Big Pharma cut the prices of new drugs without threatening the R&D? If R&D is dwarfed anyway by their vast expenditures on marketing, why not cut the marketing budget instead? Do they really need to advertise the drugs if they are indeed effective?

Dr. Angell offers numerous recommendations to help reform the current system. She suggests that "reform will have to extend beyond the industry to the agencies and institutions it has co-opted, including the FDA and the medical profession and its teaching centers" (p220). In her book, she equips Americans with essential facts about the pharmaceutical industry, and she advocates that "there will be no real reform without an aroused and determined public to make it happen" (p221). Now that we know the truth about the drug companies, it is up to us to make the necessary changes happen.

Works Cited:

Angell, Marcia. The Truth About the Drug Companies: How They Deceive Us and What to do About it. The Random House Publishing Group, New York. 2005.