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 In
an unprecedented series of 60-second radio spots in
Michigan last fall, the head of Pfizer's Ann Arbor research
labs told listeners about the wonders and woes of pharmaceutical
research. David Canter's scientists had objected to
being cast as villains by Michigan politicians railing
against the high costs of drugs, so he took to the airwaves
to explain the realities of what it costs to produce
pharmaceuticals. He made a compelling case -- pointing
out, for example, that dry holes are all too common
in research: "Just one out of every 25 drugs we
try to develop succeeds, and the one success has to
pay for the 24 failures."
Betsy Raymond, a spokesman for Pfizer, further points
out that the company's researchers "don't spend
15 years developing a medicine so that people who need
it can't have it." Drug companies don't want to
spend an average of $800 million to bring a new drug
to market only to see a generic-drug company offer a
cheaper rip-off, or face price controls that would prevent
them from recouping their enormous investment.
In the new year, however, when Congress will debate
whether to add a drug benefit to Medicare, the pharmaceutical
industry will be up against a very hostile audience.
Polls have found that almost 80 percent of the public
supports price controls on drugs, while a majority believes
that people have a right to affordable drugs, that prices
are too high, and that price controls would have no
negative consequences. Given their constituents' conviction
that they can receive something for nothing, politicians
are -- unsurprisingly -- willing to deliver what the
public seemingly wants.
The Senate has already passed legislation to allow
the re-importation of U.S.-made drugs from price-controlled
Canada. Other measures against the drug companies are
being advanced in both the House and the Senate. State
lawmakers, too, are doing their best to cripple drug
innovation: Republicans in New York are touting a bill
that would make it a felony to sell any drug in the
state at a higher price than any other charged worldwide.
The drug companies recently even had to fight off a
serious threat from the putatively friendly Bush administration:
During World Trade Organization negotiations in Geneva
in November, it seemed that U.S. Trade Representative
Robert Zoellick was going to acquiesce to a popular
proposal that would effectively have stripped patent
protections from U.S. companies for virtually any drug.
Last year, the WTO agreed to allow poor countries to
ignore drug patents when faced with epidemics like HIV.
(Of course, largely owing to the assault on patents
for AIDS drugs, the number of these drugs in development
has fallen by 33 percent over the past five years.)
This year, a majority of countries wanted to extend
the patent grab to any self-declared epidemic: Egypt
argued it should include erectile dysfunction. Having
crippled their own drug industries, these countries
are determined to do the same to the U.S. companies
now responsible for the development of more major new
drugs than the rest of the top ten industrial countries
combined. A drug-company insider is convinced that the
industry was spared the devastating blow only because
a negative Wall Street Journal editorial was handed
to one of the American negotiators -- in the nick of
time -- over breakfast in Geneva.
The industry's case against crippling new regulations
is compelling, but its overall P.R. campaign so far
is failing. There appears to be a backlash against those
ubiquitous, gauzy ads that feature older couples happily
strolling along the beach owing to some new prescription
drug that has boosted their well-being; foes of the
industry are asking why money is devoted to ads instead
of toward reducing drug prices. And the issue-oriented
ads aren't faring much better: One industry lobbyist
in Washington sees them as a naive attempt merely to
avoid being demonized as the tobacco industry has been.
The tobacco industry, of course, was vilified because
it had a dangerous product for which it didn't charge
enough. The pharmaceutical industry is in a different
situation entirely: It is accused of having a terrific
product that it should be willing to give away.
The tobacco industry does, however, offer valuable
lessons for the drug companies on how to fight back.
Four years ago, when Congress was primed to pass huge
new tobacco taxes and saddle the industry with new liability
and regulations, they fought back with a $45 million
ad campaign that killed the legislation by labeling
it a big-government, high-tax monstrosity. The pharmaceutical
industry's frustrated supporters would like to see a
similar attempt to educate the public now, with such
lines as, "Price controls are hazardous to your
health," "There is no such thing as a free
cure," and "We're not expensive, disease is
expensive."
Grace-Marie Turner, president of the Galen Institute,
explains that although drug costs represent only 9 percent
of health spending, they wind up being a lightning rod
for overall costs because the prices are so visible
in over-the-counter purchases. Another factor is that
outpatient spending on prescription drugs almost doubled
between 1990 and 1998 -- but surveys indicate that higher
prices for existing drugs are responsible for only a
quarter of the increased expenditures. Drugs account
for a larger share of health spending because more people
are using them, and because there has been a shift to
newer, more expensive drugs.
One realistic way to reduce future health costs is
actually to increase the use of new drug therapies.
New drugs are increasingly preventive in nature: Owing
to new anti-ulcer drugs that cost, on average, $900
a year, a growing number of people avoid ulcer surgery
-- which has an average price tag of $28,000. Many patients
can avoid expensive, full- blown heart disease thanks
to new drugs that control high cholesterol and blood
pressure. But before a drug company hits one of these
"gushers," they have to drill many costly
dry holes. In 1980, the member companies of the Pharmaceutical
Research and Manufacturers of America spent $2 billion
on research; last year they spent over $30 billion.
During the lengthy research process, capital is tied
up for 12 to 15 years, and about 80 percent of the drugs
that are experimented with fail to develop. To keep
the research system going, there has to be a big payoff
with one of the rare successful new drugs to compensate
for the huge risks to capital, and to cover the costs
of research on the drugs that never make it to market.
The public doesn't appreciate the risks that confront
the pharmaceutical industry, in part because they view
drugs as fundamentally different from other consumer
products. The Manhattan Institute's Robert Goldberg
recognizes this public attitude, and says that it should
be channeled toward demands for increased drug coverage
-- instead of the current focus on making the industry
a public utility, which would only end up strangling
innovation. The public wants to pay less for the current
terrific products that so benefit their lives, but fails
to appreciate what it could lose if those regulations
went into effect. There are over 400 new anti-cancer
drugs being researched; scores of others are being studied
in the hope of treating Alzheimer's and diabetes. Which
of these does the public want to see canceled for lack
of research funds?
The pharmaceutical industry can best defend itself
by recruiting the public to the cause of protecting
the miracle of medical progress. The drug companies
should get those strolling couples off the beach, and
instead hit the beaches with an aggressive campaign
to inform an ignorant public and Congress.
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