Kicking them while they're down

Around this time last year I mentioned that our friend here, Pharmy, from the Prescription Access Litigation Project's Bitter Pill Awards, would likely be paying us visits from time to time. So here he is again, to promote this year's awards. Stop by and make a nomination for most outrageous drug company advertising tactic!

We're also beating up on Big Pharma over at Critical Condition, in connection with another PAL campaign. So I might as well get in a few more knocks here. Those of you who pay attention to these issues are no doubt aware that drug prices are much higher in the United States than elsewhere -- hence all those criminal senior citizen smugglers taking bus trips to Canada and Mexico. Big Pharma, with strong endorsement from the current compassionately conservative administration, claims that they need the high prices to pay for research and development. Supposedly, people in those other countries where the pills are much cheaper are "free riders" on the miracles of Yankee innovation. The Commerce Department even called for other countries to raise their prices on patented medications. (Now that's compassionate!)

Is it any surprise that this is, er, not true? Donald Light and his colleague Joel Lexchin, in the British Medical Journal (abstract only available to the common folk) prove it. Actually, their desire to use the "L" word is almost palpable.

• Drug companies in countries with lower prices, such as the UK, invest a higher percentage of their revenues in R&D than do U.S. companies;
• Drug companies in lower price countries fully recover their R&D costs from sales and make high profits;
• Drug companies in lower price countries spend as high a percentage of GNP on drug R&D as does the U.S. (Specifically the U.S. is at about the median, investing .24%, compared with .55% in Switzerland and .35% in Sweden, for example.)
• European companies are just as innovative, proportionate to their share of the world market. The U.S. accounts for 48% of world pharmaceutical sales and discovered 45% of new drugs* that were introduced in 2003; Europe accounts for 28% of world sales and introduced 32% of new drugs.

Light and Lexchin go on to point out that drugs are sold in a global market, and it doesn't make any difference where the revenues come from, i.e. whether domestic revenues cover a company's R&D costs is irrelevant. Drug companies invest 3 times as much in marketing, advertising and administration as they do in research; if they really couldn't afford their R&D costs, they might look to cut funds there before they cut back on R&D. Furthermore, fixed costs such as research have little influence on prices; marginal costs are much more important, and the marginal costs of actually manufacturing drugs are almost trivial. The marginal costs that are important for the U.S. industry are marketing costs. As the authors conclude, "The pharmaceutical industry and the U.S. government want to blame other developed countries for these higher prices rather than make drugs more affordable."

* Meaning real new drugs, so-called "new molecular entities," not including reformulations of old drugs intended to maintain exclusive marketing rights.