A clarion call has been sounded, mainly by insurance companies and generic drug manufacturers, and less so by consumers, to address the cost of prescription drugs.
The response: the McCain-Schumer Bill. By shortening the amount of time it takes for generic drugs to reach the marketplace, this bill would challenge the intellectual property rights of research-based pharmaceutical companies. McCain-Schumer also relaxes the rigorous Food and Drug Administration-imposed standard of bioequivalence, which requires a generic manufacturer to submit test results that confirm their generic drug is exactly as safe and effective as the product it is copying.
President Bush has voiced his opposition to regulate the pharmaceutical industry through the McCain-Schumer Bill. In spite of this, the Senate passed the bill by a landslide. If enacted, this bill could damage the way pharmaceutical and biotechnological research takes place in this country.
Currently, a pharmaceutical firm has exclusive rights to sell its drug for 20 years following its patent submission, after which time it may be produced by any drug company as a “generic” drug.
Twenty years may seem like a long time for a patented product, but consider the following: In 1998, with little public brouhaha, the Sonny Bono Copyright Term Extension Act was passed by our good Congress to extend copyright lives by 20 years, for a grand total of 70 years after the death of the author or creator. Lucrative works that were already corporate-owned, such as the movie “Casablanca” and the song “Yes! We Have No Bananas,” were re-copyrighted such that they are now protected for 95 years.
Now consider this: a pharmaceutical company has a mere 20-year patent on its drug and isn’t actually able to sell its drug for anywhere near the 20 years it is allotted. As soon as a compound is developed by a chemist in a laboratory, before it is even known exactly what that compound does in the body, it must be patented. Following the patent application and approval, a drug may spend anywhere from seven to 12 years in pre-clinical testing, clinical testing, and FDA scrutiny, with a final cost of $500 million to $800 million. The failure rate of these compounds is high. It is estimated that 97 percent of those compounds tested fail in some phase of development.
This is a unique situation in the business world. An analogy would be having an automobile manufacturer destroy approximately 97 out of every 100 cars it produces, selling only the remaining three. Naturally, the manufacturer would adjust the price accordingly on the remaining three to reflect the price of all 100, just as a pharmaceutical manufacturer must recoup dollars for drugs that fail.
According to the Bureau of Labor Statistics, and contrary to popular belief, the average consumer spends just over 1 percent of their annual income on pharmaceuticals, which is equal to the amount that gets spent on tobacco and alcohol. The elderly, who are by far the largest consumers of medicine, spend roughly 3 percent of their annual income on drugs. In either case, state-specific social service programs are available to help outliers in these calculations.
Still, some pundits claim that expediting the generic drug approval process or lowering the standards for generics will fix the problem of rising health care costs for patients. However, these pundits fail to take the critical long-term view in drug innovation. To be exact, the world almost entirely depends on private American pharmaceutical research in order to create novel cures. A myth exists that academia and government research are a viable source of these life-saving compounds. In fact, between 1981 and 1990, only 4 percent of new drugs were discovered at universities and 1 percent in government labs. According to the National Institutes of Health, out of the 56 HIV/AIDS drugs on the market, only five were developed by the NIH.
Even the small fraction of compounds discovered by academics are highly dependent on support and funding provided by the pharmaceutical industry. A hometown example took place in the recent joint venture between Yale and Bristol-Myers Squibb on a compound for advanced HIV infection, d4t (Zerit). In this scenario, all of the parties that worked on this compound’s development were winners. Faculty, research fellows and students were given the opportunity to publish articles necessary for tenure, grants or graduation. Bristol-Myers Squibb risked hundreds of millions of dollars for more extensive testing in hopes of developing a life-saving and profitable drug. Even if Yale could have mustered the millions necessary to properly test d4t, it does not have the personnel or clinical science resources necessary for the level of involvement needed in submitting a New Drug Application to the FDA.
Still, many are quick to attack the pharmaceutical industry. Former U.S. Sen. David Pryor labeled them the “robber-barons of the American health care system.” They point out that manufacturing costs of the actual pills are merely pennies. While this is true, they fail to take into consideration that the very first pill costs $500 million to $800 million!
Other critics complain that the pharmaceutical industry wastes its money on advertising or unnecessary perks to health care providers and point to other countries where drug prices are less, such as Canada or Mexico. The fact is that the pharmaceutical industry must advertise like every other major industry does. Pharmaceutical companies also invested more than $30 billion in 2001 for discovering and developing new medicines. It is true that some countries have lower drug prices, but they are adjusted proportionally to the incomes of the population. Even the most casual observer would conclude that using a worldwide median pricing scheme would render the cost of drugs unapproachable in many countries.
It must be noted that no country’s system is perfect, and socialized health care systems in Canada, Mexico and elsewhere are wrought with deep problems. In fact, cash-paying noncitizens routinely call upon private physicians in the United States when their system fails, just as some Americans may travel to Mexico or Canada to obtain a discount on drugs.
The United States should not be compared to countries with poorer economies or even those with different tax structures. These same countries are not known for their economic, technological, or innovative prowess, and have little or nothing in the way of pharmaceutical research that isn’t a subsidiary of an American-owned company.
And it is important to note that a bill like McCain-Schumer, which is heavily sponsored by generic drug and insurance companies, is likely to have companies’ bottom line in mind rather than the public’s best interest.
Americans ought to recognize the disincentive for research that the McCain-Schumer Bill would create. This bill would serve to saturate the U.S. market with cheap drugs in the short term. But those cheap generic drugs owe their existence to an original drug, which owes its existence to private research, and the McCain-Schumer Bill would stifle any promise for privately researched life-saving innovations.
We may soon have nothing new to duplicate.
David Gortler completed his postdoctoral research fellowship in vascular medicine at the Yale School of Medicine and is now a first-year graduate student in the Department of Statistics and Biostatistics.