During the recent heated arguments about AIDS drug access and Medicare prescription drug bills, a few facts have emerged that would shock any reasonable American taxpayer: that while so many persons struggle for access to medicines, 85 percent of the basic and clinical research for drugs on our market today was funded by taxpayers. And yet the industry reaping the benefits for our high drug costs — making three times the profit of the Fortune 500 average — spends only 11 percent of its revenue on Research and Development (R&D) and 27 percent on marketing, according to Families USA.
Those who are ill with treatable diseases are charged twice in the prescription drug game — once by the IRS, and a second time by the pharmacy. But there’s a way to regulate the pharmaceutical industry that offers hope to the elderly and those who cannot afford vital medicines.
In 1980, Congress passed the Bayh-Dole Act on prescription drugs, authorizing the Secretary of Health and Human Services to “march in” on “unreasonably” priced drugs, especially when the research on such drugs was subsidized by taxpayers. Now Essential Inventions, a leading consumer advocacy group, is asking Health and Human Services Secretary Tommy Thompson to use that right for the first time, and “open license” two key drugs — one for AIDS (Norvir) and another for glaucoma (Xalatan) — allowing competition to drive the prices of these drugs down to reasonable levels.
Seniors who use Xalatan are paying for a drug whose production cost is less than 1 percent of the $65 price tag the Pfizer Company charges for a four to six week supply; United States consumers pay two to five times more for the drug than consumers in Canada or Europe. Pfizer says this pricing is necessary to fund new drug research, but 35 percent of its profits drain into marketing and only 15 percent support R&D, according to the Securities and Exchange Commission in 2002.
Xalatan, in fact, came out of taxpayer-funded university labs. The National Eye Institute at the National Institutes of Health (NIH) gave Dr. Laszlo Bito of Columbia University over $4 million in grants in the 1970s and early 1980s to produce the drug, which Columbia then licensed to Pharmacia (now owned by Pfizer) for just $150,000 plus royalty payments.
Now Xalatan is first-line therapy for glaucoma with sales over $1 billion annually, no doubt thanks to a price tag that rose three times faster than the rate of inflation in the past year. Those who cannot pay must choose to use inferior drugs, face risky and painful glaucoma surgery, or go blind.
While seniors suffer due to the high price of Xalatan, AIDS patients in the United States and abroad are suffering due to recent price increases of the drug Norvir. Taxpayer funds distributed through the National Institute of Allergies and Infectious Disease at the NIH were used to design this protease inhibitor to treat HIV. Despite making $1 billion from the drug in the last five years, Abbott, the manufacturer, increased the price five-fold when they realized that they had a monopoly market on this class of drugs.
Why would Abbott risk alienating so many AIDS patients to raise the price of their drug? As always, it claims the price increase is necessary to ensure research and development on new HIV medications, even as it spends 23 percent of its revenue on marketing and a paltry 10 percent on R&D according to its 2002 income tax returns. The real reasons for the price increase are more dubious. Norvir is a “booster” drug — that is, it makes other anti-HIV drugs more effective. Therefore it is almost never used on its own, but primarily in combination with other drugs, such as in Bristol-Myers Squibb’s Reyataz or GlaxoSmithKline’s Lexiva. By increasing the price of Norvir, Abbott essentially forced up the price of combinations using their competitor’s drugs, while Abbott’s own combination drug (Kaletra) was price-fixed to a lower level to dominate the market. Such price-fixing is banned in the airline industry, but it seems to go without notice on prescription drugs.
If Secretary of Health and Human Services Tommy Thompson authorizes a “march in” on these drugs, he opens the possibility that multiple suppliers will be able to produce a competitive market place to prevent price-gouging by Pfizer and Abbott. What’s also great about the proposal to “march in” by Essential Inventions is that it requires competitors to each pay a small royalty per pill sold into a collective government R&D fund — producing a much more effective means to sustain R&D than would be the case if Thompson helped maintain a monopolistic and inefficient marketplace.
It’s time that HHS took a serious stand on prescription drug pricing and used its power to regulate America’s most profitable industry, supporting taxpayers and patients and improving health in the United States and elsewhere.