Pharmaceutical Companies

Pharmaceutical Facts

Pharmaceutical Companies claim that the reason for their high cost for prescriptions drugs is that they spend large sums on research and development. They say that their monopolies are necessary to give a return on investments after spending so much on R&D. The following evidence will show that these claims are unfounded and misleading.

The Pharmaceutical Companies claim that it costs $800 million in R&D to put one new medicine on the market, but other reports suggest that the cost is more like $100 million and could be much lower. Much of pharmaceutical company's revenue comes from old drugs changed somewhat to increase the patent time so generic drugs can't be manufactured. It has been stated that the industry pays some generic drug companies not to make generic drugs.

1. U.S. drug spending increased 17.1 percent to $154.5 billion in 2001 and at present, spending is about $200 billion. One-quarter of this increase was due to a shift in the use of more expensive drugs.

2. Pharmaceutical industry profits were 18.5 percent of revenues in 2001. For the remainder of Fortune 500 companies, median profits were 3.5 percent. The Pharmaceutical industry is taxed at about 16 percent where the others are taxed at about 34 percent. R&D expenditures are fully deductible.

3. Since 1995, R&D staff of U. S. brand name drug companies has decreased by 2%, while marketing staff have increased by 59 percent.

Currently, 22% of staff are employed in research and development, while 39 % are in marketing .

4. Drug companies spent $15.7 billion on promotion in 2000, $7.2 billion dollars worth of free samples were distributed that year not necessarily going to consumers for free.

5. In a study by Avorn, et al, forty-six percent of physicians reported that drug reps are moderately to very important in influencing their prescribing habits. In a study by Lurie, et al. one-third of medical residents reported that they change their practice based on information provided by drug reps.

6. Two and one-half billion dollars were spent on advertising to consumers in 2000. Increases in the sales of the 50 drugs most heavily advertised to consumers were responsible for almost half (47.8%) of the $ 20.8 billion increase in spending in 2000.

7. In 2000, a company spent $161 million on advertising one drug.  In 2003 Direct to Consumer Ads annual spending the $3.2 Billion (Nexium $411million, Viagra $250 million).  Promotional spending on prescription drugs went from $8 billion in 1996 to 20 billion in 2003.

8. A study by Chew, et al, found that in the treatment of hypertension, over 90% of physicians would dispense a sample that differed from their preferred drug choice.

9. The AMA generates $20 million in annual income by selling detailed personal and professional information on all doctors practicing in the United States to the pharmaceutical industry.

10. The "Research-based" pharmaceutical industry spends more on marketing and administration than it does on research and development (much more).  In 2002 the biggest drug companies spent only about 14% of sales on research and development and 31% on marketing and administration.

11. While the pharmaceutical companies touts its development of new drugs, up to 85 percent of its research cost come form public coffers. The drug industry spends nearly three times as much on marketing and administration as on research, and its profits are more than five times that of the average fortune 500 companies. Drug companies spend 35 percent to 37 percent of revenues on administration and marketing but only 13 percent on research and development.

There is no justification for drug companies to spend all this money on advertising and administration. Physicians can be informed, but direct consumer advertising sometimes undermines the physician's decisions to give the promotional drug when in fact another drug would be preferred. Pharmaceutical companies are giving doctors free lunches and other gift to promote their drugs, which are totally uncalled for.

In one case a check for $10,000 arrived in the mail unsolicited.  The doctor who received it from drug maker Schering-Plough said it was made out to him personally in exchange for an attached "consulting" agreement that required nothing other than his commitment to prescribe the company's medicines.  Two other physicians said in separate interviews that they too received unbidden checks from the same company. These checks are under investigation by federal prosecutors in Boston as part of a government crackdown on the drug industry's marketing tactics.  Details of Schering-Plough tactics, gleaned from interviews with 20 doctors, as well as industry executives shed light on how pharmaceutical companies have tried to persuade physicians to favor their drugs.  These include paying doctors large sums to prescribe its drug for hepatitis C and to take part in company-sponsored clinical trials that are little more than thinly disguised marketing efforts that required little effort on the doctors' part. Physicians were paid $1,000 to $1,500 per patient for prescribing Intron A.  In conventional clinical trials, participants are given drugs free, but the doctors said that in these cases the patients or insurers paid for their medication.  Because patients usually undergo Intron A treatment for nearly a year and the therapy costs thousands of dollars, Schering-Plough's payments to physicians left plenty of room for the company to profit.  Physicians were supposed to collect data on their patients' progress and pass it on but many physicians were not diligent about their recordkeeping and the company did not insist on accurate data.   Doctors who demonstrated disloyalty by testing other company's drugs or who talked favorably about them risked being barred from this money. The company would remove any doctor from its clinical program if he or she wrote prescriptions for competing drugs.  Six specialists in liver disease were paid $10,000 by Schering-Plough  as consulting fees to keep them loyal to the company's products.  An accompanying letter said the money was for consulting services that were detailed on an accompanying "Schedule A" but this attached sheet was blank except for the title "Schedule A".   The current management of Schering-Plough says much has changed and they no long allow sales representatives or marketing executives to have any say over its clinical trials, physician education or medical consulting.  As a result of the investigations many companies in the drug industry are hiring executives to police marketing and sales practices.

 The pharmaceutical sales teams are no longer semiretired pharmacists but are young women and men who shower physicians with attention, food and until recently expensive gifts in order to get 2-3 minutes to pitch their wares.  In 1990 AMA suggested that doctors should not accept any gift worth more than $100 but the guidelines are widely ignored.  Federal prosecutors assert that the companies' 'sales pitches' have cost the government billions of dollars in payments for drug benefits.  Once the new Medicare drug benefit takes full effect in 2006, the government will pay for almost half of all medicines sold in the nation.  Therefore marketing programs will cost the government even more money.

Over the last 2 years Schering-Plough, which had sales of $8.33 billion last year, set aside a total of $500 million to cover its legal problems.  In May, Pfizer agreed to pay $430 million and pleaded guilty to criminal charges involving the marketing of the pain drug Nuerontin and AstraAeneca and paid $355 million last year.  TAP Pharmaceuticals paid $875 million in 200.  Each pleaded guilty to criminal charges of fraud for inducing physicians to bill the government for some drugs that the company gave the doctors free. In a current case Schering-Plough is being investigated for failing to provide Medicaid with the lowest drug prices as required by law and is being charged with obstruction of justice and document destruction as part of the inquiry.

Prescription drugs are not like ordinary goods, and the market for drugs is not like other markets. The misconception that drugs and their market are like other goods and markets explains most of the serious problems with the pharmaceutical industry today. The American health care system cannot live without the pharmaceutical industry and the pharmaceutical companies can't functioln without public research and development, because drug companies are impelled primarily by the financial aspirations of their investors and executives, regulation is necessary. For better or and for worse, this enormous and hugely profitable enterprise has become a dominating presence in American life.  In addition to increased costs, utilization is rising due to an aging population, new national treatment guidelines, new drugs to market and consumer demand fueled by advertising .  The average number of drugs taken per person has risen from 4.5 in 1996 to 10.0 in 2002.

1. Expenditures on prescription drugs-now roughly $200 billion per year-constitute a rapidly growing fraction of our $1.8 trillion dollar health care bill. Great savings can be made by being able to bargain for lower prescription drugs and the elimination of unnecessary administration and advertising costs.

2. Cost of prescription drugs are now a major problem for all who must pay for them.

The pharmaceutical industry has been fighting effectively against all efforts to control prices or to limit the markets for its expensive new brand-name drugs. It channels these efforts and most of its public relations and lobbying activities through its trade association, the Pharmaceutical Research and Manufactures of America (PhRMA). PhRMA's membership includes virtually all American manufactures of brand-name drugs, and many foreign manufactures as well. PhRMA's budget of some $60 million, and a full time staff of 120, and its hundreds of lobbyists, conducts an extensive, virtually non-stop campaign on behalf of its clients. PhRMA adamantly opposes any regulation of price controls. "The undue influence of the pharmaceutical industry on lawmakers is responsible for the current prescription drug crisis, and the reason we don't have meaningful Medicare prescription drug reform. The inaction of lawmakers, who campaign on pharmaceutical reform but repeatedly fail to implement it, is a scandal that will only be addressed when the media and other public commentators expose the issue".

The pharmaceutical industry now devotes most of its resources to functioning as a vast marketing and advertising enterprise whose best products were discovered and often partially developed elsewhere usually at public expense.  The industry is hardly a model for free enterprise. It may be free to decide which drugs to develop and to set its own prices, but its lifeblood is government-granted monopolies (patents and extended patents), and FDA approval for marketing rights.

Drug Companies oppose any action that will give any bargaining power to large groups such as Medicare recipients. They have written the ticket for the present Medicare drug bills which do not allow the government to bargain for lower prescription drug costs.

The Truth About the Drug Companies- by Marcia Angell , physician, former editor of New England Journal of Medicine, author and senior lecturer at Harvard Medical School. The following are excerpts from her book The Truth About the Drug Companies: How They Deceive Us and What to Do About It  (Random House,2004)

Angell Answers some frequently asked questions:

Q: We all know drugs are expensive .  But doesn't that reflect the high cost of researching and developing new drugs?

A: No. That's what the drug makers would like you to think.  But it's simply not true.  In 2002, the biggest drug companies spent only about 14% of sales on research and development and 31% on what most of them call marketing and administration.  They consistently make more in profits than they spend on R&D.  And their profits are immense.  In 2002, the combined profits of the 10 drug companies in the Fortune 500 were $35.9 billion.  That's more than the profits for all the other Fortune 500 businesses put together, if you subtract losses from gains.

Q: The system may be flawed, but hasn't it generated hundreds of new medications?

A: That's another myth the drug makers would like you to. believe. In fact, tbe number  of truly innovative new drugs is, quite, small. True, many drugs are coming to market but most of them aren't new at all. They are minor variations of bestselling drugs that are already on the market.

There are dozens of examples of these "me-too" drugs. There are now six different statins to lower cholesterol. The first, Mevacor, which was approved in 1987, was indeed an innovative " drug. Other companies wanted to capitalize on this extremely lucrative market and they began creating other statins. Lipitor is now the biggest-selling drug in the world. But it's a me-too drug. There's little scientific evidence that any of them is better than the others in comparable doses.

Q: Doesn't the Food and Drug Administratian require new drugs to be safer and more effective than drugs already on the market?

A: It should, but it doesn't. Drug makers are only required to show that a new medication is more effective than a placebo, or sugar pill. If a drug works better than a placebo and is safe, the FDA approves it, and it can enter the market. The result is that doctars don't know if a new drug that comes along is any better or, worse than the drugs  they're already using.

Q: Why do drug makers churn out new drugs when older ones work perfectly well?

A: Because patents run out on older drugs and they can then be soId as generics at as little as 20% of the price (they soId at while still under patent). Pharmaceutical manufacturers need a constant supply of new drugs that have patent protection so they can charge whatever they want.

Q: Isn't it useful to have a variety of drugs to choose from in case a patient doesn't respond to the first?

A: That's an argument the pharmaceutical industry makes -that it's good to haye six cholesterol-Iowering drugs, or five selective serotonin reputake inhibitors (SSRIs), the, antidepressants that include Prozac, Zoloft and Paxil.  But if that's true, then the companies should be required to test a new me-too drug in people who failed to respond to the first drug. And they don't do that.  My guess is that if the first drug doesn't work, the second one won't work either, since me-too drugs are so similar. But no one can say for sure.

Q:.What about competition? Do me-too drugs help keep prices down?

A: Probably not. When did you see a drug company advertise that its drug is cheaper than another drug? You don't see ads that promote Lipitor as cheaper than Zocor. Or Zoloft as cheaper than Paxil. I can't think of any other industry where price is almost never mentioned. Drug companies compete by implying that their new drug is better. And also by making more people think they need drugs.

Consider psychiatric drug. If you can define everyone who has the blues as having depression that needs to be treated, you've created a huge market. If you define everyone who is shy as having social anxiety disorder, that enlarges the market. There's probably not a soul alive who hasn't felt shy. If you listen to the pharmaceutical industry, many of the ordinary discontents of life are medical conditions that require drugs.

You see the same thing with erectile dysfunction. Any episode of impotence, no matter how, mild, how rare, becomes a condition, erectile dysfunction, that can be treated. It's no coincidence that the people in those ads tend to be middlle, aged or even younger. Pushing the disease is a big part of pushing the drugs. The result is that,many Americans are probably on too many medications with all the risks of side effects and drug interactions that implies. ,

Q: If new drugs aren't necessarily better than old ones, why do doctors prescribe them?

A: Part of the answer is marketing. New me-too drugs are heavily marketed to patients and doctors. Look at the ads on television. Look at the endless parade of drug representatives marching through doctors' offices. Pharmaceutical companies spend billions and billions to make us think that new drugs are better than old ones. They have to. If you had a drug that was important and unique, you wouldn't have to  advertise it very much. If you came out with a cure for cancer, the world would beat apath to your door.

So you have to ask, why are drug companies spending so much on marketing? The answer is that they have to convince us that their me-too drugs are better than the others. And that takes a heap of marketing, because there's usually no scientific evidence to back up the claim.

Q: It's easier to imagine patients being fooled - but doctors?

A: People don't realize that the pharmaceutical industry supports most of the continuing medical educational programs in this country.  These are the programs doctors are required to attend to update their knowledge. Drug makers fund the programs, so it's not surprising that they promote a drug-intensive style of medic medicine.

In their offices, doctors are visited by swarms of company sales representatives who bring packages of free samples - about $1O-billion worth a year - of the newest brand-name drugs. The doctors get used to prescribing them, the patients get used to taking them, and when the free samples run out, someone has to start paying for the drug.

Whether these drugs are actually better than older generic drugs never crosses the doctor's mind' or the patient's mind. They confidently believe that newer is better.

Q: What about clinical trials?  Don't they provide evidence about how well drugs work?

A: Research is biased in favor of the drugs and drug makers. The pharmaceutical industry spends a great deal to influence people in academic medicine and professional societies. It does a super job of making sure [that] nearly every important person they can find in academic medicine [who] is involved in any way with drugs is hired as a consultant, as a speaker, is placed on an advisory board - and is paid generous amounts of money.

Conflicts of interest are rampant. When the New England Journal of Medicine published a study of antidepressants, we didn't have room to print all the authors' conflict-of-interest disclosures. We had to refer people to the website: I Wrote an editorial for the journal, titled "ls Academic Medicine for Sale?" Someone wrote a letter to the editor that answered the question, "No. The current owner is very happy with it." That sums up the situation nicely.

Q: What can be done to fix the system?

A: The single most important change that  should be made - and it could be made tomorrow-is for Congress to redefine what safe and effective means; to insist that the FDA require "manufacturers to test 'new' drugs not just against placebos but against existing drugs. After all, the relevant issue isn't whether a new drug works better than nothing; it's whether it's better than older drugs already in use.

That's why so many clinic trials published are of no use to doctors. Doctors don't want to know if this new drug is better than "a sugar pill". They want to know if it's better than the drug they're already using. The FDA should require manufacturers to compare new drugs head to head, at equivalent doses. Only drugs that are safer, more effective, or significantly more convenient, should be approved.

We also need to make the FDA more independent. The FDA has 18 advisory committees, and many of the members of those committees have financial ties to the drug industry.  That's wrong.  Finally, university medical centers and medical societies and the people who run them need to stop fooling themselves into thinking they can take huge sums of money from drug makers and still remain objective and independent.

Q: Is there anything patients can do?

A: Ask questions. If your doctor prescribes a medication, ask about the evidence that shows it is effective. Ask why your doctor is prescribing this particular drug. Ask if there are older, less expensive drugs that might work just as well. A few questions from patients might begin to make [doctors] think about what they're doing. Finally, ask your doctor whether you really need a drug at all. Maybe a lifestyle change would be better, or maybe the illness is mild and will go away on

Americans are subjected to a barrage of advertising by the pharmaceutical industry. The essential message is "prescription drugs are expensive, but that shows how valuable they are and our research and development costs are enormous...as 'research-based' companies, we turn out a steady stream of innovative medicines that lengthen life, enhance its quality, and avert more expensive medical care." In other words you get what you pay for. Is this true? Prescription drug costs are high and rising fast. Americans now spend a staggering $200 billion a year on prescription drugs, and that figure is growing at a rate of about 12 percent a year (down from a high of 18 percent in 1999).  Drugs are the fastest growing part of the health care costs. The increase in drug spending reflects that people are taking a lot more drugs and those drugs are more likely to be expensive new ones instead of older, cheaper ones and the most heavily prescribed drugs are routinely jacked up, sometimes several times a year.

Before its patent ran out, for example, the price of Schering-Plough’s top-selling allergy pill, Claritin was raised thirteen times over five years, for a cumulative increase of more than 50%- over four times the rate of general inflation.  As a spokeswoman for one company explained, "Price increases are not uncommon in the industry and this allows us to be able to invest in R&D.  In 2002, the average price of the fifty drugs most used by senior citizens was nearly $1,500 for a year’s supply.  (In 2003, 73 of the highest cost medications cost over $1,000 per month.)

Paying for prescription drugs is no longer a problem just for poor people. As prescription drug costs are rising so fast, payers are particularly eager to get out from under them by shifting costs to individuals. The result is that more people have to pay a greater fraction of their drug bills out of pocket. Many of them simply can’t do it. They trade off drugs against home heating or food, take less than prescribed, share prescriptions with a spouse or fail to fill prescriptions. Not only do patients go without needed treatment but their doctors sometimes wrongly conclude that the drugs they prescribed haven’t worked and prescribe others.

The people hurting most are the elderly. When Medicare was enacted in 1965, people took far fewer prescription drugs and they were cheap, therefore, no one thought it necessary to include an outpatient prescription drug benefit in the program. The current Medicare Prescription drug bill benefits are inadequate and will quickly be overtaken by rising prices and administrative costs. (See section on the Medicare Prescription Drug Bill) At an average cost of $1500 a year for each drug, someone without supplementary insurance who takes six different prescription drugs- and this is not rare- would have to spend $9,000 out of pocket. Not many among the old and frail have such deep pockets. Ironically, prices are much higher for precisely the people who most need the drugs and can least afford them. The industry charges Medicare recipients without supplementary insurance much more than it does favored customers, such as large HMOs or the Veterans Affairs (VA) system. Because the latter buy in bulk, they can bargain for steep discounts or rebates. People without insurance have no bargaining power; and so they pay the highest prices. In the past two years, we have started to see the beginnings of public resistance, (with more people buying by mail order and traveling to Canada or Mexico to obtain cheaper drugs) in response, the drug companies are blanketing us with public relation messages repeating the magic words Research, Innovation, and American.

Research and Development: This is a relatively small part of the budgets of big drug companies- dwarfed by their vast expenditures on marketing and administration and smaller than profits. The prices drug companies charges have little relationship to the costs of making the drugs and could be cut dramatically without coming anywhere close to threatening R&D.

Innovation: Only a handful of truly important drugs have been brought to market in recent years and they were mostly based on taxpayer-funded research at academic institutions, small biotechnology companies, or the National Institute of Health (NIH). The majority of "new" drugs are not new but merely variations of older drugs already on the market. These are called "me-Too" drugs. They grab a share of an established, lucrative market by producing something very similar to a top-selling drug. For instance, we now have six statins (Mevacor, Lipitor, Zocor, Pravachol, Lescol, ad Crestor) on the market to lower cholesterol.  Mevacor, approved in 1987, was indeed an innovative drug.  Other companies wanted to capitalize on this extremely lucrative market and they began creating other statins.  Lipitor is now the biggest-selling drug in the world but it's a me-too drug and there is little scientific evidence that any of them is better than the others in comparable doses. A manufacturer can change one molecule and get another twenty years of patent rights, and convince physicians to prescribe and consumers to demand the next form of Prilosec just as the patent expires. Once patents run out they can be sold as generics for as little as 20% of the price they sold at while under the patent. (in Canada each year a drug is on the market it gets cheaper so that by the time the patent runs out it is the same price as the generic).

American free enterprise: The industry is free to decide which drugs to develop and its free to price them as high as the traffic will bear but it is utterly dependent on government-granted monopolies-in the form of patents and Food and Drug Administration (FDA)-approved exclusive marketing rights. It is not particularly innovative in discovering new drugs but is highly innovative in dreaming up ways to extend its monopoly rights. The pharmaceutical industry is the very essence of a global enterprise. About half of the largest drug companies are based in Europe: many of the companies do their manufacturing abroad or they make the pills here, but use bulk raw ingredients imported from some other companies located in China or elsewhere. All are much alike in their operations and all price their drugs much higher here than in other markets. However, since United States is the major profit center, it is good public relations for drug companies to pass themselves off as American and some of the European companies are locating their R&D operations in the United States since we don’t regulate prices as does much of the rest of the world.   In addition, they can use the output of American universities and the NIH.  Therefore, it’s not private enterprise that draws them here but rather our publicly sponsored research enterprise.

The pharmaceutical industry has changed from its original purpose of discovering and producing new drugs to becoming a marketing machine to sell drugs of dubious benefit and use its wealth and power to co-opt institutions that might stand in its way, including the US Congress, the FDA, academic medical centers, and the medical profession itself. Most of its marketing efforts are focused on influencing doctors, since they must write the prescriptions. However, "in the words of Sen. Debbie Stabenow (D- Mich.) "It’s not like buying a car or tennis shoes or peanut butter." People need to know that there are some checks and balances on this industry, so that its quest for profits doesn’t push every other consideration aside.

In 1980 we saw the rise of big PhRMA , the collective name for the largest drug companies. At the same time public attitude toward great wealth changed from something faintly disreputable to being almost virtuous in the 1990s. The gap between rich and poor began to widen and has now become a chasm. In 1980 laws were enacted designed to speed the translation of tax-supported basic research into useful new products to improve the American position in world markets. The Bayh-Dole legislation enabled universities and small businesses to patent discoveries emanating from research sponsored by NIH and then to grant exclusive licenses to drug companies, before this time taxpayer-financed discoveries were in the public domain. It allows universities and NIH-sponsored work to patent and license their discoveries and charge royalties. Other legislation permitted NIH to enter into deals with drug companies that would directly transfer discoveries to industry. This gave a tremendous boost to the biotechnology industry as well as big PhRMA. When a patent held by a university or small biotech company is licensed to a big drug company, all parties cash in on the public investment in research. Therefore, drug companies no longer have to rely on their own research for new drugs.

In 1984 other legislation extended monopoly rights for brand-name drugs which means no other company may sell the same drug for a set period . After marketing rights expire, copies(called generic drugs) enter the market and the price usually falls to as little as 20% of what it was.

The political power of drug companies also skyrocketed during 1980's and 90's and it became a business with unprecedented control over its own fortunes for if it didn’t like something about the FDA which is supposed to regulate the industry, it could change it through direct pressure in Congress. In 1998 the FDA had 157 investigations of drug companies, in 2002 the number dropped to 27 and in 2003 it dropped to 19.

The ten American drug companies in the Fortune 500 list ranked far above all other American industries in average net return, whether as a percentage of sales (18.5%), of assets (16.3%), or of shareholders’ equity(33.2%). For comparison, the median net return from all other industries in the Fortune 500 was only 3.3% of sales. Commercial banking which is also an aggressive industry with many friends in high places, was a distant second, at 13.5% of sales.

In 2002, as the economic downturn continued, big PhRMA showed only a slight drop in  profits from 18.5 to 17.0 percent of sales. The most startling fact about 2002 is that the " combined profits for the ten drug companies in the Fortune 500 ($35.9 billion) were more than  the profits for all the other 490 businesses put together($33.7 billion)  In 2003 profits of the Fortune 500 drug companies dropped to 14.3 percent of sales, still well above the median for all industries of 4.6 percent for that year. When I say. this is a profitable industry, I mean really profitable. It is difficult to conceive of how awash in money big pharma is.

 Drug industry expenditures for research and development, while large, were consistently far less than profits. For the top ten companies, they amounted to only 11 percent of sales in 1990, rising slightly to 14 percent in 2000. The biggest single item in the budget is neither R&D nor even profits but something usually called "marketing and administration"-a name that varies slightly from company to company. In 1990, a staggering 36 percent of sales revenues went into this category, and that proportion remained about the same for over a decade.  Note that this is 2 1/2 the expenditures for R&D.

These figures are drawn from the industry's own annual reports to the Securities and Exchange  Commission (SEC) and to stockholders so  what actually goes into these categories is not at all clear, because drug companies hold that information very close to their chests. It is likely, for instance, that R&D includes many activities most people would consider marketing, but no one can know for sure. For its part, "marketing and administration" is a gigantic black box that probably includes what the industry calls "education," as well as advertising and promotion, legal  costs, and executive salaries, which are whopping. According to a report by the non-profit group Families USA, the former chairman and CEO 'of Bristol-Myers Squibb, made $74,890,918 in 2001, not counting his $76,095,611 worth of unexercised stock options. The chairman of Wyeth made $40,521,011 exclusive of his $40,629,459 in stock options.

If 1980 was a watershed year for the pharmaceutical industry, 2000 may very well turnout to have been another one--the year things began to go wrong. As the booming economy of the late 1990's turned sour, many successful businesses 'found themselves in trouble. And as tax revenues dropped, state governments also found themselves in trouble. In one respect, the pharmaceutical industry is well protected against the downturn, since it has so much wealth and power. But in another respect, it is peculiarly vulnerable, since it depends on employer-sponsored insurance and state-run Medicaid programs for much of its revenues. When employers and states are in trouble, so is big pharma.

And sure enough, in just the past couple of years, employers and the private health insurers with whom they contract have started to push back against drug costs. Most big managed care plans now bargain for steep price discounts. Most have also instituted three-tiered coverage for prescription drugs-full coverage for " generic drugs", partial coverage for useful - brand-name drugs, and no coverage for expensive drugs that offer no added benefit over cheaper ones (lists of preferred drugs are called formularies), and they are an increasingly important method for containing drug costs.  Big PhRMA is feeling the effects of these measures, although not surprisingly, it has become adept at manipulating the system-mainly by inducing doctors or health plans to put expensive, brand-name drugs on formularies.

 State governments too, are looking for ways to cut their drug costs. Some state legislatures are drafting measures that would permit them to regulate prescription drug prices for state employees, Medicaid recipients, and the uninsured.  Like managed care plans, they are creating  formularies of preferred drugs. The industry is fighting these efforts-mainly with its legions of ' lobbyists and lawyers. It fought the state of Maine all the 'Way to the US Supreme Court which in 2003 upheld Maine's right to bargain with drug companies for lower prices, while leaving open the details, but that war has just begun, and it promises to go on for years and get very ugly.

Recently the public has shown signs of being fed up. The fact that Americans pay much more for prescription drugs than Europeans and Canadians is now widely known.  An estimated one to two million Americans buy their medicines from Canadian drugstores over the Internet, despite the fact that in 1987, in response to heavy industry lobbying, a compliant Congress had made it  illegal for anyone other than manufacturers to import prescription drugs from other countries. In addition, there is a brisk traffic in bus trips for people in border states, particularly the elderly, to travel to Canada or Mexico to buy prescription drugs. Their resentment  is palpable, and they constitute a powerful voter block-a fact not lost on Congress or state legislatures.

The industry faces other, less familiar problems. It happens that, by chance, some of the topselling drugs with combined sales of around $35 billion a year are scheduled to go off patent within a few years of one another.  This drop over the cliff began in 2001, with the expiration of Eli Lilly's patent on its blockbuster antidepressant Prozac. In the same year, AstraZeneca lost its patent on Prilosec the original "purple pill" for heartburn, which at its peak brought in a stunning $6 billion a year. Bristol-Myers Squibb lost its best-selling diabetes drug, Glucophage.  The unusual cluster of expirations will continue for another couple of years. While it represents a huge loss to the industry as a whole, for some companies it's a disaster. Schering-Plough's blockbuster allergy drug, Claritin brought in fully a third of that company's revenues before its patent expired in 2002.  Claritin is now sold over the counter for much less than its prescription price. So far, the company has been unable to make up for the loss by trying to switch Claritin users to Clarinex-a drug that is virtually identical but has the advantage of still being on patent.

Even worse is the fact that there are very few drugs in the pipeline ready to take the place of blockbusters going off patent.  In fact, that is the biggest problem facing the industry today, and its darkest secret.  All the public relations about innovation is meant to obscure precisely this fact.  The stream of new drugs has slowed to a trickle, and few of them are innovative in any sense of that word.  Instead, the great majority are variations of oldies but goodies -"me-too" drugs.

Of the seventy-eight drugs approved by the FDA in 2002, only seventeen contained new active ingredients, and only seven of these were classified by the FDA as improvements over older drugs. The other seventy-one drugs approved that year were variations of old drugs or deemed no better than drugs already on the market. In other words, they were me-too drugs. Seven of, seventy-eight is not much of a yield. Furthermore, of those seven, not one came from a major U.S. drug company.

For the first time, in just a few short years, the gigantic pharmaceutical industry is finding itself in serious difficulty. It is facing, as one industry spokesman put it "a perfect storm." To be sure, profits are still beyond anything most other industries could hope for, but they have recently fallen, and for some companies they fell a lot. And that is what matters to investors. Wall Street doesn't care how high profits are today, only how high they will be tomorrow. For some companies, stock prices have plummeted.  Nevertheless, the industry keeps promising a bright new day. It bases its reassurances on the notion that the mapping of the human genome and the accompanying burst in genetic research will yield a cornucopia of important new drugs. Left unsaid is the fact that big pharma is depending on government, universities, and small biotech companies for that innovation. While there is no doubt that genetic discoveries will lead to treatments, the fact remains that it will probably be years before the basic research pays off with new drugs. In the meantime, the once-solid foundations of the big pharma colossus are shaking.

The hints of trouble and the public's growing resentment over high prices are producing the first cracks in the industry's formerly firm support in Washington. In 2000, Congress passed legislation that would have closed some of the loopholes in Hatch-Waxman and also permitted American pharmacies, as well as individuals, to import drugs from certain countries where prices are lower. In particular, they could buy back FDA-approved drugs from Canada that had been exported there. It sounds silly to "reimport" drugs that are marketed in the United States, but even with the added transaction costs, doing so is cheaper than buying them here. But the bill required the secretary of health and human services to certify that the practice would not pose any "added risk" to the public, and secretaries in both the Clinton and Bush administrations, under pressure from the industry, refused to do that.

The industry is also being hit with a tidal wave of government investigations and civil and criminal lawsuits. The litany of charges includes:  illegally overcharging Medicaid and Medicare, paying kickbacks to doctors, engaging in anticompetitive practices, colluding with generic companies to keep generic drugs off the market, illegally promoting drugs for unapproved uses, engaging in misleading direct-to-consumer advertising, and, of course, covering up evidence. Some of the settlements have been huge. TAP Phamaceuticals, for instance, paid $875 million to settle civil and criminal charges of Medicaid and Medicare fraud in the marketing of its prostate cancer drug, Lupron.  All of these efforts could be summed up as increasingly desperate marketing and patent games, activities that always skirted the edge of legality but now are sometimes well on the other side.

How is the pharmaceutical industry responding to its difficulties? One could hope drug companies would decide to make some changes-trim their prices, or at least make them more equitable, and put more of their money into trying to discover genuinely innovative drugs, instead of just talking about it. But that is not what is happening. Instead, drug companies are doing more of what got them into this situation. They are marketing their 'me-too' drugs even more relentlessly. They are pushing even harder to extend their monopolies on top-selling drugs. And they are pouring more money into lobbying and political campaigns. As for innovation, they are still waiting for Godot.

The news is not all bad for the industry. The Medicare prescription drug benefit enacted in 2003, and scheduled to go into effect in 2006, promises a windfall for big Pharma sInce it forbids the government from negotiating prices. The immediate jump in pharmaceutical stock prices after the bill passed indicated that the industry and investors were well aware of the windfall. But at best, this legislation will be only a temporary boost for the industry. As costs rise, Congress will have to reconsider its industry-friendly decision to allow drug companies to set their own prices, no questions asked.

This is an industry that is being exposed as something far different from its image. Instead of being an engine of innovation, it is a vast marketing machine. Instead of being a free market success story, it lives off government funded research and monopoly rights. Yet this industry occupies an essential role in the American health care system, and it performs a valuable function, if not in discovering important new drugs at least in developing them and bringing them to market. But big pharma is extravagantly rewarded for its relatively modest functions. We get nowhere near our money's worth. The United States can no longer afford it in its present form.

Clearly, the pharmaceutical industry is due for fundamental reform. 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..

For example, we need to get the industry to focus on discovering truly innovative drugs instead of turning out 'me-too' drugs (and spending billions of dollars to promote them as though they were miracles). The me-too business is made possible by the fact that the FDA usually approves a drug only if it is better than a placebo. It needn't be better than an older drug already on the market to treat the same condition; in fact, it may be worse. There is no way of knowing, since companies generally do not test their new drugs against older ones for the same conditions at equivalent doses. (For obvious reasons, they would rather not find the answer.) They should be required to do so.

The me-too market would collapse virtually overnight if the FDA made approval of new drugs contingent on their being better in some important way than older drugs already on the market.  Probably very few new drugs could meet that test. By default, then, drug companies would have to concentrate on finding truly innovative drugs, and we would finally find out whether this much-vaunted industry is turning out better drugs. A welcome by-product of this reform is that it would also reduce the incessant and enormously expensive marketing necessary to jockey for position in the me-too market. Genuinely important new drugs do not need much promotion (imagine having to advertise a cure for cancer).

A second important reform would be to require drug companies to open their books. Drug companies reveal very little about the most crucial aspects of their business. We know next to nothing about how much they spend to bring each drug to market or what they spend it on. (We know that it is not $802 million, as some industry apologists have recently claimed.) Nor do we know what their gigantic "marketing and administration" budgets cover. We don't even know the  prices they charge their various customers or the results of the clinical trials they sponsor only those they choose to make public, which tend to be the most favorable findings.  (The FDA is not allowed to reveal the results it has.)  The industry claims all of this is "proprietary" information.  Yet, unlike other businesses, drug companies are dependent on the public for a host of special favors- including the rights to NIH-funded research, long periods of market monopoly, and multiple tax breaks that almost guarantee a profit.  Because of these special favors and the importance of its products to public health, as well as the fact that the government is a major purchaser of its products, the pharmaceutical industry should be regarded much as a public utility.

Angell feels that breaking the dependence of the medical profession on the industry and with the inappropriate control drug companies have over the evaluation of their own products are two important reforms which are needed.  This will require government actions which will in turn require strong public pressure.  For more on this topic and major reforms which will be necessary see her new book called The Truth About the Drug Companies by Marcia Angell.

Drug companies have the largest lobby in Washington and they give copiously to political campaigns.  Rep. James C. Greenwood ( R-Pa) denied that he received contributions from a drug company however he is a leading House recipient of donations from employees and officials of drug companies eg. $68,323 in 2002  and as of June $30,300  in this years election cycle.  He argues that  it is different taking money from a PAC rather than individuals, however 10 of his 2003-04 donors identify themselves as drug company presidents, 6 are vice presidents and 6 are executives of pharmaceuticals such as PhRMA and GlaxoSmithKline. Pharmaceuticals have many lobbyists working for their best interests. In speaking about the Medicare prescription bill John McCain stated that it clearly favors drug makers and he had no doubt in his mind that the drug industry got everything it wanted and more.  He stated that perhaps the bill should be called 'leave no Lobbyist behind bill.'

To date, the President's re-election campaign has received over $100 million from corporations, their top executives and their lobbyists. President Bush has done a lot of favors for those who have given him money, but few have benefited so handsomely from their inancial ties to him than the drug industry and a CEO at Pfizer's who is  a Bush campaign "Ranger." While the president said he wants to give "older Americans better choices and more control over their health care",  he is actually refusing to let seniors purchase lower priced, FDA-approved medicines from Canada. While a recent pool shows that two-thirds of Americans support giving seniors this right and while governors from both parties support the idea, drug companies like Pfizer universally opposed the idea because it would cut into the billions of dollars in profits they make each year bilking Americans with high prices.
President Bush, unfortunately, has sided with Pfizer and against seniors, prohibiting seniors trom purchasing lower priced medicines from Canada. Here are the details of the scam:

The Payoff

 President Bush and his Republican allies have taken at least $74 million in hard and soft money contributions from the drug industry since 2000. That's about $48,000 per day or $2,033 per hour, 24 hours a day and 7 days a week to President Bush since 2000 - a hefty salary, even for a well-heeled lobbyist. On one night in 2002 alone, the president and his allies raked in $30 million from the drug industry, with pharmaceutical companies paying $250,000 "red-carpet treatment" by the president just two days after his Capitol Hill allies  unveiled an industry-backed Medicare bill.

The Bush campaign's top individual donors-euphemistically named "Rangers" and "Pioneers" are also chock full of drug industry executives. A CEO of PfIzer, "has pledged to raise $200,000" for Bush campaign, while "in-house lobbyists from Bayer Corp, AstraZeneca and Wyeth were named Pioneers." And the president has not just used traditional channels to line his campaign's war chest with drug industry cash  in 2001, the president took $625,000 from the industry to help pay for his lavish inaugural parties.

Reimportation

With states, cities, and individual seniors struggling to pay the skyrocketing costs of prescription drugs, many have defied federal law and traveled to Canada to purchase lower-priced medicines.  The drug industry, whose ability to keep prices artificially high in the United States is threatened by reimportation, has opposed these efforts and enlisted President Bush to kill all legislation to reimportation., but the president stripped out the provisions from the final Medicare bill.  Recently, when a coalition of bipartisan lawmakers asked to meet with the president and his health officials on the subject, they refused, and instead attended a meeting sponsored by reimportation opponents."

Now, with pressure mounting from seniors and powerful lawmakers like Senator John McCain (R-Az), the president has resorted to outright dishonesty in his fight to keep medicine prices high.  Specifically, he is claiming that importing prescription drugs from Canada is "unsafe" - yet even his own Administration's health "officials can't name a single American who's been injured or killed.  A health official admitted, " I can't think of one thing off the top of my head  where somebody died or somebody got put in the hospital because of these medications.  I just don't know if there's anything like that."  Professor Paul L Doering, one the nation's leading experts, said the Administration's argument is "hogwash" as "drugs purchased through the Canadian health care system are every bit as safe as those available in the United States." In fact Canada's safety standards are at least as strict as our own. He said simply that the Bush Administration's tactics are "a smokescreen thrown up to conceal (their) unseemly coziness with the drug industry."

Despite opposition from the Bush administration and the failure of Congress to act on legislation, states are stepping up efforts to implement drug reimportation programs.  Illinois gov. Rod Blagojevch announced a program that will allow residents to buy cheaper drugs from Canada, and for the first time from United Kingdom and Ireland.  The inclusion of European countries is meant to counteract the drug industry's attempts to stop reimportation by choking off Canadian supplies.  Although Gov. Blagojevich has repeatedly worked to gain approval of the FDA to allow reimportation, the FDA has forcefully objected.  Since the federal government failed to act he decided to do so.

PRESCRIPTION DRUGS AND THE COST OF ADVERTISING THEM

The following exerpts were taken from Prescription Drugs and the Cost of Advertising Them-the complete article can be found at www.therubins.com/geninfo/advertise.htm

The Bush administrations' promotion of the new Medicare law is a violation of the law that prohibits the usage of public funds for propaganda purposes according to a report by the General Accounting Office (GAO). The videos appeared as if they were news releases, when in fact, they were actually ads to accentuate the positives of the new law.

The materials were in English and Spanish and were produced by the Health and Human Services, the agency that oversees Medicare. The GAO report said that the videos did not identify or inform the viewers that the source was the government. The viewing audience does not know that the actors were also being paid by the government and were not independent news reporters.

Senator Frank Lautenber (D.-N.J.), who requested the GAO inquiry, said that President Bush's re-election campaign should repay the government for the cost of the videos which was about $43,000. He said that he would introduce legislation in Congress to force the repayment.

Pfizer has also agreed to sign a "corporate integrity" agreement that allows for monitoring of its marketing practices. Neurontin was originally approved by the FDA for epilepsy and later for a shingles-related condition. Last year Neurontin brought in $2.7 billion in sales to Pfizer of which 90% was for off-label purposes. The basic patent for Neurontin expired a decade ago, but Pfizer asserts that other patents including one related to manufacturing protect Neurontin. It is expected that some generic versions of Neurontin will be on the market in late 2004 if the Pfizer patent extension claim is denied.

Pfizer has a successor to Neurontin called Lyrica, or Pregabalin waiting in the wings. After delays during animal testing and subsequent human trials Pfizer applied to the FDA for approval to sell the drug in October of 2003. The Lyrica application simultaneously seeks approval of the drug for the treatment epilepsy, neuropathic pain and generalized anxiety disorder. The company filed for approval of the drug in Europe also and expects to gain that approval some time in the month of June 2004.

 Ad spending by prescription drug companies grew by 21% last year to $3.43 billion, and with comparative product ad spending just beginning to emerge, this figure will soar even more. Pfizer said that this was the first time that it will use a superiority claim against a rival product in consumer ads. According to Dorothy Wetzel, Pfizer's vice-president of consumer marketing for U.S. pharmaceuticals: "We have to give consumers a reason to talk to their doctors about the drugs."

In order to make such comparative claims companies must conduct two head-to-head clinical trials that yield meaningful clinical results. This will of course lead to increase expenditures by the drug companies. That in turn means even higher drug costs down the road for all of us.

Eli Lilly & Co. said that the U.S. Attorney in Philadelphia has launched a civil investigation into its marketing and promotional practices. Lilly said the products likely to be involved in the investigation include the osteoporosis drug Evista and the mental health drugs Prozac and Zyprexa. This is in addition to the Justice Department's subpoena to the company in July 2002 concerning the marketing and promotional practices for Evista from the Office of Consumer Litigation.

(Total advertising spending in the U.S. rose 6.1% to $128.3 billion in 2003) according to TNS Media Intelligence/CMR, a New York research firm that tracks ad spending in 14 media platforms. The greatest percentage increase took place in Internet advertising where the increase was 15.7% from 2002 to 2003. One of the areas of smallest percentage increases was in network TV, where the increase was only 1.8% from 2002 to 2003.

Outlays for ads on cable TV rose 15.6% to $12.3 billion in 2003. For the Spanish-language network TV rose 12.8% to $2.2 billion last year. It is the need to reach niche markets that is causing the biggest jumps for advertising dollars. Again according to TNS Media, advertising on the Internet rose to $6.5 billion last year. Local newspapers saw their share of advertising revenues increase by 13.4% to $22.8 billion in 2003.

 Meredith Rosenthal at the Harvard School of Public Health reported in The New England Journal of Medicine that the pharmaceutical industry spent roughly $15.7 billion to market its drugs in 2003. Of that amount about $4.8 billion was dedicated to detailing individual physicians. Studies have shown that on average physicians meet with pharmaceutical representatives about four times a month.

The FDA announced that it would propose changes to its guidelines governing direct-to-consumer drug ads within the next month. Analysts think that these changes would involve a reduction in wording, and change in the format for adverse side reactions that are required in print media ads. In all likelihood a boxed summary of side effects would have to be included in print media ads instead of the extensive wording for adverse side reactions that the regulations now require.

According to the latest statistics available from TNS/Media Intelligence/CMR, part of Taylor Nelson Sofres, which covers the year 2002, the drug industry spent $2.4 billion on print media ads. Because of the lack of truly new medications that are due to come to market in 2004, most of the drug companies have indicated that they intend to increase their spending for ads, so that they can increase their sales for their existing drugs. It may even reach the point where you will see generic drug companies doing direct-to-consumer ads for some of their better selling products.

Google announced that it would stop running ads from Internet pharmacies that sell prescription drugs in violation of the U.S. drug laws. Thus Google became the third of the major search engines to stop taking such ads. It joins Microsoft Corp.'s MSN and Yahoo in cracking down on the ads from online drug companies. With the passage of the new drug law by Congress, this in effect means that they will not accept ads from any overseas pharmacy except from those licensed in Canada. The law allows only the re-importation of drugs from Canada if the Secretary of Health and Human Services attests to the safety of the drug. Secretary Tommy Thompson has already announce that he would not be willing to make such an attestation at this point

When one drug company decides to markedly increase its advertising budget the other big drug companies will also follow suit in order to remain competitive. On the other hand you will not see their R&D budgets increase proportionately to the increase in their advertising budgets.

Direct-to-the-consumer ads is being extended another step as is shown by the battle going on between the medical device makers Stryker Corporation and Zimmer Holdings. Stryker has been featuring the famous golfer Jack Nicklaus, who had hip replacement surgery, featured in their ads on television promoting their new hip replacement device. The new device made from ceramics and titanium sells for $4,000 to $5,000.

 Zimmer has placed ads in Time and Newsweek, featuring an older woman on a swing. The ads talk about the advantages of having minimally invasive hip-replacement surgery as developed by Zimmer. The surgery requires use of the Zimmer device and instruments. The market for hip-replacement devices is estimated to have reached $2.6 billion worldwide last year. About 300,000 hip-replacement surgeries took place in this country last year.

 The FDA requires strict advertising rules for drug advertisements, such as the inclusion of negative side results in the ad. There are very few rules that apply to the device makers, so it is more or less a free for all as far as ads go in the device maker area. Only ads for the riskiest devices, such as pacemakers and artificial hearts require negative side results to be included in the ads.

The Stryker television ads do include a statement that "surgery involves potential risks and recovery time." The Zimmer media ads include no information on risks other than advising that a hip replacement involves surgery and a period of time for rehab. Advertising for medical devices is also regulated by the Federal Trade Commission, which simply requires companies not to make face or deceptive claims.

  The FDA warning letter that it issued to Bristol was the third one so far in connection with misleading advertising in connection with Pravachol. For the first 6 months this year, the drug has garnered $1.3 billion in worldwide sales. The ads in question erroneously said the drug is the lone medicine approved to prevent strokes in patients not diagnosed with coronary heart disease and in diabetics. Pravachol's stroke-prevention approval is only for patients with coronary heart disease. Merck's Zocor is the only cholesterol lowering medication that is approved by the FDA in connection with strokes.

The FDA has issued another warning letter to Allergan Pharmaceutical Co. in connection with its advertisements for its drug Botox. The warning was issued because the ads minimized the drug's risks and promoted it for uses that it had not been approved for. The FDA first approved Botox in 1989 for the treatment of crossed eyes and uncontrollable blinking.

 Many drug companies use medical liaisons, who often have medical or science degrees to answer doctor's technical questions but they are not supposed to introduce "off label" information to the doctors to whom they are speaking. Neurontin accounted for almost $2.4 billion in sales for Pfizer last year, with about 78% of that total coming from "off label" usage in 2000. Dr. Franklin worked for Warner-Lambert for 4 months before deciding to retire because of the improprieties that he felt was ongoing in the company.

Dr Franklin also alleged that doctors allowed the Warner-Lambert detail person to be in the examining room with the physician. It is further alleged that the detail person encouraged the doctors to recommend Neurontin for "off label" usage, including pain, bipolar disorder and attention deficit disorder in children.

According to Dr. Franklin's attorney, Thomas Greene, Warner-Lambert's marketing executives urged their superiors to let them promote the drug for off-label uses. It is further alleged that the marketing people urged this usage even though they were well aware that no clinical trials had been performed to prove that the medication was safe for off- label usage.

Mr. Greene cited two memos in support of his position in the case. In a memo dated June 26, 1995 a marketing executive at Warner-Lambert said that in the Northeast, doctors who attended educational dinners that were held where Neurontin was the featured drug, wrote 70% more off-label prescriptions for the drug than doctors who did not attend.

In a memo dated May 5, 1997 the marketing department proposed that Neurotin be promoted to treat pain in diabetic patients by creating education classes for doctors and sponsoring a symposium with the American Diabetes Association. Dr. Franklin stated that one of the reasons why he resigned from Warner-Lambert was because he felt that the company was involved in an illegal campaign to market Neurontin even though the safety of the drug had not been proved for these off-label purposes.

Dr. Franklin further alleged that Warner gave financial incentives to hundreds of physicians to prescribe Neurontin for unapproved uses, by inviting them to dinners and weekend trips to resorts. Doctors were paid to speak about Neurontin and encourage its usage for off-label purposes. It is alleged that each doctor was paid $350 or more for each day they let sales people watch as they examined their patients. The federal investigation alleges that Medicaid paid many millions of dollars for Neurontin prescriptions written for unapproved uses.

It is also alleged that Warner-Lambert hired two marketing firms to write articles about the unapproved uses of Neurontin and find doctors willing to sign their names to the articles as the authors thereof. The marketing firms were allegedly paid $12, 000 for the articles and the doctors were paid $1,000 for signing the articles as the authors of the pieces.

In its 10-Q filing with the SEC, Pfizer Inc. had disclosed that the marketing and pricing of two of its drugs have drawn the scrutiny of federal and state investigators in the last several months. The drugs involved are Lipitor, the cholesterol lowering drug and Neurontin, which is a drug used in connection with epilepsy which was developed and marketed by Warner-Lambert before Pfizer took it over. Neurontin has been approved by the F.D.A. for the treatment of epilepsy, but has been prescribed by many physicians for off-label usage.

Pfizer has admitted that over 78% of the prescription that were written for Neurontin in 2000 were written for off-label uses. Sales of the drug are expected to reach over $4 billion this year. As a matter of fact the writer of this article has been using Neurontin as prescribed by one of my doctors in connection with the treatment of the inflammation and pain in sural nerve in my lower left foot. This problem arose in connection with the spinal stenosis that I wrote about in the article "Spinal Stenosis-A Personal Saga". I was never informed by my doctor that this was an "off label" usage of the drug, but so far I have had no adverse reactions from using the drug.

 The FDA has undertaken a survey of doctors to try and determine the effect of advertising on doctor's prescription drug writing habits. In announcing some of the preliminary results, Janet Woodcock, head of the FDA stated that most of the time, when a patient asks for a specific drug that they saw in an ad, the patient would get that drug.

The survey encompassed over 500 physicians. Of the about 59% of the physicians who recalled being asked for a specific brand-name drug, about half prescribed that drug according to Dr. Woodcock. Only 40% of the doctors believed that their patients understood the possible risks and side effects of the drugs based on the ads. Direct-to-consumer ads were first made legal in 1997. Last year direct-to-consumer ads accounted for about $2.7 billion in drug ads, a threefold increase since 1997. When interviewed 59% of the physicians said that having seen a drug commercial added no benefit to a patient's subsequent doctor visit.

Investigators from the General Accounting Office estimated that at least 8.5 million Americans each year request and receive prescriptions for specific drugs after seeing or hearing advertisements for these products, 8 of the 9 companies compared spent more than twice as much on marketing, administration and advertising as they did on R&D.

When we examine some of the figures from some of the individual drug companies in regards to the increase in the percentage of their revenues spent for marketing and administrative costs we see that it far exceeds the percentage spent on research. In the year 2000 GlaxoSmithKline spent 37.2 % of its revenue on advertising, marketing and administrative costs versus the 13.9% spent on research. Bristol-Myers Squibb spent 30.4% of its revenue in 2000 on advertising, marketing and administrative expenses versus spending 10.6 per cent on research.

 In determining drug company costs for marketing of drugs, an area of concern that has grown to a great degree in the last several years is the role of the pharmaceutical companies in the medical school education process. Many medical schools require students to attend drug company presentations or conferences that are paid for by the drug companies. Critics complain that these sessions are used to push the drug company's products. The drug companies often do not get involved directly in these sessions, but instead use medical-education service suppliers to get their message across.

In a survey of 42 medical-education service companies 76 % of their clients were drug makers, and 45 % of their revenues were attached to the presentations or conferences held in conjunction with medical school events. A consumer group named the Public Citizens has complained to the Accreditation Council for Graduate Medical Education, which is a body that reviews the nation's medical-residency programs. The accreditation council's executive board plans to discuss the issue.

Even though generic drugs filled 41% of all prescriptions sold, they accounted for a mere 9% of the total cost spent on prescription drugs in 1998. Merck-Medco Managed Care, a subsidiary of Merck & Co. is now giving free samples of some generic drugs to doctors. This represents a novel approach for the generic drug industry, which normally has not been giving out free samples. IMS Health estimates that the drug companies gave medical professionals about $7.2 billion retail value of free drugs in 1999. GM Corp. has estimated that it would save $3 million a year for every one-percentage point increase in the use of generics.

 The Food and Drug Administration regulations require that a doctor must sign for any free samples that he/she receives. Thus even if it is only for a minute or two, the salesperson will have a chance to discuss the drug with the physician. As of the latest figures there is 1 salesperson for every 10 doctors in this country.

 The pharmaceutical industry is planning to expand its direct to consumer advertising by using a 24-hour-a-day TV network, which was recently launched to 50,000 hospital patients. The network hopes to be able to reach 22 million hospital patients by the year 2003.

Hospital patients are the captive audience that the Patient Channel hopes to entice, with the bulk of the advertising coming from the pharmaceutical industry. According to the Nielsen-Media Research organization, the pharmaceutical industry spent $2.7 billion on advertising in 2001. According to Kelly Peterson, director of network marketing at the Patient Channel, the service allows big "marketers to directly associate their products with a particular condition in a hospital setting." The Patient Channel is owned by General Electric Co.'s GE Medical Systems.

Federal regulations require that a hospital educate patients about their condition. Thus instead of a hospital using a nurse to give the instructions to the patients the hospital might use the television program to do the educating of the patient. Many consumer advocacy groups fear that the ads shown in the hospital setting for the pharmaceutical products will leave the impression in a patient's thought process that the hospital is therefore recommending the drug being advertised.

 The United Seniors Association committed $8 million to promote nearly two dozen House candidates who favored the Republican prescription drug bill passed by the House. The Association also had ads aimed at the Senate to pass similar legislation to the bill passed by the House on the matter. Most of the money will come in the form of a "general educational grant" from PhRMA. Another group advertising in favor of the industry's point of view is the 60 Plus Association. According to Ken Goldstein, a professor of political science at the University of Wisconsin, "The drug industry is once again on track to be the biggest industry-group spender in American elections

 Celebrity advertisements for certain drugs have come into the limelight lately. Rob Lowe, the actor from the television hit show "The West Wing" has starred in an ad campaign for Amgen Inc.'s new drug Neulasta, which is the next generation for its blockbuster drug Neupogen. The drug is used to treat neutropenic infections, which result from cancer chemotherapy's weakening the body's disease fighting white blood cells. Neupogen required daily injections while Neulasta needs to be administered every two to four weeks.

FDA rules state that if a particular drug rather than a condition is mentioned in a celebrity ad, the ad must state what the main side effects of the drug are, and also show where the consumer can find more detailed information via an 800 number or a Web site.

Claritin was the 3rd most widely advertised drug in the United States. Schering-Plough has spent over $322 million in advertising the drug in 1998 and 1999. In the year 2000 Schering has spent over $100 million advertising Claritin. With Claritin having come off prescription status, Schering is now switching their ads over to using Clarinex, the next generation prescription drug to Claritin.

In its battle to try and retain sales for its new allergy drug Clarinex, Schering-Plough wants you to call them or visit their Web site for information on how to get a free seven-day sample of the drug. Clarinex is Schering's wild card in trying to replace Claritin's patent when it expired. This free sample is worth about $15 retail.

In the same vein many brand name drug companies are offering free samples or through rebates for their drugs through free coupons. For Viagra, the promotion involves a six free pill sample worth about $50 retail; for Xenical a weight-loss drug the promotion involves buying a 3-month supply in return for which you get a free 3-month supply worth about $356. In the case of Prozac, the antidepressant drug you can get a one-month free trial package worth about $75. The offer allows only one per household and you must have a doctor's prescription in order to be able to get the drug.

 Centocor, a subsidiary of Johnson & Johnson, has been cited by several doctors for improper marketing in connection with its rheumatoid arthritis prescription drug Remicade. Centocor had a document on its website that stated that one of the "benefits" of prescribing Remicade was the "financial impact" on the physician's practice.

This situation arises because Remicade is covered under Medicare, since the drug must be administered intravenously in the doctor's office. Rick D. Anderson, vice-president of Centocor's immunology division stated that this document was outdated and inadvertently had remained on the company's website. The document in question is no longer on the site. Most of the drugs used to treat rheumatoid arthritis are in pill form. Enbrel is an injectible medication that is self-administered by the patient and therefore not reimbursed by Medicare.

In addition to the financial benefit that may accrue to the doctor, many physicians prescribe Remicade for their elderly patients, since Medicare does not cover most other medications. The cost for a full year's treatment of rheumatoid arthritis with Remicade comes to about $20,000, while a year's treatment with a generic drug such as methotrexate would cost about $400.

 The results of a study of drug advertising conducted by Scott Neslin, a marketing professor were released in the Association of Medical Publications. The study compared the return on investment for the 4 marketing tactics most often used by drug companies. According to the study the drug companies spent the following:

 IMS Health estimates that $4.04 billion was spent by the pharmaceutical industry on marketing directly to doctors, which is up 64% since 1996. This is about 40% more than the $2.5 billion that was spent by the industry on advertising to consumers in 2000. The Wall Street Journal recently highlighted this issue in an article by Chris Adams entitled "Doctors on the Run Can 'Dine 'n 'Dash' In Style in New Orleans". The article highlighted the matter of the drug companies giving inducements to doctors "to learn more about their products".

For the fourth time in 16 months the Food and Drug Administration cited Pfizer Inc. and Pharmacia Corp for improper marketing of Celebrex, the anti-arthritic drug they co-market. The "warning letter" dated February 4, 2001 cited the "repeated promotional activities that minimize the potentially serious risk of using Celebrex" together with a common blood-thinning medication.

This most recent episode involved a doctor trained by the drug makers who called a group of other doctors over a speaker phone and made "several unsubstantiated comparative claims" regarding Celebrex. A Pharmacia spokesperson stated that the company had taken action to prevent the situation from happening again. The "warning letter" went on to further state: " Despite your assurances, however, your violative promotion of Celebrex has continued". The previous letters were not considered "warning letters" but nevertheless we must ask how many times can a violation re-occur without incurring a more severe punishment than a slap on the wrist.

 The median profit for pharmaceutical companies in 1999 was 18.5 %, which is the highest return for any industry. According to Stephen Schondelmeyer, a professor at the University of Minnesota's College of Pharmacy, " The 18.5 % profit is accounted (for) separately from the 20% they say they spend on R&D". The median for all other industries is 4.4 %. According to Professor Schondelmeyer " On average, for every $100 spent on a drug at the manufacturer's level, the actual cost of making it is $10 to $15." He also stated: " A further $20 goes to R&D. About $15 goes to taxes and administrative costs. About $30 goes to advertising and marketing". We certainly do realize on the other hand that very few drugs go on to become "blockbuster drugs" and the cost and expenses for the failure is very high.

Direct to consumer advertising for prescription drugs was illegal until 1997. By advertising the ailment instead of the brand name drug the drug companies do not have to contend with mentioning the potential side effects of their drug. The Food and Drug Administration's "fair balance" guidelines set up in 1997 require indicating the side effects only when the particular drug, not the ailment is advertised.

The average price per prescription grew from $40.96 in 1999 to $45.27 in 2000. The number of prescriptions filled increased from 2.7 billion in 1999 to 2.9 billion in 2000. In 1998 the average price per prescription for new drugs (those introduced in 1992 or later) was $71.49 more than twice the $30.47 for previously existing drugs. The drug industry claims that Medicare coverage for prescription drugs means a lowering of their profit margin and thus would result in a lowering of their R&D expenditures. The drug industry sharply increased its direct to consumer advertising in 1997 when the FDA relaxed its guidelines for television advertising for pharmaceuticals. It is estimated that the drug industry spent about $1.5 billion on direct to the consumer advertising in 1998.

We feel that this direct advertising to the consumer has resulted in more negatives than positives. Is the increased cost that we all are bearing worth the supposed more knowledge that the consumer gains? We feel these ads only serve to confuse the public more than they benefit us.