There is no doubt that drugs can save lives, prolong lives, and improve the quality of people's lives. Like adequate nutrition, vaccinations and medications are important for public health. However, in a free-market economy, access to safe and effective drugs (or any kind of healthcare, for that matter) is not equitable. Not surprisingly, there is a substantial tension between those who would treat drugs as entitlements and those who view drugs as high-tech products of a capitalistic society. Supporters of the entitlement position argue that the constitutional right to life should guarantee access to drugs and other healthcare, and they are critical of pharmaceutical companies and others who profit from the business of making and selling drugs. Free-marketers point out that, without a profit motive, it would be difficult to generate the resources and innovation required for new drug development.
The media tend to focus on public policy with regard to the ethics of drug testing, the effectiveness of government regulations, and conflicts of interest on the part of researchers, physicians, and others who may have a personal stake in the success of a drug. In addition, high-profile legal battles have been waged recently over access to experimental (non-FDA-approved) drugs and over injuries and deaths resulting from both experimental and approved drugs. Clearly the public has an interest in both the pharmaceutical industry and its oversight. Consequently, drug development is not only a scientific process but also a political one in which attitudes can change quickly. Little more than a decade ago Merck was named as America's most admired company by Fortune magazine seven years in a row—a record that still stands. Today, Johnson and Johnson is the only pharmaceutical company in the top 50 of the most-admired list, and this likely reflect their sales of consumer products, such as band-aids and baby oil, rather than pharmaceuticals. The next sections explore some of the more controversial issues surrounding drug invention and development and consider some of the more strident criticisms that have been leveled at the pharmaceutical industry (Angell, 2004).
Mistrust of Scientists and Industry
Those critical of the pharmaceutical industry frequently begin from the position that people (and animals) need to be protected from greedy and unscrupulous companies and scientists (Kassirer, 2005). They can point to the very unfortunate (and highly publicized) occurrences of graft, fraud, and misconduct by scientists and industry executives, and unethical behavior in university laboratories and community physicians' offices. These problems notwithstanding, development of new and better drugs is good for people and animals. In the absence of a government-controlled drug development enterprise, our current system relies predominantly on investor-owned pharmaceutical companies that, like other companies, have a profit motive and an obligation to shareholders.
Pricing and Profitability
The price of prescription drugs causes great consternation among consumers, especially as many health insurers seek to control costs by choosing not to cover certain "brand name" products. Further, a few drugs (especially for treatment of cancer) have been introduced to the market in recent years at prices that greatly exceeded the costs of development, manufacture, and marketing of the product. Many of these products were discovered in government laboratories or in university laboratories supported by federal grants. The U.S. is the only large country in the world that places no controls on drug prices and where price plays no role in the drug approval process. Many U.S. drugs cost much more in the United States than overseas. The result is that U.S. consumers subsidize drug costs for the rest of the world, including the economically developed world, and they are irritated by that fact.
As explained earlier, the drug development process is long, expensive, and highly risky (Figure 1–1 and Table 1–1). Only a small fraction of compounds that enter the development pipeline ever make it to market as therapeutic agents. Consequently, drugs must be priced to recover the substantial costs of invention and development, and to fund the marketing efforts needed to introduce new products to physicians and patients. Nevertheless, as U.S. healthcare spending continues to rise at an alarming pace, prescription drugs account for only ~10% of total healthcare expenditures (Kaiser Family Foundation, 2009), and a significant fraction of this drug cost is for low-priced nonproprietary medicines. Although the increase in prices is significant in certain classes of drugs (e.g., anticancer agents), the total price of prescription drugs is growing at a slower rate than other healthcare costs. Even drastic reductions in drug prices that would severely limit new drug invention would not lower the overall healthcare budget by more than a few percent.
Are profit margins excessive among the major pharmaceutical companies? There is no objective answer to this question. Pragmatic answers come from the markets and from company survival statistics. A free-market system says that rewards should be greater for particularly risky fields of endeavor, and the rewards should be greater for those willing to take the risk. The pharmaceutical industry is clearly one of the more risky. The costs to bring products to market are enormous; the success rate is low (accounting for much of the cost); effective patent protection is only about a decade (see "Intellectual Property and Patents" later in the chapter), requiring every company to completely reinvent itself on a roughly 10-year cycle (about equal to the lifespan of a CEO or an executive vice president for research and development); regulation is stringent; product liability is great even after an approved product has reached the market; competition is fierce.
The ratio of the price of a company's stock to its annual earnings per share of stock is called the price-to-earnings ratio (P/E) and is a measure of the stock market's predictions about a company's prospects. A decade ago, pharmaceutical companies' stocks on average were priced at a 20% premium to the market; today they sell at a 34% discount; this is a dramatic change. A decade or two ago, the pharmaceutical industry was incredibly fragmented, with the biggest players commanding only very modest shares of the total market. Mergers and acquisitions continue to narrow the field. For example, Hoechst AG, Roussel Uclaf, and Marion Merrell Dow plus Rhone-Poulenc became Aventis, which then merged with Sanofi-Synthélabo to become Sanofi-Aventis. The giant Pfizer represents the consolidation of Warner Lambert, Park Davis, Searle, Monsanto, Pharmacia, Upjohn, and Agouron, among others. Pfizer's acquisition of Wyeth is currently pending; Wyeth is the result of the consolidation of American Home Products, American Cyanamid, Ayerst, A. H. Robbins, Ives Laboratories, and Genetics Institute. The pharmaceutical world is shrinking.
Healthcare in the U.S. is funded by a mix of private payers and government programs. Correspondingly, the cost of prescription drugs is borne by consumers ("out-of-pocket"), private insurers, and public insurance programs like Medicare, Medicaid, and the State Children's Health Insurance Program (SCHIP). Recent initiatives by major retailers and mail-order pharmacies run by private insurers to offer consumer incentives for purchase of generic drugs have helped to contain the portion of household expenses spent on pharmaceuticals; however, more than one-third of total retail drug costs in the U.S. are paid with public funds—tax dollars.
Healthcare in the U.S. is more expensive than everywhere else, but it is not, on average, demonstrably better than everywhere else. However, the U.S. is considerably more socio-economically diverse than many of the countries with which comparisons are made. Forty-five million Americans are uninsured and seek routine medical care in emergency rooms. Remedies are the current subjects of complex medical, public health, economic, and political debates. Solutions to these real problems must recognize both the need for effective ways to incentivize innovation and to permit, recognize, and reward compassionate medical care.
Intellectual Property and Patents
Drug invention, like any other, produces intellectual property eligible for patent protection. Without patent protection, no company could think of making the investments necessary for drug invention and development. With the passage of the Bayh-Dole Act (35 USC 200) in 1980, the federal government created strong incentives for scientists at academic medical centers to approach drug invention with an entrepreneurial spirit. The Act transferred intellectual property rights to the researchers themselves and in some instances to their respective institutions in order to encourage the kinds of partnerships with industry that would bring new products to market, where they could benefit the public. This resulted in the development of "technology transfer" offices at virtually every major university, which help scientists to apply for patents and to negotiate licensing arrangements with industry (Geiger and Sá, 2008). While the need to protect intellectual property is generally accepted, the encouragement of public-private research collaborations has given rise to concerns about conflicts of interest by scientists and universities (Kaiser, 2009).
Despite the complications that come with university-industry relations, patent protection is enormously important for innovation. As noted in 1859 by Abraham Lincoln (the only U.S. president to ever hold a patent [# 6469, for a device to lift boats over shoals]), by giving the inventor exclusive use of his or her invention for limited time, the patent system "added the fuel of interest to the fire of genius, in the discovery and production of new and useful things." The U.S. patent protection system mandates that when a new drug is invented, the patent covering the property lasts only 20 years from the time the patent is filed. During this period, the patent owner may bring suit to prevent others from marketing the product, giving the manufacturer of the brand-name version exclusive rights to market and sell the drug. When the patent expires, equivalent products can come on the market, where they are sold much more cheaply than the original drug, and without the huge development costs borne by the original patent holder. The marketer of the so-called generic product must demonstrate "therapeutic equivalence" of the new product: it must contain equal amounts of the same active chemical ingredient and achieve equal concentrations in blood when administered by the same routes.
Note, however, that the long time course of drug development, usually more than 10 years (Figure 1–1), dramatically reduces the time during which patent protection functions as intended. Although The Drug Price Competition and Patent Term Restoration Act of 1984 (the "Hatch-Waxman Act") permits a patent holder to apply for extension of a patent term to compensate for delays in marketing due to FDA approval processes, patents can be extended only for half the time period consumed by the regulatory approval process, for a maximum of 14 years. The average new drug brought to market now enjoys only ~10-12 years of patent protection. Some argue that patent protection for drugs should be shortened, based on the hope that earlier generic competition will lower healthcare costs. The counter-argument is that new drugs would have to bear higher prices to provide adequate compensation to companies during a shorter period of protected time. If that is true, lengthening patent protection would actually permit lower prices. Recall that patent protection is worth little if a superior competitive product is invented and brought to market at any time in the patent cycle.
In an ideal world, physicians would learn all they need to know about drugs from the medical literature, and good drugs would thereby sell themselves; we are a long way from the ideal. Instead we have print advertising and visits from salespeople directed at physicians, and extensive so-called "direct-to-consumer" advertising aimed at the public (in print, on the radio, and especially on television). There are roughly 100,000 pharmaceutical sales representatives in the U.S. who target ~10 times that number of physicians. It has been noted that college cheerleading squads are attractive sources for recruitment of this sales force. The amount spent on promotion of drugs approximates or perhaps even exceeds that spent on research and development. Pharmaceutical companies have been especially vulnerable to criticism for some of their marketing practices.
Promotional materials used by pharmaceutical companies cannot deviate from information contained in the package insert. In addition, there must be an acceptable balance between presentation of therapeutic claims for a product and discussion of unwanted effects. Nevertheless, direct-to-consumer advertising of drugs remains controversial and is permitted only in the U.S. and New Zealand. Physicians frequently succumb with misgivings to patients' advertising-driven requests for specific medications. The counter-argument is that patients are educated by such marketing efforts and in many cases will then seek medical care, especially for conditions that they may have been denying (e.g., depression) (Donohue et al., 2007).
The major criticism of drug marketing involves some of the unsavory approaches used to influence physician behavior. Gifts of value (e.g., sports tickets) are now forbidden, but dinners where drug-prescribing information is presented are widespread. Large numbers of physicians are paid as "consultants" to make presentations in such settings. It has been noted that the pharmaceutical companies' sales representatives frequently deliver more pizza and free drug samples than information to a doctor's office. These practices have now been brought squarely into the public view, and acceptance of any gift, no matter how small, from a drug company by a physician, is now forbidden at many academic medical centers and by law in several states (e.g., Vermont and Minnesota).
The board of directors of the Pharmaceutical Research and Manufacturers of America (PhRMA) has recently adopted an enhanced code on relationships with U.S. healthcare professionals. This code prohibits the distribution of non-educational items, prohibits company sales representatives from providing restaurant meals to healthcare professionals, and requires companies to ensure that their representatives are trained about laws and regulations that govern interactions with healthcare professionals.
Exploitation or "Medical Imperialism"
There is concern about the degree to which U.S. and European patent protection laws have restricted access to potentially life-saving drugs in developing countries. Because development of new drugs is so expensive, private-sector investment in pharmaceutical innovation naturally has focused on products that will have lucrative markets in wealthy countries such as the U.S., which combines patent protection with a free-market economy. However, to lower costs, companies increasingly test their experimental drugs outside the U.S. and the E.U., in countries such as China, India, Russia, and Mexico, where there is less regulation and easier access to large numbers of patients. If the drug is successful in obtaining marketing approval, consumers in these countries often cannot afford the drugs they helped to develop. Some ethicists have argued that this practice violates the justice principle articulated in The Belmont Report (1979), which states that "research should not unduly involve persons from groups unlikely to be among the beneficiaries of subsequent applications of the research." On the other hand, the conduct of trials in developing nations also frequently brings needed medical attention to underserved populations. Some concerns about the inequitable access to new pharmaceuticals in the very countries where they have been tested have been alleviated by exemptions made to the World Trade Organization's Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) agreement. The TRIPS agreement originally made pharmaceutical product patent protection mandatory for all developing countries beginning in 2005. However, recent amendments have exempted the least developed countries from pharmaceutical patent obligations at least through 2016. Consequently, those developing countries that do not currently provide patent protection for pharmaceutical products can legally import less expensive versions of the same drugs from countries such as India where they are manufactured.
Product liability laws are intended to protect consumers from defective products. Pharmaceutical companies can be sued for faulty design or manufacturing, deceptive promotional practices, violation of regulatory requirements, or failure to warn consumers of known risks. So-called "failure to warn" claims can be made against drug makers even when the product is approved by the FDA. Although the traditional defense offered by manufacturers in such cases is that a "learned intermediary" (the patient's physician) wrote the prescription for the drug in question, the rise of direct-to-consumer advertising by drug companies has undermined this argument. With greater frequency, courts are finding companies that market prescription drugs directly to consumers responsible when these advertisements fail to provide an adequate warning of potential adverse effects.
Although injured patients are entitled to pursue legal remedies when they are harmed, the negative effects of product liability lawsuits against pharmaceutical companies may be considerable. First, fear of liability that causes pharmaceutical companies to be overly cautious about testing also delays access to the drug. Second, the cost of drugs increases for consumers when pharmaceutical companies increase the length and number of trials they perform to identify even the smallest risks, and when regulatory agencies increase the number or intensity of regulatory reviews. To the extent that these price increases may actually reduce the number of people who can afford to buy the drugs, there can be a negative effect on public health. Third, excessive liability costs create disincentives for development of so-called "orphan drugs," pharmaceuticals that would be of benefit to a very small number of patients. Should pharmaceutical companies be liable for failure to warn when all of the rules were followed and the product was approved by the FDA but the unwanted effect was not detected because of its rarity or another confounding factor? The only way to find "all" of the unwanted effects that a drug may have is to market it—to conduct a Phase IV "clinical trial" or observational study. Enlightened self-interest works both ways, and this basic friction between risk to patients and the financial risk of drug development does not seem likely to be resolved except on a case-by-case basis.
The Supreme Court of the U.S. added further fuel to these fiery issues in 2009 in the case Wyeth v. Levine. A patient (Levine) suffered gangrene of an arm following inadvertent arterial administration of the drug promethazine. The health-care provider had intended to administer the drug by so-called intravenous push. The FDA-approved label for the drug warned against but did not prohibit administration by intravenous push. The state courts and then the U.S. Supreme Court held both the health-care provider and the company liable for damages. FDA approval of the label apparently neither protects a company from liability nor prevents individual states from imposing regulations more stringent than those required by the federal government. Perhaps this decision rested more on the intricacies of the law than on consideration of proper medical practice.
"Me Too" Versus True Innovation: The Pace of New Drug Development
"Me-too drug" is a term used to describe a pharmaceutical that is usually structurally similar to one or more drugs that already are on the market. The other names for this phenomenon are "derivative medications, "molecular modifications," and "follow-up drugs." In some cases, a me-too drug is a different molecule developed deliberately by a competitor company to take market share from the company with existing drugs on the market. When the market for a class of drugs is especially large, several companies can share the market and make a profit. Other me-too drugs result coincidentally from numerous companies developing products simultaneously without knowing which drugs will be approved for sale.
Some me-too's are simply slightly altered formulations of a company's own drug, packaged and promoted as if it really offers something new. An example of this type of me-too is the heartburn medication esomeprazole, which is marketed by the same company that makes omeprazole. Omeprazole is a mixture of two stereoisomers; esomeprazole contains only one of the isomers and is eliminated less rapidly. Development of esomeprazole created a new period of market exclusivity, although generic versions of omeprazole are marketed, as are branded congeners of omeprazole/ esomeprazole.
There are valid criticisms of me-too drugs. First, it is argued that an excessive emphasis on profit will stifle true innovation. Of the 487 drugs approved by the FDA between 1998 and 2003, only 67 (14%) were considered by the FDA to be new molecular entities. Second, to the extent that some me-too drugs are more expensive than the older versions they seek to replace, the costs of healthcare are increased without corresponding benefit to patients. Nevertheless, for some patients, me-too drugs may have better efficacy or fewer side effects or promote compliance with the treatment regimen. For example, the me-too that can be taken but once a day and not more frequently is convenient and promotes compliance. Some "me-toos" add great value from a business and medical point of view. Atorvastatin was the seventh statin to be introduced to market; it subsequently became the best-selling drug in the world.
Introduction of similar products in other industries is viewed as healthy competition. Such competition becomes most evident in the pharmaceutical business when one or more members of a group loses patent protection. Now that non-proprietary versions of simvastatin are available, sales of atorvastatin are declining. Billions of dollars might be saved, likely with little loss of benefit, if nonproprietary simvastatin were substituted for proprietary atorvastatin, with appropriate adjustment of dosages.
Critics of the pharmaceutical companies argue that they are not innovative and do not take risks and, further, that medical progress is actually slowed by their excessive concentration on me-too products. Figure 1–2 summarizes a few of the facts behind this and some of the other arguments just discussed. Clearly, smaller numbers of new molecular entities have been approved by the FDA over the past decade, despite the industry's enormous investment in research and development. This disconnect has occurred at a time when combinatorial chemistry was blooming, the human genome was being sequenced, highly automated techniques of screening were being developed, and new techniques of molecular biology and genetics were offering novel insights into the pathophysiology of human disease. Some blame mismanagement of the companies. Some say that industry science is not of high quality, an argument readily refuted. Some believe that the low-hanging fruit has been plucked, that drugs for complex diseases, such as neural degeneration or psychiatric and behavioral disorders, will be harder to develop. The biotechnology industry has had its successes, especially in exploiting relatively obvious opportunities that the new recombinant DNA technologies made available (e.g., insulin, growth hormone, erythropoietin, and more recently, monoclonal antibodies to approachable extracellular targets). Despite their innovations, the biotechnology companies have not, on balance, been more efficient at drug invention or discovery than the traditional major pharmaceutical companies.
The cost of drug invention is rising dramatically while productivity is declining. The past several decades have seen enormous increases in spending for research and development by the pharmaceutical industry. While this was associated with increasing numbers of new molecular entities (NMEs) approved for clinical use during the latter years of the 20th century, this trend has been reversed over the past decade, leading to unsustainable costs per new molecular entity approved by the FDA. The peak in the mid- 1990s was caused by the advent of PDUFA (see text), which facilitated elimination of a backlog.
Whatever the answers, the trends evident in Figure 1–2 must be reversed (Garnier, 2008). The current path will not sustain today's companies as they face a major wave of patent expirations over the next several years. Acquisition of other companies as a business strategy for survival can be successful for only so long. There are arguments, some almost counter-intuitive, that development of much more targeted, individualized drugs, based on a new generation of molecular diagnostic techniques and improved understanding of disease in individual patients, could improve both medical care and the survival of pharmaceutical companies. Finally, many of the amazing advances in genetics and molecular biology are still very new, particularly when measured in the time frame required for drug development. One can hope that modern molecular medicine will sustain the development of more efficacious and more specific pharmacological treatments for an ever wider spectrum of human diseases.