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From Scientists to Merchants: The Transformation
of the Pharmaceutical Industry and its Impact on
The number of innovative drugs reaching the market has decreased
steadily during the last several years to a handful per year.
At the same time, the amount of resources allocated by the
pharmaceutical industries to promotion and marketing has
increased at a faster pace than those allocated to research and
development of new products. The paper presents the hypothesis
that for the large corporations, the production of me-too drugs
is more proﬁtable than to invest in research and development of
innovative products. Gaining a market share of me-too drugs
requires large investments in promotion and marketing, one
result of which is a division of labor among pharmaceutical ﬁrms.
Because small ﬁrms lack the large resources needed for promotion
and marketing, they carry out an increasing share of the research
and development and sell the patents to the large corporations.
De Cientíﬁcos a Comerciantes: La Transformación de
la Industria Farmacéutica y su Impacto en la Salud
El número de medicamentos que representan verdaderos avances
terapéuticos y que se comercializan anualmente ha ido decreciendo
durante los últimos años y ahora no son más que un puñado.
A la vez, la cantidad de recursos que la industria invierte en
promoción y marketing ha aumentado a una velocidad más rápida
Societies Without Borders 1
, 21–40 Koninklijke Brill NV, Leiden, 2006
que las inversiones en investigación y desarrollo de productos nuevos. Este trabajo discute la
hipótesis de que la producción de medicamentos “yo también (
me too en inglés)” es más
lucrativa que la inversión en la investigación y desarrollo de productos innovadores. Para
poder controlar una parte signiﬁcativa del mercado con los medicamentos “yo también” la
industria necesita invertir considerablemente en promoción y marketing, y como consecuencia
ha habido una división de tareas entre los diferentes tipos de industria farmacéutica. Las
compañías pequeñas no tienen recursos suﬁcientes para la promoción y marketing, y cada vez
tienen un papel más importante en la investigación y desarrollo de productos innovadores,
luego estas compañías venden las patentes a las grandes corporaciones.
Des scientiﬁques aux marchandeurs: la transformation de l’industrie
pharmaceutique et l’effet sur la santé
Le nombre des médicaments innovateurs sur le marché diminue depuis plusieurs années
jusqu’au point où ils n’y sont qu’une poignée par an. En même temps, les ressources reparties
par les industries pharmaceutiques pour la promotion et la commercialisation augmentent
plus vite que celles qui sont reparties pour la recherche-développement des médicaments
nouveaux. Dans cet article, on formule l’hypothèse que quant aux entreprises les plus larges
il est plus proﬁtable de produire les “moi aussi” médicaments (qui sont à la mode) qu’il est
proﬁtable d’investir dans la recherche-développement des nouveaux produits efﬁcaces. Pour
gagner un marché des “moi aussi” médicaments il faut des investissements dans la promotion
et la commercialisation, dont un résultat est la division de travail parmi les entreprises
pharmaceutiques. Puisque aux petites entreprises, il manque les ressources assez larges pour
la promotion et la commercialisation, au lieu de les faire elles-mêmes, elles font la plupart de
la recherche-développement et vendent les brevets d’invention aux entreprises plus larges.
From Scientist to Merchants: The Transformation of the
Pharmaceutical Industry and its Impact on Health
For a number of years, the prices of medicines have increased at a higherrate than inﬂation. The transnational innovative pharmaceutical industries,known as big PhRMA, are large corporations which, regardless of the countrywhere they originated, are members of Pharmaceutical Research andManufacturers of America. Big PhRMA claims that to maintain the rhythmof discoveries that have produced the miracle pills requires ever-growinginvestments in research and development (R&D). Many organizations andscholars have a different explanation for the high costs of medicines. Accordingto them, the high costs are explained by PhRMA’s interest in maintaining
huge proﬁts, high salaries and stock options for their executives, and morefundamentally by the high expenditures in marketing and administration;and are not a consequence, as the industry asserts, of the high costs of R&D.
Families USA uncovered that in 2001 the executives of 10 big ﬁrms received
an average compensation of US$23 million exclusive of unexercised stockoptions, the average of which was US$48 million.1 Between 1991 and 2001,the pharmaceutical industry was the most proﬁtable industry in the US orabout ﬁve-and-one-half times more proﬁtable than the average of the Fortune500 companies,2 with an annual rate of return to shareholders, between 1996and 2001, of 18.4 percent compared with a median return of 9.2 for the Fortune500 shareholders.3
The high costs of promotion and marketing
It is difﬁcult to provide accurate ﬁgures of the amounts that big PhRMAspends on promotion and marketing (P&M) because ofﬁcial industry ﬁgurescombine the expenditures on promotion, marketing and administration in asingle category, and in addition, as we will see, some ﬁrms report under R&Dexpenditures that many consider should be included under P&M. Althoughthe industry presents a very different picture,4 there is an agreement amongindependent researchers that the amount of funds spent on R&D of innovativedrugs are less than the amounts spent on administration, marketing, andpromotion by a factor of two or more.5
The following summary presents P&M activities carried out by big PhRMA:
1. Recruitment and training of drug representatives. In the US there are
100,000 representatives to inform physicians6 with an average salary ofUS$62,400 and additional US$19,300 for cash bonuses.7
1 Families USA 2002, pp. 6–7.
2 Families USA 2002, p. 1; p. 3; p. 13.
3 Public Citizen 2001a, 12.
4 Pharmaceutical Research and Manufacturers of America 2004.
6 Golberg et al. 2004, http://www.pharmexec.com/pharmexec/article/article
7 Golberg and Davenport 2005, http://www.pharmexec.com/pharmexec/article/
2. Advertisements in the professional literature and directed to the consumer
(DTC) (only the US and New Zeeland allow DTC advertising of prescriptiondrugs). It is estimated that in 2002, only in the US, the pharmaceuticalﬁrms spent in promotion US$21 billion.8
3. The continuing education courses that all physicians are required to take
are almost entirely ﬁnanced by pharmaceutical industries. About US$1.9billion are yearly spent by the industry in organizing conferences andcourses.9 There is a growing number of physicians that consider that suchfunding creates a conﬂict of interest because each company uses thesecourses to promote its drugs.10 In 2000 the industry sponsored 314,000events for physicians.11 In addition to the courses, the industry sponsorsthe participation of physicians at professional meetings, (in some instanceswith a companion). In developing countries most physicians attendinternational overseas meetings courtesy of the industry. It is understood,that there is a quid pro quo and physicians who do not prescribe the ﬁrms’products risk not being invited again. Wazana carried out a survey toassess the impact of travel support, scholarships and gifts by the industryon prescribing practices and found that they did inﬂuence them.12 Thereis no information about the costs of these activities but given the largenumber of events and scholarships granted it can be presumed to besizeable.
4. Paying well-recognized physicians to head Phase IV clinical trials. These
studies take place once a drug has been approved and is already com-mercialized. Their purpose is to discover if the drug has any unknownside effects, or if it can be used for other indications or for a specialpopulation group. In some cases, these studies are required by the Foodand Drug Administration. These studies have also the non-written objectiveof promoting the use of the drug.13 The pharmaceutical industry selects awell-recognized specialist or renowned professor who will receive a
8 Norris et al. p. 1.
9 Outterson 2004.
10 Brennan et al. 2006, pp. 431–432.
11 National Institute for Health Care Manangement 2001, http://www.nihcm.org/
12 Wazana 2000.
13 Angell 2004, pp. 161–166; Health Action International-Europe 2004, p. 4.
substantial payment for carrying-out the study; the expectation is thathe/she would be able to ﬁnd that the drug has more beneﬁts or fewerrisks than other existing products. The sponsor expects that the professionalstatus of the director of the study will inﬂuence his/her colleagues toprescribe the drug. There is no information on the number and costs ofPhase IV studies because most are not registered and the results are notalways disclosed. It has been estimated that the cost per patient enrolledin a cardiovascular clinical trial in industrial societies ranges from US$5,000to 10,000 depending on the complexity of the study, and the investigatorreceives a fee between US$2000 and 3000 for each patient recruited for thestudy.14 Phase IV studies are also carried out in developing countries, butthere is secrecy about payments to the carefully selected directors of thestudies, and information surfaces only when irregularities are brought tothe attention of the media or in audits.15 There is no information aboutthe costs of Phase IV studies, but they are bound to be high. We can assumethat the industry considers these expenditures to be part of its R&D costs,all of which are tax deductible.
5. The industry sponsors research and pays scholars to write in leading
academic journals. It has been discovered that, compared to independentresearch, sponsored research frequently ﬁnds more therapeutic advantagesand fewer side effects of drugs manufactured by the sponsoringmanufacturer; it is also known that the industry pays scholars to signarticles written by ghost writers – also paid by the industry – that presentﬁndings about the beneﬁts of the drugs, regardless if this is the case ornot.16 Subsequently, they buy thousands of reprints of these articles to bedistributed to physicians at meetings (without these purchases and drugadvertisements many medical journals would cease to exist). A surveyconducted by Martinson et al. found that 15.5 percent of US scientistsfunded by the National Institute of Health had changed the design,methodology or results of a study in response to pressure from a fundingagency.17 It is probable that research grants and costs related to publicationsare categorized as R&D, even if its primary objective is promotion.
14 Bassand et al. 2003, p. 1172.
15 Acción Internacional para la Salud-Latin América 2003, p. 3; Orchuela 2006.
16 Collier and Iheanacho 2002, p. 1406; Koch 2003, p. 1161.
17 Martinson et al. 2005, p. 737.
7. Grants to patients’ associations are used to make dubious claims about
the need to use certain drugs while minimizing their side effects. Forexample, the National Sleep Foundation receives funding from ﬁrms thatmarket sleeping pills; for the years 1999 and 2000 Citizens for BetterMedicare, a group that without public knowledge had been created bythe pharmaceutical industry, spent US$65 million on “issue ads”.18 In theEuropean Union the funding by and links between the industry and the European Patients’ Forum, an advocacy group for the defense ofpatients, have been uncovered.19 This group is a coalition that representsseveral organizations of patients and has become the ofﬁcial mediator ofpatients before the European Union. The scandals resulting from therelations of organizations that purport to represent patients and the industryhas reached such levels that the new code of practice of the Associationof the British Pharmaceutical Industry requires from all industries workingin the United Kingdom full disclosure of the relations with and fundingof all advocacy groups.20 Figures of grants are not available but, comparedwith other promotional and marketing costs are probably not high.
8. Distribution of millions of free samples to physicians, which in 2001 were
valued at US$11 billion, but it is not clear if this ﬁgure is based on theirretail or factory price; if the ﬁgure is based on retail prices, the ﬁrms mayobtain some additional tax beneﬁts because they are deducting more thanthe real costs.
Other expenditures: Protecting and defending big PhRMA’s
Like other corporations, big PhRMA ﬁrms spend large amounts of funds inprotecting and defending their interests. The following is a listing of theseactivities:
1. Maintaining a large number of lobbyists to inﬂuence legislation and
persuade staff of the regulatory agencies in decisions that favor the industryover the protection of citizens. In the US, in 2004 the drug industry had
18 Public Citizen 2001b, p. 11.
19 Health Action International-Europe 2005.
20 Association of the British Pharmaceutical Industries 2005, pp. 32–33.
1,291 lobbyists (52 percent were former federal ofﬁcials) at a cost of US$123million, higher than any other industry, and in the seven years from 1998to 2004 they lobbied more than 1,600 bills.21
2. Contributing donations to political parties and political candidates. In the
US in seven years, from 1998 to 2004, the industry contributed to federalcampaigns in the amount of US$87 million and the political contributionsto state governments amounted to US$46 million.22
3. Maintaining a top class team of lawyers to ﬁnd loopholes to extend the
market exclusivity, and to ﬁght legal and class action suits. When neededthe industry hires the best law ﬁrms. The total costs paid to the lawyersand legal ﬁrms are not known, but it can be assumed that they aresubstantial.
4. Payment of multimillion-dollar settlements and ﬁnes. For example, in
January of 2006, Bristol-Myers Squibb reserved US$185 million inanticipation of a possible settlement of a class-action lawsuit ﬁled by usersof the once-promising heath drug Vanlev;23 in 2005 GlaxoSmithKline wasﬁned US$150 million for the fraudulent price increase of two drugs; thesame year Serono, a Swiss biotech ﬁrm was ﬁned US$704 million for theillegal promotion of a drug in the US; also in 2005 the government ofBrazil ﬁned twenty ﬁrms among them Abbott, Ely Lilly, Schering Plough,Roche, Bristol-Myers Squibb, Aventis Pharma, Bayer, Glaxo Wellcome,AstraZeneca, Boehringher Ingelheim, Aventis, Behring, Sanoﬁ-Synthelabo,Wyeth-Whitehall for colluding to impede the commercialization of genericsin the country.24 Tap Pharmaceuticals paid US$875 million for a fraudagainst the US government.25 In its ﬁrst case against Vioxx, the courtcondemned Merck to pay US$253 million and some analysts have speculatedthat the thousands of cases pending could cost Merck billions. Rarely, amonth goes by without at least one multimillion court case or a ﬁne againsta pharmaceutical ﬁrm.
21 Asif Ismail 2005, http://www.publicintegrity.org/rx/printer-friendly.aspx?aid=72322 Asif Ismail 2005, http://www.publicintegrity.org/rx/printer-friendly.aspx?aid=72323 Anonymous 2006, 19.
24 Anonymous 2005a, p. 87.
25 Dembner 2001, p. A1.
Costs of innovation vs. R&D
There is consensus that the cost of bringing highly innovative drugs to themarket is increasing, but there is disagreement among experts about the costof developing them. DiMasi et al. using conﬁdential data of 68 selected drugsprovided by ten ﬁrms arrived at the average ﬁgure of US$802 million (in US$of 2000).26 These ﬁndings have been contested by several other researchersthat raised questions about the methodology and offered evidence that the price of a new innovative drug could be as low as one-fourth to half ofthe DiMasi’s estimate.27 Critics of DiMasi indicate that the Tuft Center for theStudy of Drug Development, where he is based, receives large unrestrictedgrants from the pharmaceutical industry, which has a vested interest indemonstrating that the development of new drugs is very expensive in orderto justify high sale prices.
Indian pharmaceutical industries claim that in India innovative molecular
entities (NMEs) can be brought to the market for a fraction of the US$802million, or about US$50 million.28 Although not always reﬂected in theirreports, some PhRMA industries are outsourcing parts of the developmentprocess to China and India.
The industry’s lack of transparency makes it difﬁcult to know with certainty
the real allocations to innovative R&D and to other activities designed toincrease sales and proﬁts. If today’s industry’s estimate of producing a newdrug is US$1 billion and we multiply this amount by the average number ofinnovative drugs per year (eight or nine), the total amount is considerablyless that the ﬁgure estimated by Family USA for P&M and administrationexpenditures. According to this Foundation in 2001 the Merck, Pﬁzer, Bristol-Myers Squibb, Abbot, Wyeth, Pharmacia (purchased by Pﬁzer in 2003), EliLilly, Schering-Plough and Allergan spent US$45 billion for marketing,advertisement and administration.
The shift from science to trade
By the time that a Lancet’s editorial noted in 2002 that big PhRMA was fallingbehind in bringing to the market “truly new drug discoveries,”29 it was well
26 DiMasi, Hansen and Grabowski 2003.
27 Light and Warburton 2005; Love 2003. 28 Dyer 2004, p. 9.
29 Editorial 2002, p. 1341.
known that the interest in research by big PhRMA was declining.30 Severalmonths earlier the National Institute for Health Care Management hadpublished a report documenting that of the 1035 drugs approved by the FDAbetween 1989 and 2000, only 153 were highly innovative drugs (priority–ratednew molecular entities, see note 1 for the deﬁnition) or about 13 per year forthe 12-year period.31 The decline in innovation continued. During 1999–2002the average yearly number of highly innovative drugs was reduced to eight.
Perhaps it was this deterioration that led Lancet to recommend that theindustry invest “preferentially in the creative minds in their laboratories”.32The Lancet editor had failed to understand that big PhRMA’s interests haveshifted from innovative research to gaining a market share.
PhRMA expenditures in R&D more than doubled from 1993 to 2003.
According to the industry, in 2000 the private for-proﬁt sector invested US$35.4billion in R&D,33 the number of approvals of new molecular entities declined(See Figure 1).34
If PhRMA’s increasing expenditures in R&D cannot be attributed to the
high costs of producing a few new highly innovative drugs, the question thatneeds to be answered is where do the rest of the R&D expenditures go. Ourhypothesis is that capitalism has forced the pharmaceutical industry to spenda sizeable amount of R&D funds to produce drugs that do not add newtherapeutic value to the market. The purpose of these drugs is to competewith innovative blockbuster drugs, those that generate more than US$1 billionof yearly sales. It is this competition to gain a market share that forces industryto make very large investments in P&M. Industries that fail in the competitionare bought out by the others. Those that support capitalism afﬁrm thatcompetition fosters innovation, but this does not seem to be the case in thepharmaceutical sector, the contrary might be true.
The returns from developing true innovative molecular entities for an illness
or condition for which there is a high demand in Western nations are veryhigh, and the ﬁnancial success of the PhRMA industries depends on bringing
30 Kaplan and Laing 2004, p. 15.
31 National Institute for Health Care Management 2002, p. 3; Drake and Uhlman
32 Editorial 2002, p. 1341.
33 World Health Organization 2004, p. 13.
34 Food and Drug Administration 2004, p. 2.
Figure 1 Research and Development expenses and new molecular entities
: Ian M. Cockburn. The Changing Structure of the Pharmaceutical Industry.
: Line relates to the right y axis and denotes worldwide R&D spending by PhRMA
member companies according to their official figures. Inflation-adjusted to constant
2002 US$. The source for new molecular entities approved is the US Food and Drug
Administration Center for Drug Evaluation and Research. New molecular entities
may not be innovative, i.e. they may not add any therapeutic value to the drugs
already in the market. Some of the new molecular entities are withdrawn from the
market when post-commercialization surveillance uncovers serious side effects; the
number of withdrawals has increased in recent years. Some new molecular entities
are for ‘created diseases’ and therefore of little therapeutic value.
into the market a few blockbusters. For example, the combined sales of Norvasc(Pﬁzer), Zoloft (Merck), and Neurontin (Bristol-Myers Squibb) amounted in2004 to over US$10 billion,35 and in 2002 Lipitor by itself represented US$7.4billion or 21 percent of all Pﬁzer’s sales.36
35 Anonymous 2005b, p. 21.
36 Simons 2003, http://money.cnn.com/magazines/fortune/fortune_archive/
If the ﬁrm that launches a blockbuster drug can, through patents and other
means, hold market exclusivity and control the price for a number of years,one would think that the company would not need too many breakthroughsand that most efforts would be focused on extending the market exclusivityperiod. But when there is a breakthrough, a new blockbuster, other big PhRMAﬁrms try to beneﬁt from the discovery by developing similar drugs that willuse the same action mechanism and produce very similar effects, thesemedicines are called “me-too drugs.” In some cases, the me-too drug mayoffer some advantages over the original product (i.e. could be easier to use,safer or more convenient to administer) but this is not always the case. Thereis little difference among the statins that are available in the market: Mevacor,Lipitor, Zocor, Pravachol, Lescol and the more recent one Crestor; but themanufactures of these drugs have to ﬁght to increase their market share.
To capture the market the companies incur in large P&M expenditures to
convince prescribers, patients and the community at large that their productis better than that of the competitor. There are cases where pharmaceuticalcompanies reach the market with a similar product almost simultaneously,and during the ﬁnal development stages the companies race to reach themarket ﬁrst and capture the clientele (i.e. Vioxx and Celebrex). Regardless ofthe process, once me-too drugs are in the market, all owners have the samecommon interest in extending the life of the patents.
The competition to gain a market share of blockbusters has changed the
behavior of big PhRMA and explains the need for the activities describedearlier that require large outlets in P&M. In 1999, Merck placed Vioxx in themarket and the following year spent US$161 million advertising the drug togain a market share from Pﬁzer’s Celebrex that had been launched earlier.37By Februrary of 2004, before Vioxx was withdrawn from the market, itcontrolled 37 percent of the market of the Cox-2 inhibitors (Vioxx, Arcoxia,Celebrex and Bextra), and Celebrex 41 percent. The industry had estimated –before the side effects of Cox-2 inhibitors were made public – that in 2009the total sales of these medicines would be US$8.5 billion.38
The priority given to M&R over biological sciences has an important effect
in the organizational culture and behavior of big PhRMA ﬁrms. If what is
37 Bowe 2004a, p. 14.
38 Bowe 2004b, p. 16.
considered relevant is P&M, then selecting the leadership, the status andrewards within the organization are bound to be granted to those employeesthat excel in the marketing and promotional side of the corporation ratherthan to the scientists.
The promotion and marketing of new-disease and life-style drugs
Drug sales are not exclusively based on the needs of patients to get healthy.
The parameters used to diagnose risk factors for diseases have been recentlymodiﬁed with the help of the industry. We have seen modiﬁcations in bloodpressure thresholds that have resulted in a signiﬁcant number of patientsbeing classiﬁed as borderline or hypertensive, in the glucose levels to diagnosepre-diabetic conditions, and in the optimal levels of LDL cholesterol. Accordingto Moynihan and Cassels eight of the nine members of the panel that in 2004revised the cholesterol parameters and lowered them were on drug companypayrolls, a lowering that trebled the anti-cholesterol drugs adults in need ofstatins to 40 million, and nine of the 11 experts on the panel that lowered theparameter for hypertension had ﬁnancial links to the industry.39 In addition,behavioral problems have been transformed into new diseases. Such are thecases of attention deﬁcit, social anxiety disorder, premenstrual dysforic disorder,and gastroesophageal reﬂux disease.40 Psychiatrists also on the pay-rolls ofthe pharmaceutical industry have offered a medical explanation for the newdisease known as attention deﬁcit.
Blockbusters are also developed to achieve certain desirable conditions or
to provide a chemical solution to a health problem that some patients couldresolve with less risks through behavior modiﬁcation, these are called life-style drugs. The deﬁnition of what constitutes a life-style drug is controversial41but there is agreement that certain drugs to control obesity, to treat malebaldness, to enhance the erectile function in healthy young men, or to controlsmoking can be classiﬁed as life-style drugs. The number of new-disease andlife-style drugs is growing. After parameters or thresholds are ofﬁcially
39 Moynihan and Cassels 2005.
40 Moynihan et al., 2002; Angell 2004, pp. 86–87.
41 Lexchin, 2001, p. 1449.
modiﬁed or new diseases are created, the P&M machine of big PhRMA startsworking to promote sales of medicines for these conditions.42
The consolidation of the industry and division of labor
In the past years the pharmaceutical industry has seen a strong consolidation.
In 1987 the top ten drug manufacturers had 27.5 percent of the world’spharmaceutical market and by 2000 the percentage increased to 45.7.43 It couldnot be otherwise, because the need to spend ever-increasing amounts in M&Prequires very large amounts of capital that only very large corporations canaccumulate. But consolidations have moved big PhRMA further away frombasic research. Analyzing several mergers, Pignarre concludes that theconsolidation of the pharmaceutical industry has had a negative impact oninnovation.44
The expenditures on P&M by big PhRMA are of such a magnitude that
small ﬁrms cannot compete, and, therefore, few small ﬁrms venture intomarketing; this has become the feud of the ever-bigger corporations. Thesmall industries and big PhRMA have understood that a division of labor isﬁnancially more attractive for both of them. Small corporations engage inR&D of new molecular entities and big PhRMA buys the patents and takesresponsibility for marketing those drugs that are expected to generate salesof over US$250 million per year for at least 14 years;45 if a small ﬁrm hasseveral promising drugs in the pipeline, big PhRMA may decide to buy itout. In 2004, Pﬁzer purchased small Medarex Inc.46 and Roche signed 40contracts to own the research ﬁndings and the commercialization permits ofdrugs in the process of being developed.47 In 2005 Roche purchased tinyBlycArt Biothcnology.48
The relations between big PhRMA and the small industries are not always
easy. Tamiﬂu (oseltamivir), the drug for the treatment of the common ﬂu,
42 Healy 2004, pp. 103–128; Lexchin 1995.
43 World Health Organization 2004, p. 8.
44 Pignarre 2005, pp. 86–91.
45 Outterson 2005.
46 Anonymous 2004, p. 35.
47 Álvarez 2004, http://www.elglobal.net/portada04.asp48 Swissinfo 2005, http://www.swissinfo.org/sen/swissinfo.html?siteSect=105&sid=
illustrates the division of labor between large and small pharmaceuticalindustries and some of the tensions that these arrangements generate. Tamiﬂuwas discovered and developed by Gilead, a small ﬁrm, and in 1999 Roche,the giant Swiss pharmaceutical, obtained the exclusivity for its productionand marketing. The contract between the two corporations stipulated thatGilead would receive, on top of other pecuniary compensations, a percentageof the revenues generated by Tamiﬂu sales. Before the aviar pandemic, thesales of Tamiﬂu were modest and limited to the ﬂu season. Gilead startedlitigation claiming that Roche was not promoting adequately the drug, thatis, Roche was not doing its part in the division of labor. The conﬂict wasagreeably settled when purchase requests for Tamiﬂu suddenly skyrockedwith the threat of the aviar ﬂu. Instead of litigation the two companies agreedto cooperate to ﬁll the orders from more that 50 countries that decided tostockpile. It was estimated that sales of Tamiﬂu could reach US1bn in 2005and 2006.49 Tamiﬂu, by an unpredictable event, became a blockbuster.
The case of the small Tanox is also illustrative. In 2000 Tanox began clinical
trials of a NME known as TNX-901, a product to control allergic reactions topeanuts.50 Two big PhRMA ﬁrms, Genetech and Novartis, were cooperatingwith Tanox in the production of TNX-901 and the same year forced Tanox todiscontinue the trials and develop Xolair, a product that Genetech had in thepipeline to treat the same allergy. Tanox refused and brought Genetech andNovartis to court. As of 2005 Xolair has not proven to be effective to treat theallergy. It is very possible that if the clinical trials had continued, TNX-201would be today the only available treatment for the allergies caused bypeanuts.51
49 Cañás and Ugalde 2005, p. 59.
50 New molecular entity
(NME) is a drug whose active ingredient has never before
been approved by the Federal Drug Administration for the US market. Priority drug
is a product qualifying for the FDA’s fast ‘priority review’ because it appears to offerclinical improvements over available products and therapies in efﬁcacy, safety,compliance, or use in a new sub-population. National Institute for Health CareManagement 2002, p. 4.
The health impact
As discussed, big PhRMA needs to have market exclusivity to delay the entryof generics into the market and keep the monopoly prices. Once a drug loosesmarket exclusivity, the prices fall rapidly to as little as 20 percent of theoriginal drug.52 Through legislation, loopholes and illegal avenues, PhRMAﬁrms have been successful in extending the life of the patents.
All over the world, high drug prices are the main access barrier. It is
estimated that between 1.3 and 2.1 billion people do not have access to essentialmedicines.53 Most of those without access are the poor. The poor that haveaccess to drugs spend the most of the health expenditures in the purchase ofdrugs and have to pay for them out-of-pocket.54 High prices also impactnegatively in the adequate use of pharmaceuticals; for example, poor peoplecannot afford the entire treatment. In the case of antibiotics, incompletetreatments facilitate the development of microbial resistance to commonlyused antibiotics and generate the need to develop newer and more expensivedrugs.
A strategy to compete with generics is the promotion of brand loyalty to
keep consumers buying their products in the middle of aggressive inroadsfrom competitors. As a result, often in complicity with physicians andpharmacists, patients, including the poor, pay unnecessarily higher prices orpurchase less medicine than the amount prescribed and cannot complete theentire course of treatment.
Due to aggressive marketing, life-style drugs can be easily abused; one
well-known case is that of the drugs for erectile dysfunction such as Viagra(sildenaﬁl) of Pﬁzer, Cialis (tadalaﬁl) of Lilly, or Levitra (vardenaﬁl) developedjointly by Bayer and GlaxoSmithKline. These companies have sold millionsof pills without prescription in many countries. In some Latin Americancountries ads, which at times violated the norms established by regulatoryagencies, were responsible for generating unnecessary demand for drugs inthis therapeutic group.55 In Argentina, it was estimated that the large majorityof users of these drugs were men between 30 and 45 years of age who didnot suffer erectile dysfunctions;56 and in Mexico in 2002 Viagra sales amounted
52 Angell 2004, p. 174.
53 World Health Organization 2004, p. 66.
54 World Health Organization 2004, p. 41.
55 Campbell 2005, p. 106.
56 Galvan 2003, p. 31.
to US$550 million. Authorities and the industry have alerted that there arecases of coronary problems and blindness associated with their use.
Big PhRMA cannot afford to develop drugs that do not guarantee high
returns because it needs resources for the P&M expenditures. It is for thisreason that there are no drugs to cure diseases that affect millions of poorpeople worldwide (forgotten diseases) or a few persons (rare diseases, ofwhich there are an estimated number of 500057).58 WHO estimates that only10 percent of R&D funds are allocated to ﬁnding cure to diseases that affect90 percent of the world’s population;59 and Sheila Shettle, CommunicationsOfﬁcer of Médecins Sans Frontières afﬁrmed that of 1,556 new productsmarketed globally between 1975 and 2004, only 20 or 1.3 percent were fortropical diseases and tuberculosis.60
In a consumer’s society, success requires the creation of unnecessary
demands. This basic rule of capitalism applies to the pharmaceutical industry.
All drugs are powerful chemicals and their unnecessary use can cause seriousiatrogenetic effects. Over prescription and self-prescription caused by P&Mhas costly health and economic costs. In 1993, Wolfe and collaborators publisheda list containing the number and types of adverse drug reactions that occurredin the US such as thousands of injuries from trafﬁc accidents, of hip fracturesfrom falls, of life-threatening heart toxicity, of mental impairment, of drug-induced parkinsonism and tardive dyskenesia; they estimated that in 1990only among those 65 years of age and above there were 650,000 hospitalizationscaused by adverse drug reactions.61 Obviously, many of them were producedby errors. If this study would be replicated today, the result would be worsebecause the average number of medicines consumed per person in the UShas increased, in part due to aggressive P&M. The situation is even worse indeveloping nations where regulations of prescription and dispensation ofdrugs are very poorly enforced and the educational levels of the majority are low.
57 Medicus Mundi 2003, p. 30.
58 Trouiller et al. 2002.
59 World Health Organization 2004, p. 11.
60 Reuters 2006, http://in.news.yahoo.com/060125/137/6273z.html61 Wolfe et al. 1993, pp. 16–54.
The model followed by big PhRMA is very questionable. In spite of the manyattempts to control the behavior of the industry, the efforts have not changedthe model. In fact, the model for the production of pharmaceuticals shouldbe exactly the opposite, a minimum of expenses in P&M and a full dedicationto ﬁnd solutions to the diseases that continue to afﬂict mankind. If the effortsof the industry were dedicated exclusively to the discovery of new innovativedrugs, it is very possible that the industry would proﬁt from the sales ofdrugs for rare and neglected diseases, and governments could afford tosubsidize all drugs needed by their citizens. Perhaps in a capitalist market isnot possible to change the current pharmaceutical model. If this is the case,there will be little choice but to ﬁnd new solutions in which the public sectorwill have to play a signiﬁcant role.
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Exponential Growth and Decay Notes You are going to work for me for one month; there are 2 options from which you can choose to be paid. Which one would you choose? Option 1: $1,000 a day for 31 days or Option 2: $.01 on day 1, $.02 on day 2, $.04 on day 3, $.08 on day 4, etc.? Justify your response. Bacteria reproduce, or grow in number, by dividing. The total number of bacteria a