Is the Pharmaceutical Industry Corrupt?

[bascule]

The current US system that involves government research and further government funding of research still has the problems of the political wrangling over what research happens, since some of it is unpalatable to certain slices of the population, which has affected e.g. stem cell research. But it's still a reasonable compromise, since a lot of basic inquiry is done with federal dollars.

 

However the cost of medication as well as the salaries of pharmeceutical researchers massively inflate, making it more difficult for the government to fund public research of the sort that may actually lead to cures.

 

You can either:

1) Reduce government research

2) Raise taxes to pay higher salaries

3) Better regulate the pharmeceutical industry

[swansont]

However the cost of medication as well as the salaries of pharmeceutical researchers massively inflate, making it more difficult for the government to fund public research of the sort that may actually lead to cures.

 

You can either:

1) Reduce government research

2) Raise taxes to pay higher salaries

3) Better regulate the pharmeceutical industry

 

I'm not sure what you would propose to regulate better.

 

One of the problems with the cost of medication is that because of socialized medicine elsewhere, foreign governments negotiate prices for drugs that are lower than the price paid in the US, so US customers effectively subsidize these foreign customers. The problem with extending that (or the ill-considered idea of re-importation of the drugs) is that you can't have all of the customers paying less than the average cost of the drug. If the profit potential of drugs is capped, you won't get any company that will do any high risk/large reward research, since there is no large reward. If salaries are capped, you won't attract the best and brightest into the field, in the same numbers, at least, to do your research. (I say this as an underpaid government researcher, who has seen the difficulty in hiring qualified people)

[john5746]

However the cost of medication as well as the salaries of pharmeceutical researchers massively inflate, making it more difficult for the government to fund public research of the sort that may actually lead to cures.

 

You can either:

1) Reduce government research

2) Raise taxes to pay higher salaries

3) Better regulate the pharmeceutical industry

 

You can also:

 

Get P Diddy and Brad Pitt to convince everyone that buying Pharm stocks is 'cool'

 

Allow foreign competition to enter

 

Invest part of Social Security in the Pharm stocks

[padren]

One of the problems with the cost of medication is that because of socialized medicine elsewhere, foreign governments negotiate prices for drugs that are lower than the price paid in the US, so US customers effectively subsidize these foreign customers.

 

I would agree with you but I am under the impression (and correct me if I am wrong) that the profit margins for pharm companies are pretty high - they make profit over cost off the socialized contracts and even more profit over cost off the US customers. That would be profit over cost while factoring in research and covering the costs of failed research projects as well.

 

I could be wrong of course, but they seem pretty flush to me.

[bascule]

I'm not sure what you would propose to regulate better.

 

The period a pharmeceutical patent can be held, if nothing else.

 

One of the problems with the cost of medication is that because of socialized medicine elsewhere, foreign governments negotiate prices for drugs that are lower than the price paid in the US, so US customers effectively subsidize these foreign customers.

 

Well, on the flip side the Medicare bill passed by Republicans a few years ago prevents Medicare from negotiating bulk discounts. They are completely disallowed from interfering in the pharmeceutical -> pharmacy supply chain, so Medicare must subsidize drugs at the retail price.

 

The problem with extending that (or the ill-considered idea of re-importation of the drugs) is that you can't have all of the customers paying less than the average cost of the drug. If the profit potential of drugs is capped, you won't get any company that will do any high risk/large reward research, since there is no large reward. If salaries are capped, you won't attract the best and brightest into the field, in the same numbers, at least, to do your research. (I say this as an underpaid government researcher, who has seen the difficulty in hiring qualified people)

 

Are you saying the salaries of pharmeceutical researchers in the US aren't presently inflated?

[Pangloss]

Just as a side note to this, it's worth noting that, as was predicted by some observers, the cost to consumers benefitting from the Medicare prescription drug benefit has skyrocketed. We signed up something like 40 million seniors, who now buy from the plan instead of the local drugstore. Result? Drug companies simply shift the profit burden from the drugstores to the plan. What a surprise. 77% of the plans will have higher premiums in 2007.

 

Since the entire purpose of the plan was to lower the cost, the plan is now essentially worthless. All we've done is give the drug companies a way to schedule the raising of prices and know exactly how much they're going to make.

 

This is what happens when you simply regulate symptoms without treating the actual disease. Market forces adapt really well. Governments don't.

[Pangloss]

BTW, the drug companies spent about 11% of their budgets on R&D, and their profit margins were about 16%, in 2006. 16% is very high for a publically traded company -- the kind of lofty territory typically enjoyed only by the drug, insurance and oil industries. Not that there's anything wrong with that, per se.

 

Somebody said earlier in this thread that most of the money in research comes from the drug companies. I've read that as well, but the article I've linked below contradicts that, saying that most of the money comes from NIH (the government). I wonder what's up with that.

 

http://www.washingtonpost.com/wp-dyn/content/article/2006/11/12/AR2006111200718.html

[john5746]

Well, something will have to give. Cost increases can't keep outpacing income increases. Education and Medical fields keep doing this year after year.

[swansont]

The period a pharmeceutical patent can be held, if nothing else.

 

Medical patents already require testing before they can be sold, and that takes years and costs a lot of money. If you invent the iPod killer, you can patent it and start selling as soon as you can. But if you build the equivalent medical device or drug, you have to test it for years to show efficacy and safety. Shortening the period further will tend to stifle research, especially in areas for afflictions that are not as widespread.

 

 

 

Well, on the flip side the Medicare bill passed by Republicans a few years ago prevents Medicare from negotiating bulk discounts. They are completely disallowed from interfering in the pharmeceutical -> pharmacy supply chain, so Medicare must subsidize drugs at the retail price.

 

They still give a ceiling price that they will reimburse, IIRC. There are some drugs that have to be purchased by the doctor and dispensed. Some doctors take a loss on medicare patients in order to treat them. Some just don't use the drug, which raises the question of how good of a treatment those patients are getting.

 

 

Are you saying the salaries of pharmeceutical researchers in the US aren't presently inflated?

 

Inflated as compared to what? A lawyer charging $450 an hour? It's not like you can stumble in off the street and start doing biomedical research.

 

And if they are used to getting paid an inflated amount, how will you entice them to work for the government for far less?

[CPL.Luke]

From what I understad the profit margins on cures and treatments for fatal illnesses is ver very low, so low that its hard for a company to turn any profit off of it, these drugs are made because the CEO's of these companies have some small fragment of a heart.

 

The reason that you see these massive profit margins is because of drugs like viagara which has literally made billions of dollars in profit on its own. Drugs like that get their prices hiked up beyond belief. and I think a similar thing occurs with vitamin supplements, cold medications etc.

 

the drugs that people need to live cost so much because of the drugs initial R&D cost.

[michael]

I don't see the connection between Thalidomide misuse and drug company corruption. Could you clarify what you mean there?

 

I'm surprised to hear of "another generation of Thalidomide babies". Hasn't that situation been made fairly clear to the public, via warning labels and general information?

Not in south America. It is appalling. Check it out.It is being prescribed for the treatment of leprosy and for multiple myeloma to illiterate natives. Tetragenic effects are common.

 

Sorry I am new to this forum and i guess you don't email me when a post has been made on a subscribed thread?

From NE Journal of medicine

Volume 355:2169-2171 November 23, 2006 Number 21

 

Dangerous Deception — Hiding the Evidence of Adverse Drug Effects

Jerry Avorn, M.D.

 

s

September 30 is becoming a day of infamy for drug safety. On that date in 2004, Merck announced that rofecoxib (Vioxx) doubled the risk of myocardial infarction and stroke, and the company withdrew the drug from the market after 5 years of use in more than 20 million patients.

On September 30, 2006, a front-page article in the New York Times reported that the Food and Drug Administration (FDA) had issued a warning that the antifibrinolytic drug aprotinin, widely used to reduce perioperative bleeding in patients undergoing cardiac surgery, could cause renal failure, congestive heart failure, stroke, and death.

 

Some experts had been concerned about aprotinin (Trasylol) ever since its approval in 1993.1 As Hiatt explains in his Perspective article in this issue of the Journal (pages 2171–2173), one of two epidemiologic studies reported early this year provided support for this concern.

In an observational study involving 4374 patients who underwent coronary revascularization,2 Mangano et al. found that patients who were given aprotinin had an incidence of postoperative renal failure requiring dialysis that was more than twice that among patients who received different agents. Among patients undergoing uncomplicated coronary-artery surgery, those given aprotinin had a 55% increase in the incidence of myocardial infarction or heart failure and a 181% increase in the incidence of stroke or encephalopathy.

The authors advised against further use of the drug, since safer, cheaper alternatives are available.

 

After the study was published, the FDA moved to convene an advisory committee to reassess the drug's safety and assembled the relevant data. The committee met on September 21, reviewed the available evidence, and concluded that there was no need for additional warnings on the drug's official labeling.

 

What put aprotinin on the front page on September 30, however, was the revelation that its manufacturer, Bayer, had hired a private contract research organization to perform its own large observational study of postoperative complications in patients given the drug. The analysis, completed in time for the FDA meeting, reached conclusions similar to those of Mangano et al.

It, too, adjusted for a wide variety of clinical characteristics and showed that patients who received aprotinin had higher mortality rates and substantially more renal damage than those given other treatments.

But neither Bayer nor its contractor had provided the report to the FDA or even acknowledged its existence before the meeting

.

http://content.nejm.org/cgi/content/full/355/21/2169?query=TOC

[Phi for All]

Sorry I am new to this forum and i guess you don't email me when a post has been made on a subscribed thread?

The email notification option is in your User Control Panel.

[swansont]

Not in south America. It is appalling. Check it out.It is being prescribed for the treatment of leprosy and for multiple myeloma to illiterate natives. Tetragenic effects are common.

 

But that sounds like a failure of the doctors (presumably literate) to not prescribe it to pregnant women. How is it an example of corruption of drug companies?

[bascule]

And if they are used to getting paid an inflated amount, how will you entice them to work for the government for far less?

 

That, precisely, is the point I'm trying to make.

[swansont]

BTW, the drug companies spent about 11% of their budgets on R&D, and their profit margins were about 16%, in 2006. 16% is very high for a publically traded company -- the kind of lofty territory typically enjoyed only by the drug, insurance and oil industries. Not that there's anything wrong with that, per se.

 

The Yahoo! stock screener shows 1781 companies that have >20% profit margin.

[swansont]

That, precisely, is the point I'm trying to make.

 

Then I don't understand your argument. I thought you were proposing having government research, exclusively, as a solution.

[Pangloss]

The Yahoo! stock screener shows 1781 companies that have >20% profit margin.

 

So?

 

My statement was that that this is "lofty territory", so this statistic is irrelevent for two reasons. It doesn't show us a percentage of the total companies, and more importantly, it isn't restricted to companies with revenues >~$10 billion (which would include all of the top ten pharmas).

 

When you enter that information into the screener, the result is a whopping 45 companies. That's 2.5% of the total you posted, or 12% of the total listed companies with revenues greater than $10 billion.

 

As I said, lofty territory.

[swansont]

So?

 

My statement was that that this is "lofty territory", so this statistic is irrelevent for two reasons. It doesn't show us a percentage of the total companies, and more importantly, it isn't restricted to companies with revenues >~$10 billion (which would include all of the top ten pharmas).

 

That's moving the goalposts. You never said it was limited to companies with revenues > $10 billion until now, you just said 16% margins was lofty territory for a publicly traded company. Changing the screen to all companied with a share price greater than $0 yields 8668 companies. So that's about 20% of companies in the screening pool with margins above 20%.

[Pangloss]

Uh huh.

 

I hear there was a typo in thread #30972, post #26539. If you hurry you can post a correction.

[michael]

The email notification option is in your User Control Panel.

 

Thankyou

[michael]

http://www.citizen.org/documents/Pharma_Report.pdf

Hefty Pharmaceutical Company Margins Dwarf Other Industries

The anemic national economy continued to drag down the vast majority of corporations in 2002, but the pharmaceutical industry soared past other business sectors – raking in profits

five-and-a-half times greater than the median for all industries represented in the Fortune 500.

In a year when the stock market remained listless and company after company was wounded by accounting scandals, the 10 biggest drug companies maintained nearly the same level of total profits they had in 2001, according to Fortune magazine’s annual analysis of America’s

500 largest companies.1 As a group, the drug companies had $35.9 billion in profits in 2002, compared with $37.2 billion in 2001, a drop of 3.5 percent. [see Figure 1]

By comparison, all companies in the Fortune 500 suffered a combined loss of 66.3 percent in profits from 2001 to 2002. Stunningly, profits registered by the 10 drug companies were equal

to more than half of the $69.6 billion in profits netted by the entire list of Fortune 500 companies – when all losses are subtracted from all gains.2

Just as they did in 2000 and 2001, the 10 drug companies in the Fortune 500 topped two key measures of profitability in 2002. Collectively, the pharmaceutical companies in the Fortune

500 reported:

A profit of 17 cents for every dollar of revenue, compared with a Fortune 500 median of

3.1 cents per dollar of revenue. [see Figure 2]

· A return on assets of 14.1 percent, compared with a Fortune 500 median of 2.3 percent.

· Along with earning the highest rankings in these two categories, the drug industry ranked

second among all business sectors in return on shareholder equity, with a rate more than two-and-a-half times the Fortune 500 median (27.6 percent compared with 10.2 percent).

They really have us by the nuts.

 

This is interesting too

http://www.newstarget.com/020345.html

[swansont]

Wow. People will still buy medicines when their discretionary income falls. Imagine that.

[Pangloss]

Wow. More statistics showing the profit margins of pharmas in "lofty territory". Imagine that.

[swansont]

Wow. More statistics showing the profit margins of pharmas in "lofty territory". Imagine that.

 

In a recession, pharma still makes money. Not a surprise to people who are familiar with investing; they are known as "defensive stocks." But it's just another example of making statistics say whatever you want, since the author has by definition (and by admission) picked the time when the profits would be smallest overall. So of course pharma is going to stand out, because people still buy their meds, but pass on the latest gaming console, or don't buy the new car, or whatever.

 

You want to call the top ~20% "lofty," fine. You just didn't define it in the first place. All I did was quantify it, since my definition of "lofty" might be 28% profit margin, like Microsoft's.

[michael]

In a recession, pharma still makes money.

To reiterate

Stunningly, profits registered by the 10 drug companies were equal

to more than half of the $69.6 billion in profits netted by the entire list of Fortune 500 companies

Making money is not corrupt; but I have just read The Runaway Jury By John Grisham which has given me a very jaundiced view of corporate USA. Although fiction, it is chillingly too close to the bone.