By HELEN REDMOND

We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we have remembered that, the larger they have been.
–George W. Merck, former president of Merck & Co.

CHARLES A. HEIMBOLD, Jr. the former CEO of Bristol Meyers Squibb made $74,890,918 in 2001, not counting his $76,095,611 worth of unexercised stock options. His company makes cancer drugs like Taxol and Cetuximab.

Rebecca Babcock is diagnosed with colon cancer. She has a Web site called Cancer-sucks.com.¹ Indeed, cancer sucks when you are uninsured. Her friends have fundraisers (“Skate for Becca,” admission $10) to help pay for, among other medical necessities, cancer drugs that cost Rebecca thousands of dollars a month. Her bills are now over $125,000, and the only insurance available to her (Illinois Comprehensive Health Insurance Program) is beyond her financial reach: $425 per month.

Vicki H. Readling, a real estate agent and a single mother of twin eighteen-year-old sons has breast cancer. She has no health insurance and pays $300 a month for her medication. Because the medication is so expensive, Readling tries to make it last longer by taking the pills three to four times a week instead of every day as prescribed by her doctor.²

What is the connection between the stories of Charles Heimbold and the two cancer victims? Mr. Heimbold got rich by ripping off and immiserating patients like Rebecca Babcock, Vicki H. Readling, and millions of others who are ill.

The drug market in the United States is one of the most profitable. There are more than 45 million people without health insurance, and they are charged extremely high prices for prescription medication—and there are no price controls. The term “price gouging” doesn’t even begin to describe what has happened for decades to people when they go to the pharmacy to pick up a prescription. The preferred groups to gouge have been the chronically ill and elderly because they take more medications. Before the passage of the Medicare Prescription Drug, Improvement, and Modernization Act in 2003, millions of seniors couldn’t afford to buy supplemental policies to cover drug costs, and paid out-of-pocket prices.

The high price of medication is a hot-button issue in Congress, state capitols, and among employers who have attempted to shift the increased cost onto employees. And yet the crisis of affordability of medication continues, with no significant prescription drug price reform being proposed or enacted from Washington. Instead, reform has come from the corporations. Wal-Mart and Target, both mega-giants, operate in-store pharmacies. Last year they announced a generic drug formulary and cut the price of prescription medication to $4.³ But this important development is not a substitute for fundamental reform of the pharmaceutical industry.

Americans spent $252 billion on prescription medication in 2005. Drug prices are rising at three times the rate of inflation with no end in sight.⁴ It’s no secret that medicine costs more in the United States than in Europe or Canada. A quick search of online pharmacies in Canada dramatically illustrates price differences. Candrugstore.com posts comparison prices with Walgreens in the United States⁵ and finds that prices for drugs in Walgreens are more than twice the price of the same drug sold on Candrugstore.com.

The pharmaceutical industry maintains some of the highest profit margins of any industry in the United States. From 1995 to 2002, it was the nation’s most profitable industry. In 2003 and 2004 they ranked third. In 2005 they ranked fifth, with profits of 16 percent compared to a 6 percent average for all Fortune 500 firms.⁶ Six months after January 1, 2006, when the Medicare drug program went into effect, pharmaceutical industry profits increased by over $8 billion—a 27 percent increase.⁷ Pfizer, the largest pharmaceutical company, had the biggest increase in profits—by $2.7 billion, a 73 percent increase. Merck’s profits have increased by almost $1 billion (44 percent); Sanofi-Aventis’ profits by more than $1.3 billion; AstraZeneca’s by more than $750 million.⁸

Think of the pharmaceutical industry like the military. It kills people—an estimated 100,000 every year from correctly prescribed drugs in hospitals⁹—while it saves and improves the lives of others (the AIDS cocktail, and the arthritis drug Enbrel), and makes prisoners out of yet more people who must take medication for their entire lives (transplant and diabetic patients.)

The industry, with the aid of the U.S. government, jealously guards its bloated profit margins. The Food and Drug Administration (FDA) has tried to seal off the border between the United States and Canada as busloads of desperate seniors have traveled there to purchase medication (an illegal act).¹⁰ The drug companies are constantly engaged in battles to block attempts to lower drug prices and the introduction of cheaper generics. They employ an army of lawyers who fight to extend the life of drug patents, file lawsuits against states that have introduced drug formularies to control costs (one lawsuit went to the Supreme Court), and, crucially, they defend the industry against litigation. The profits they make can easily be compared to war profiteering—but the price gouging never ends and neither do the profits. Over 600 lobbyists, the foot soldiers of the industry, swarm all over Washington, D.C., the Congress, and state legislatures. These lobbyists are often former government employees whose job is to contribute large amounts of money to politicians’ campaigns. They have been enormously successful at staving off attempts to lower the cost of drugs in state after state. As Alan F. Holmer, the former president of the Pharmaceutical Research and Manufacturing Association (PhRMA) warned, “We will never allow for failure whenever the political circumstances are at all manageable.”¹¹

The power and influence of the pharmaceutical industry took the national stage when the Medicare drug benefit (Medicare Part D) was designed. The plan is an outright giveaway to the industry. PhRMA was able to win their central demand—that Medicare be prohibited from directly negotiating price discounts with drug manufacturers. In contrast, Medicare doesn’t allow hospitals or physicians to set their own prices; the government imposes set fees for these services. If the federal government negotiated the price of medication for millions of Medicare recipients, it would have significantly lowered the cost, and therefore, profit margins—a horrifying prospect for the drug companies. Representative Frank Pallone Jr. (D-NJ), explained, “The 2003 Medicare law was essentially written by the drug industry. That’s why you don’t have negotiated prices.”¹²

As a result, prescription drugs cost more under the Medicare drug benefit plan—in many cases the prices paid by insurers participating in the plan are more than twice as high as the prices paid by the Veterans Administration (VA), which does negotiate drug prices.¹³ But big pharma, as the industry giants are collectively called, got even more. Congress, all too happy to enrich the already lucrative pharmaceutical industry, was not going to have the federal government (through its collection of taxes) pay for these excess profits. Instead, the Medicare drug benefit includes an unusual $2,850 gap in coverage, colloquially known as the “doughnut hole,” where beneficiaries are entirely responsible for paying for their own medication. Before drug coverage starts, beneficiaries must pay a $250 deductible. The standard plan covers 75 percent of prescription drug costs until the beneficiary’s drug expenditures reach $2,250 for the year. The person then falls through the doughnut hole, or more accurately a “black hole,” and has no coverage. This is the time when drug manufacturers pounce, price-gouge, and make yet more profits. When they reach $5,100 the insurance kicks back in, covering 95 percent (why is it never 100 percent?) of drug costs.¹⁴ The bottom line: every year millions of seniors are writing checks for $2,850 to the pharmaceutical industry. And the size of the doughnut hole is expected to increase.

There has been a series of articles in major newspapers and magazines, as well as numerous books published, which expose the real motives of the industry, the super-profits, and the crime and corruption. Books such as: The Truth About the Drug Companies: How They Deceive Us and What to Do About It by Marcia Angell, MD; The Whistleblower: Confessions of a Healthcare Hitman by Peter Rost, MD; The Big Fix: How the Pharmaceutical Industry Rips Off American Consumers by Katherine Greider; and The $800 Million Pill: The Truth Behind the Cost of New Drugs by Merrill Goozner. What the public has learned is shocking and is fueling the outrage of the movement to lower the cost of prescription medication. The pharmaceutical industry—like the tobacco industry—was able to operate in the shadowy, enigmatic world of “proprietary secrets” for decades. They charged whatever prices they wanted, while no one balked and no one talked. Rost’s book at times reads like a John Grisham legal thriller: Pfizer hires a law firm to investigate him, Rost hires a firm to defend himself, the Security and Exchange Commission (SEC) opens an investigation, Rost’s cell phone service is mysteriously cut off, and he can’t access his e-mail account at work. Why did Pfizer go after Rost? Because he spoke out publicly in favor of drug reimportation and was involved in an investigation of off-label prescribing of Genotropin, a human growth hormone.¹⁵

In Marcia Angell’s authoritative and informative book The Truth About the Drug Companies, the former editor in chief of the New England Journal of Medicine examines not only the business practices of the pharmaceutical industry, but crucially, the close and corrupt connection between them, the government, lawmakers, and the FDA.

The pharmaceutical industry plays a key role in the American health care system and has an enormous impact on how medicine is practiced. It sponsors clinical trials; it produces the medicines doctors prescribe and millions of people take; it funds continuing medical education for doctors and residents; it contributes to political campaigns and has a powerful group of lobbyists; it advertises drugs directly to millions of people; and it has influence over how quickly a drug gets FDA approval.

The R&D myth

The drug companies’ defense of their enormous profits has become a public relations nightmare. PhRMA, the hired hit men and spin doctors for the drug lords, have a simple explanation: In order to cover the huge costs to research, develop, and bring drugs to market, they must charge high prices. In 2001 they put the cost at $802 million for each new drug they brought to market.¹⁶ There is an implicit threat in this: If the public wants the industry to keep discovering life-saving drugs, we have to pay the price, no matter how high. But drug companies won’t give out the necessary data to corroborate the figure, claiming that the information is “proprietary.”

If they won’t make the information public, why should anyone believe them? Nevertheless, their bogus numbers have been widely quoted in the media. The consumer advocacy group Public Citizen performed an analysis of drugs that entered the market between 1994 and 2000. They found that after-tax costs came in at under $100 million for each new drug approved during that period.¹⁷ And the cost of research and development (R&D) expenses is fully tax deductible. The industry also enjoys a number of tax credits that add up to billions of dollars, including a 50 percent credit for the cost of testing “orphan drugs”—those with an expected market of fewer than 200,000 people. Without the orphan drug law, passed in 1983, drug companies had little incentive to develop drugs for so few people—there wasn’t enough profit. Moreover, the tax credit extends to other drugs if “there is no reasonable expectation that the cost of developing and making available in the United States a drug for disease or condition will be recovered from sales in the United States of such drug.”¹⁸ As a result of all these tax credits, the industry’s effective tax rate was lowered from 35.2 percent to 17.1 percent.¹⁹

It’s vital to the pharmaceutical industry’s image to have the American public believe they are taking formidable and expensive risks to find new drugs and that their number one priority is the health of people, not profits. And with good reason. Public anger and distrust of the industry is widespread. In 2005, the Kaiser Family Foundation conducted a poll of 1,200 Americans and found that 70 percent agreed that drug companies put profits ahead of people.²⁰ PhRMA’s current president Billy Tauzin asserts the mission is “To serve the patients of America,” and the tagline on their Web site reads “Disease is our enemy. Working to save lives is our job.”²¹ Mr. Tauzin lies. It is an industry that is exceptionally risk averse and depends on taxpayer-financed R&D (through the National Institutes of Health), patent protection, and generous tax breaks for taking most of the financial risk out of the business. The truth is, like any capitalist enterprise, their number one priority is to make money for shareholders.

To that end, the industry focuses on “me-too drugs,” hoping they will become the next blockbuster that will earn them billions. These medications have therapeutic qualities similar to those of one or more already on the market. Me-too drugs are easier and cheaper to bring to market because the clinical trials only have to show that the drug is effective—it doesn’t have to be more effective than what is already being used for the same condition. Moreover, they compare the “new” drug with placebos (sugar pills) instead of with the best current treatments. The drug Nexium (successfully marketed as “the purple pill”) is a case in point. Nexium replaced Prilosec but the two pills are virtually identical.²² When Nexium first came on the market it cost $4 a pill, Prilosec had just lost its patent and the price plummeted. While me-too drugs flood the market, there have been shortages of important, even lifesaving drugs. In Angell’s book she reveals, “In 2001, there were serious shortages of many important drugs, including certain anesthetics, antivenins, steroids for premature infants, an antibiotic for gonorrhea, vaccines against flu and pneumonia in adults, and childhood vaccines.” If companies find drugs unprofitable they can simply stop manufacturing them. They can also refuse to sell their drugs. In 1994, the Centers for Disease Control (CDC) capped prices of childhood vaccines the agency bought for use in public health centers—the source for most children in the United States. Some companies then stopped selling vaccines to the government, but continued to supply private doctors and health plans at much higher prices.²⁴

Drug companies spend far more money on marketing, advertising, and administration than on research and development. In 2005, five of the seven largest companies spent at least twice as much on these three items as they did on R&D. On average, marketing, advertising, and administration comprised 32.0 percent of company revenues, while R&D represented 13.9 percent of company revenues.²⁵ Merck employs 78,100 employees, and fully 85 percent of them are engaged in nonresearch activities.²⁶ In 2005 there were more than 100,000 drug representatives—roughly one for every six physicians in the United States.²⁷ They stalk doctors in every hospital and clinic because doctors write the prescriptions. Shahram Ahari, a former drug rep with Eli Lilly, summed it up when he admitted, “It’s my job to figure out what a physician’s price is. For some it’s dinner at the finest restaurants, for others it’s enough convincing data to let them prescribe confidently, and for others it’s my attention and friendship—but at the most basic level, everything is for sale and everything is an exchange.”²⁸ Another tactic is “prescription tracking.” Companies buy information from pharmacy chains about doctors’ prescribing habits and then sell it to drug companies. Drug reps then target doctors that prescribe their drugs the least.

The pharmaceutical industry, in its reckless pursuit of profit, has corrupted the medical profession, and in the process, endangered the lives of patients. The latest scandal involves doctors accepting so-called drug rebates. Two drug companies paid cancer doctors hundreds of millions of dollars in return for giving their patients anemia medicines, which the FDA now says may be unsafe at commonly used doses. The system of rebates inevitably promoted wider usage of the medicines Aranesp, Epogen, and Procrit. They are among the world’s top-selling drugs, with combined sales of $10 billion last year. One group of six cancer doctors earned a profit of about $1.8 million thanks to the drug kickbacks. The rebates are legal because of a loophole in federal law that only bars drug companies from paying doctors to prescribe medicines in pill form—the anemia drugs are given by injection or intravenously.²⁹

Drug companies spend millions on direct-to-consumer advertising (DTC). With the exception of New Zealand, no other countries allow DTC. In 1997 the FDA announced it would change the rules for broadcast ads and since then it’s become impossible to watch television or read a magazine without seeing slick and glossy advertisements for drugs that implore the viewer to “Just ask your doctor about...” Instead of including a complete rundown of risks, companies would only have to mention the major ones and refer viewers to a source of additional information (for example a Web site or 800 number). Expenditures on DTC then exploded, tripling between 1997 and 2001, and the percentage of TV ads increased from 25 percent to 64 percent.³⁰ Millions saw the ads for Viagra, Levitra, and Cialis (prescribed for erectile dysfunction) during the Super Bowl in 2004. There is overwhelming evidence that drug ads increase sales.³¹ But thousands have been pulled from the air for making misleading or false claims. The FDA has only thirty reviewers to examine over 34,000 DTC ads each year.

Who’s regulating whom?

The FDA is an underfunded and overworked agency. It is responsible for overseeing three massive industries—food and drugs, vaccines, and blood products and medical devices—all with only 9,000 employees. The FDA is under constant siege by the pharmaceutical industry, which accuses it of unnecessary approval delays, rigid procedures, and endless data requests. The industry portrays the FDA as a bureaucratic bully whose goal is to deliberately put obstacles in the path toward drug approval. Therefore, the FDA is to blame when lifesaving drugs don’t get to market for patients who desperately need treatments and cures. None of this is true.

The biggest cause of delays in getting new drugs to market is the scarcity of human subjects who meet the criteria to participate in drug trials. Moreover, in 2002 the average FDA review time was about sixteen months and getting shorter. In fact, the FDA has succumbed to drug company pressure and has moved from being the slowest regulatory agency in the developed world to being the fastest. In special cases, authorization time can be cut to weeks.³² And increasingly, drugs that come to market are based on very small studies. The drug Requip, used for restless legs, was approved on the basis of three twelve-week studies, which involved a total of about 900 people, and one thirty-six-week study of about 100 people. Yet people may take the medication for years or a lifetime.³³ The real reason the drug companies want the approval process sped up is because the patent clock is ticking. The original patent is usually issued well before a drug reaches market, and the so-called effective patent life may be substantially shorter. Faster approval means the profits start rolling in sooner.

The Prescription Drug User Fee Act (PDUFA) was passed in 1992 against the backdrop of the unfolding AIDS crisis. It was meant to speed up the regulatory review procedure that had delayed the introduction of new medications to treat HIV/AIDS. It created a new relationship between the pharmaceutical industry and the FDA. Under PDUFA, the FDA collects fees from drug companies to pay the salaries of the very people who approve or reject their products. The FDA charges $576,000 per new drug application and user fees now account for about $260 million a year.³⁴ In exchange, the FDA is required to meet strict deadlines for review of drugs. The conflicts of interest are obvious. Since PDUFA was passed, the FDA has treated the drug industry more as a partner/client than as a business to be regulated. The result has been a decline in safety standards at the FDA and a record number of drug withdrawals—more than a dozen—for safety reasons.³⁵ In 2002, the General Accounting Office found that a higher percentage of drugs had been pulled from the market due to safety concerns after PDUFA was passed.³⁶

The pharmaceutical industry’s most important tool in boosting profits is government-conferred monopolies in the form of exclusive marketing rights granted by the FDA and by the U.S. Patent and Trademark Office (USPTO). Both make it illegal, for a specific amount of time, for competitors to sell the same drug. So much for the free market. While the medication is under patent, drug companies can charge whatever they want. A 1998 Congressional Budget Office study found that brand-name manufacturers tend to raise the price of new medicines as they become more widely used and to keep raising prices after similar brand-name medicines come on the market.³⁷

When the patent is about to expire and generics can enter the market, the patent games intensify. The loss of patent protection means a loss of profits. When generic drugs are available, the price is usually 20–30 percent cheaper than its branded equivalent. Brand-name sales typically drop like a rock—according to a report in the Wall Street Journal, by about 75 percent.³⁸ When Prozac went off-patent, sales crashed by 80 percent. Therefore, the pharmaceutical industry employs thousands of attorneys who specialize in patent law, whose mission is to stop or delay the date that the patent expires and generics become available. They have devised ingenious and devious ways to extend their products’ exclusive hold on the market with the collusion of the FDA and USPTO. Specific provisions in the Hatch-Waxman Act, passed in 1984, are consistently exploited. The law provides for up to five years of additional patent life for drugs that experience long delays in coming to market because of clinical testing and FDA approval. It stipulates that if a brand-name company sues a generic company for patent infringement, FDA approval of the generic drug will automatically be delayed for thirty months.

The FDA Modernization Act of 1997 added six months of patent protection if drug companies test their drugs on children. The result is that they now test their blockbuster drugs, including drugs to treat primarily adult diseases, like arthritis, on children, because the extra protection is so lucrative.³⁹ Six-month patent extensions helped AstraZeneca earn more than $1.4 billion added revenue for Prilosec, and Pfizer made an additional $1 billion on Lipitor. The medications Prozac, Celebrex, Zoloft, Claritin, and Cipro brought their makers $300 million in added revenue due to the provision.⁴⁰ The patent high jinks are endless. Drug makers claim proprietary rights to the way a drug is manufactured, to new formulations (for example, a timed-release version or combining the drug with another drug), and by claiming new uses for the drug. Before Prozac was due to lose patent protection, Eli Lilly repackaged the drug in pastel colors of pink and lavender and marketed it to women as Sarafem. It was approved for the treatment of premenstrual dysphoric disorder (PMDD), a controversial diagnosis in the medical community.

The influence of the pharmaceutical industry is felt at all levels of government. Former Defense Secretary Donald Rumsfeld was CEO, president, and chairman of G. D. Searle, which merged with Pharmacia, which in turn was bought by Pfizer. Mitchell E. Daniels, Jr., former White House budget director, was senior vice president of Eli Lilly. The first president Bush was on the Eli Lilly board of directors.

A report by Public Citizen’s Congress Watch called “The other drug war 2003: drug companies deploy an army of 675 lobbyists to protect profits,” reveals how much the pharmaceutical industry spends to buy influence and stop any meaningful drug reform. Among its findings:

In 2002, the drug industry spent a record $91.4 million on federal lobbying activities.

The drug industry hired 675 lobbyists, by far the largest lobbying group—nearly seven lobbyists for each U.S. senator.

Among those lobbyists were 26 former members of Congress.

PhRMA hired 112 lobbyists and paid out $14.3 million for them in 2001.⁴¹