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An Industry Under Fire by Jon Palfreman
Palfreman is the producer of FRONTLINE's "The Other Drug War" and spent eight months researching and reporting on the high cost of prescription drugs for Americans. In this article he offers his reflections on the powerful and closed pharmaceutical industry and weighs the five most common arguments heard against it.

+ Argument 5. "Gaming" the patent system

A fifth charge is that drug companies cheat the American consumer by using legal tricks to extend their patents beyond their 20 year period, thereby preventing cheaper generics reaching the consumer. A much quoted example of this "ever greening" is Bristol Myers Squibb's controversial strategy to extend the patent on its best selling anti-anxiety drug Buspar. To keep generic companies at bay, it took out patents not only on the drug itself, but also on the metabolite created when Buspar is digested in the human gut. This effectively barred generic manufacturers from copying their drug because a person swallowing a generic would produce the still-patented metabolite.

Another much discussed example of ever greening patents is Nexium. Facing the imminent loss of its patent on Prilosec--a highly successful heartburn medicine--drug maker Aventis came up with an ingenious plan. A few years before Prilosec's patent was due to expire, it launched a lavish television campaign urging patients to switch to its "new, improved" drug called Nexium (a.k.a. "the purple pill"). The catch, critics were quick to point out, is that Nexium is not a new chemical entity. It is, practically speaking, identical to Prilosec; the base molecule has simply been tweaked.

Evaluating this argument:

This argument goes to the critics. Indeed, I found no one at Merck or Lilly prepared to defend so-called frivolous patent extensions such as occurred with Buspar and Nexium. As it turns out, Merck owns a commercial stake in Nexium, but, when confronted, Merck CEO Raymond Gilmartin declined to comment on Aventis' strategy and said I would have to ask Aventis for its explanation. Aventis insists somewhat predictably that Nexium constitutes a significant pharmaceutical advance since it is more potent than Prilosec.

+ Final Thoughts

As far as these five arguments are concerned, my scorecard is: critics three, drug companies two. In my view, the media-shy drug industry has not carried the day, but, I would submit, they hold their own on several important issues and would emerge rather stronger from a fully engaged debate than they do by refusing to participate. The drug companies certainly have much to answer for (and much to learn about public relations), but, based on the above analysis, the critics have over played their hand in a few areas. The policy debate would be better served if critics abandoned phony labels like "me too" drugs and focused on trying to unpack the public health consequences of price controls (à la Maine) or quality controls (à la Oregon).

For a communicator like myself, what's most fascinating about the drug industry is its demon status. Whatever the industry's shortcomings, it seems absurd to compare an enterprise that has done so much for human health to the tobacco industry. So what would it take to "de-demonize" the US drug industry? Imagine if the drug companies agreed to make certain reforms, for example: (a) to censure members gaming the patent system, (b) to commit, as an industry, to cut back on marketing to both doctors and consumers, (c) to support the development of an objective, independent "Consumer Reports" for Rx drugs, as Oregon is suggesting, (d) to reduce prices on certain drugs where large amounts of public R&D were involved. Would this be enough to redeem the drug industry in the court of public opinion and appease the critics intent on radical reform?

These measures would certainly help, but in my view they might not be enough. The issue of drug prices turns out to be an extraordinarily intractable dilemma for the drug industry. However the Congress decides ultimately to configure its Medicare drug bill (with private insurers etc) the industry may still face price controls. Let me suggest two reasons why.

First, there is the politics of charging different prices to different countries; what economists call price discrimination. The very idea that Americans can pay $100 for a medicine that cost Canadians $50 and Brazilians $20 seems unjust--especially to those (usually poor) Americans who must pay the full price out of pocket. Price discrimination makes a lot of sense as an abstract economic concept, but, like the parable in the vineyard, once people know that others are getting a better deal, they tend to get mad. A large jet flying to London carries people who freely purchased tickets at many different prices. But if all those fares were made public, by say announcing them over the intercom, you would have a very unhappy planeload of passengers. Price discrimination plus knowledge--the knowledge, for example, that Maine seniors have about low drug prices in Canada--leads inexorably to political pressure for price control.

Second, the drug industry is up against basic human psychology. The very immediate anxiety of paying high prices for medicines one needs today will always trump the much more abstract worry of missing out on drugs one might need tomorrow. In the end, it comes down to this: will Americans accept the full burden of paying the highest prices in the world in order to ensure that drug companies continue to invest in future life saving medications? Or will we reason that we cannot have it all, move to regulate prices today and risk losing some innovation in future. Uninsured seniors have voted.With more of their lives behind them, they prefer affordable access today to innovation tomorrow. My guess is that most people actually faced with paying for their drugs will make the same choice. I suspect that nothing-not, better public relations, not more sympathetic media coverage--will change this. The drug companies had better brace themselves for this day of reckoning.

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posted june 19, 2003; last updated july 8, 2003

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