Drug companies should be publicly owned

Submitted by cathy n on 25 August, 2008 - 7:25 Author: Martin Thomas.

The chair of the Government's official medical drugs-regulating body, has said that “the drugs are so expensive” because of the pharmaceutical companies’ drive for profits.

Michael Rawlins said that such practices as linking the pay of pharmaceutical company bosses to their firm's share price have made the problem even worse.

Kidney cancer drugs, for example, said Rawlins, could be produced for about a tenth of their current cost. Why is the price so high? Part of it is “cushioning” for the companies that several big-earning drugs will come out of their patent period in the next five years, and can then be replaced by a cheaper version. “The other thing, of course, is that the share price is very important to a pharmaceutical company”.

Pharmaceutical companies are hugely profitable — enjoying “double-digit growth year on year”. And “they are out to sustain that, not least because their bosses’ earnings are related to the share price. It's not in their interests to take less profit, personally as well as from the point of view of the business. All these perverse incentives drive the price up.

“The other thing we have to pay for”, added Rawlins, “is the costs of marketing. Marketing costs generally are about twice the spend on research and development”.

These problems are even worse in the USA, where the market orientation which the Tories, Blair, and Brown have gradually shoved onto the Health Service is flamboyant and long-established.

A book by Katherine Greider, The Big Fix: How the Pharmaceutical Industry Rips Off American Consumers, has documented some of the facts. For example, 29 percent of Americans failed to fill a prescription in 2000 because they could not afford to.

Meanwhile, over the 1990s, drug firms’ profits represented an 18.5 percent return on revenue or 5.6 times the median return (3.3 percent) of big companies.

Greider lists the profit-chasing gambits used by the pharmaceutical bosses:

• “Tweak” original drug formulas to create a “new” version with a bigger price tag.

• Claim new uses for old drugs and extend patents and monopolies to keep inexpensive generic versions off the market.

• Charge individuals the steepest price, big purchasers the smallest. (As Marcia Angell put it in another investigation of the drug industry, in the New York Review of Books: “People without insurance have no bargaining power; and so they pay the highest prices”).

• Set prices higher in the unregulated US market than in countries with price controls.

• Spend more than any other US industry on lobbying Government.

• Spend vast amounts of advertising.

She gives an example of Lipitor, a much-prescribed drug for high chloresterol.

• 35 percent of the cost is for marketing, advertising and administration.

• 26 percent is “other,” such as manufacturing, executive pay, worker costs, etc.

• 24 percent of the cost is pure (net) profit.

• Just 15 percent of the cost is for research and development.

While profit-chasing denies poor people the medication they need, it also pushes unnecessary medication on better-off people. A special issue of the journal PLOS Medicine says that often minor problems that are a normal part of life are “medicalised” so that expensive drugs can be sold to “treat” them.

“Disease-mongering turns healthy people into patients, wastes precious resources and causes iatrogenic [medically induced] harm,” say the authors. “Like the marketing strategies that drive it, disease-mongering poses a global challenge to public health...”

The actual production process in pharmaceuticals is highly socialised. The industry is dominated, world-wide, by maybe a couple of dozen huge companies, with revenues which vary from nearly $10 billion to over $50 billion.

According to Marcia Angell, the pharmaceutical bosses’ standard argument that they have to charge high prices in order to fund research do not hold up. “Drug companies no longer have to rely on their own research for new drugs, and few of the large ones do. Increasingly, they rely on academia, small biotech startup companies, and the NIH [the US National Institutes of Health] for that. At least a third of drugs marketed by the major drug companies are now licensed from universities or small biotech companies, and these tend to be the most innovative ones”.

In countries with public health insurance, the pharmaceutical bosses are largely dependent on public money for their revenues. Although in those countries, governments usually exercise more restraint on drug prices than in the law-of-the-jungle USA, the companies are compensated for that by large, guaranteed markets.

Even in the allegedly “free-enterprise” USA, the drug companies are utterly dependent on government-granted monopolies, in the form of patents and exclusive marketing rights approvals from the Food and Drugs Administration.

The capitalist rule of profit means that curing illness and saving lives is a mere subsidiary, an incidental, to the main story of boosting the incomes of pharmaceutical company bosses and shareholders. The capitalist state functions as a guarantor of those incomes, and a source of subsidy (through medical research done in universities and public institutions).

Competition between the companies primarily boosts, not innovation, but anti-social drives: to replace cheap medications by more expensive (and often no more efficacious) ones; to sell to even modestly well-off people more medication than is good for them; to make medication more expensive, or even impossibly expensive, for poorer people; to get vastly more spent on “marketing” drugs than on research.

Social ownership, under democratic social control, is the answer.

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