A few months ago, the pharmaceutical industry was throwing around careless numbers to justify the exorbitant price of its products
. The "industry standard" of $800 million to develop a new drug had inflated to $1.3 billion (presumably thanks to non-existent inflation), but some digging around in the very same dataset produced a completely different number: $35 million. Sure, that's not exactly "walking around" money, but it's a lot easier to recoup your investment if you don't overstate it by $1.26 billion.
Some more damning numbers have emerged in a post at Rational Arguments, showing that even the drug companies' inflated R&D costs pale in comparison to what they really spend their money on. The first post pulls numbers from the Fortune 500 listing of top 10 pharmaceutical companies (by sales) and finds some (sadly) unsurprising results:
Those companies spent a whopping $41 billion on research and development. That's a lot of money. But it's significantly less than the $49 billion (18%) in profit they made. Just so you know, the average Fortune 500 company in 2008 made 0.9% of sales in profits. So in a recession, pharma did very, very well. [The] pharmaceutical companies spent $83 billion on marketing and administration. That's more than twice as much as they spent on research and development. That's an insane amount.
So it's a little disingenuous to claim that Americans must continue to spend so much to fund R&D when you could make cuts to either profits (which are big) or to marketing and administration (which is gargantuan). R&D just isn't that big a piece of the pie. There's plenty of fat to trim in there before research and development.
And why do pharmaceutical companies spend so much on marketing? It's simple, really. They're not creating new drugs. (Yes. That seems like a really moronic explanation, but read on...)
From 2000-2007, 667 new drugs were approved by the FDA. Of those, only 75 (11%) were new molecules that were much better than what we already had. In fact, over 80% of all drugs approved were no better than what we already had. Those are "me-too" drugs. Why do the pharmaceutical companies spend so much on marketing? Because you have to really promote drugs that really have no benefit over others that already exist. You have to convince people to buy those.
You know what needs no promotion? Awesome new drugs that save lives. When was the last time you saw a commercial for chemotherapy? For epinephrine? For steroids? Those drugs need no promotion - doctors just know to use them. But I bet all of you know about Nexium. Or Cialis.
Add to that the fact that drug companies are now helping themselves to medical records to help "guide" doctors' decisions and you've got a cyclical nightmare that increases costs while doing next to nothing for the health and well-being of their customers.
If you've managed to keep your incredulous rage (and whatever meal you last digested) suppressed, here's some more evidence dismissing pharma's everlasting claim to what's left in your wallet.
The Incidental Economist has a followup post by Aaron Carroll (who wrote the previous post at Rational Arguments), detailing even more evidence that the drug industry is blatantly lying when it claims its high prices are justified by its R&D investments. The twist here is that these companies, for the most part, aren't even doing their own R&D. (Click through for an informative and highly irritating graph. The colors are nice, though...)
The majority of research cited in patent applications was done in academic centers. Some more was done in other non-profit or government research centers. Only 15% of the research was done by industry. That's not a very compelling argument for the indispensable contribution of industry to research.
Carroll quotes another study, this one performed by Public Citizen in 2001, which showed that "U.S. taxpayer-funded researchers conducted 55 percent of the published research projects leading to the discovery and development of these drugs (and foreign academic institutions 30 percent)." In fact, drilling down even further into the data reveals that only one in seventeen papers come from the industry itself.
What we've got is an industry that uses the research (and money) of others to keep its profit margins right where it wants its. Even worse, it keeps going back to the government, fur-lined pimp hat in hand, looking for more funding, more patents, more patent extensions and more control over the medical community. Anyone looking to the pharmaceutical "community" for an answer to their health problems is in for a world of very literal hurt. The industry doesn't seem to mind if you're chronically ill. It just hates losing paying customers. To, like, death and stuff. And so it lowers its costs and raises its prices, trying to find the perfect balance between lifelong medical care and the local morgue.