Why are global drug prices so high? and other questions
- Mary Moran
- Aust Prescr 2003;26:26-7
- 1 April 2003
- DOI: 10.18773/austprescr.2003.018
Why are drug prices so high in much of the world? Why isn't there an AIDS vaccine? Why don't we have effective antimalarials anymore? Why was there a shortage of noradrenaline in the UK last year?
The answers to these questions are pretty simple. We do not have the drugs we need, at the prices we want, because we have very little control over what drug companies do or do not do. Over the last 30 years we have largely relinquished control of drug development, supply and pricing decisions to the private sector, whose interests lie in maximising profits and growth, not in identifying and filling health needs. In most Western countries, the impact of this change has been ameliorated by health insurance systems, government subsidies or expensive carrots (like the Orphan Drug Act in the USA). However, this is not the case in developing countries, where governments are often too poor to shield patients from the brunt of industry production and pricing strategies.
Pharmaceutical industry strategies make commercial sense, but, particularly in developing countries, they can also conflict with what is best for public health. In response to shareholder pressure, drug companies have increasingly narrowed their research to focus on money-spinner drugs and diseases. The 10 best-selling drugs worldwide are for depression (4), cholesterol (2), hypertension (2), heartburn/ulcers (1) and hayfever (1).1The chief executive officer of the UK pharmaceutical company Amersham put the case bluntly: 'When I took on the biological business, two-thirds of our research was on tropical disease. I couldn't see how, virtuous as it was, that was going to deliver the revenue flows for the company. I was quite rigorous about cutting back on this research.'2The result of this trend is that in developing countries patients with malaria or sleeping sickness have little prospect of seeing new drugs developed for them unless there is government intervention.
Maximising profits also means getting rid of non-competitive products, irrespective of the health needs they may address. Companies faced with the need to improve the bottom line will, and have, simply stopped production of low-profit drugs like noradrenaline or isoprenaline, oily chloramphenicol for epidemics of bacterial meningitis, or eflornithine for sleeping sickness.
The real key to drug industry profit, however, is the ability to maintain high prices over long periods of time. Hence the enormous resources expended by the industry on lobbying governments to support measures that protect prices, reduce competition (which exerts downward pressure on prices) and extend patent monopolies.
The drug industry's greatest coup was the passage of new international trade laws in 1995, which stipulated that all countries - even the poorest - were compelled in most instances to purchase brand versions of all new drugs for a minimum of 20 years after they were patented, rather than relying on cheaper generic copies which had long been the mainstay of their health systems. Unfortunately, this success for the industry, effectively handicapping future generic competition, had life-threatening consequences for patients. Patients with AIDS, in particular, found themselves forced to forgo treatment with cheap generic antiretrovirals (then available for as little as $350 per patient per year) despite being unable to afford the equivalent brand name drugs which cost more than $10 000 per patient per year. A public outcry subsequently led to these laws being re-examined.
Of course prices and profits must be sufficiently high to foster a thriving drug industry and to fund research and development of new cures. However, drug company tax returns show that the bulk of their revenues are not allocated to research. The lion's share goes to marketing and administration, followed closely by returns to shareholders. The US pharmaceutical industry is consistently ranked by Fortune 500 as the most profitable industry in the US, with a staggering 33% return on shareholders' equity (other Top 10 performers deliver returns of between 14% and 26%); and with profits representing a generous 18% of revenues (other Top 10 performers range from 6% to 13%).3Compared to these figures, research and development spending comes a poor third.4This is not because industry is uninterested in research, indeed, they are anxious to find the next 'blockbuster' drug. The problem is that breakthrough drugs are increasingly rare. The US Food and Drug Administration estimates that only one third of new drugs submitted to it are truly innovative, the remainder being little or no improvement on existing therapies. In the absence of a real breakthrough, the next best thing is to make your drug seem like a breakthrough. This explains the huge marketing budgets, the teams of drug representatives visiting general practice surgeries with glossy folders, and the pressure for direct-to-consumer advertising of new drugs (which assumes that consumers are more easily swayed than physicians).
Drug companies, desperate to maintain growth rates and profits, are increasingly turning to standard business remedies. They are cutting out 'deadwood' (low-profit drugs and research targets), focusing on proven winners (blockbuster drugs and key US, Japanese and European markets) and ensuring that governments legislate in their favour, be this regulatory agencies or trade authorities.
Understanding these corporate practices helps us understand what has gone wrong and what needs to change. We are allowing a private sector industry that has other interests at heart to set the agenda on public health. While industry clearly has a central and important role to play, it is up to health professionals and governments to ensure that issues relating to health, not just wealth, are on the table when decisions affecting drug access are made.
E-mail: [email protected]
Access to Essential Medicines Campaign, Médecins Sans Frontières, London, UK