Big Pharma: Part of the Problem or Part of the Solution

Mar 08

Many people, however, increasingly have questions
about o­ne key group: the pharmaceutical companies or, as it is called
in business circles, "Big Pharma." More and more people have asked the
question: Is Big Pharma part of the problem of part of the solution?

Corporate Obstructionism

While the UN and other agencies have been working
with governments in Africa, Latin America, and Brazil overtime to stem
the tide, what has Big Pharma been up to?

Well, from 1999 to 2001, it sought to get the US
government to use mechanisms like a cut-off of aid to pressure South
Africa to overturn its new law o­n compulsory licensing that would
allow the manufacture of cheap anti-retroviral (ARV) drugs. It also
threatened to sue the South African government for infringing o­n
patent rights. It even used then Vice President Al Gore to pressure
South African President Thabo Mbeki o­n the issue.

When the Fourth Ministerial Meeting of the World
Trade Organization (WTO) adopted, in November 2001, a declaration that
public health concerns overrode intellectual property rights, Big
Pharma spent the next two years trying to undermine the agreement by
pressuring countries to attach o­nerous conditions to the sale of
essential drugs by developing countries with drug manufacturing
capacity to those without it.

When it comes to HIV-AIDS, Big Pharma is less
concerned about saving lives and much more concerned about protecting
its patents and advancing its interpretation of the Trade-related
Intellectual Property Rights (TRIPs) agreement as restricting
compulsory licensing, preventing export of drugs produced under
compulsory licensing, and banning parallel imports.

What is behind this callous attitude? Well, Big
Pharma’s rationale goes this way: Without the very broad protection it
wants for its patents, without the superprofits it derives from patent
protection, there would be no research and development (R&D), no
innovation, and thus more and more people would die from AIDS and other
deadly diseases.

So when you learn from the World Health Organization
(WHO) that most patented medicines retail at 20 to 100 times their cost
of manufacture, don’t get mad: Remember that this is not about market
pricing but monopoly pricing to support continuing R&D.

Myths and Realities

Big Pharma’s position o­n the necessity and
efficiency of corporate R&D is based o­n a number of myths and
outright distortions. Let us look closely at some of these.

Big Pharma tries to project the fact that it is its
efforts alone that are key to drug development, and this is why we
should accept its monopoly pricing of drugs. Typical of this was the
claim of Burroughs Wellcome (now part of Glaxo Wellcome) that it
discovered azidothymidine (AZT). In fact, it was the staff of the
publicly funded National Cancer Institute of the US working with Duke
University researchers that did it. Big Pharma boasts it is currently
developing 73 AIDS drugs. Look more closely, and you will find that
most of the firms doing this research are in fact receiving substantial
government aid via publicly funded researchers with the National
Institutes of Health! In other words, Big Pharma says it is doing
R&D, but it actually is siphoning off taxpayers’ money for much
R&D o­n essential, life-saving drugs.

Big Pharma says strict patent protection is
necessary because it takes $500 million to bring a single drug to
market. As a prominent expert o­n the drug industry, Merrill Goozner,
points out, this is a bogus figure for various reasons-not least of
which is the fact that most of the so-called new drugs are not
innovations. Indeed, in excess of 40 per cent of the industry’s R&D
is aimed at producing minor variations of existing drugs, not at
turning out new o­nes.

Also, much of the alleged cost of drug development
is accounted for by marketing expenditures designed to convince people
to buy different versions of the same drug. The fastest growing sector
of Big Pharma is the marketing sector, not R&D. There are now
90,000 sales people in the industry whose role is to pester doctors to
recommend them to patients, with Pfizer alone accounting for 11,000 of
these foot-soldiers. $12 billion of corporate expenditures, according
to the Toronto Stat, now goes to maintaining and expanding this
non-essential layer in the form of wages and salaries.

A third cost, which is factored into the $500
million figure, is the massive salaries of the top executive layers of
the different drug corporations—a point to which we shall return.

Big Pharma makes a 20 per cent return o­n
investment, making it the most profitable industry in the US. Yet even
as its profits leap upward, the productivity of the industry has
plummeted. In 1996, the US Food and Drug Administration (FDA) approved
53 new drugs. Last year, it approved just 17. Increasingly, according
to the Toronto Star, "Big Pharma doesn’t invent drugs. It licenses them
from smaller firms around the world, or buys them outright by acquiring
the firms that hold the rights, passing along the high takeover costs
to consumers." Drug consumers all over the world bore the burden, in
the form of higher drug prices, of Pfizer’s recent acquisition of
Warner Lambert and Pharmacia Corporation. Not innovation but making
variations of the same drug or medicine or treatment is what the
industry is settling into, which is why it must hold o­n tightly to
existing patents, whether it is in HIV AIDS drugs or in tropical
disease treatment drugs, or cancer drugs. It is, in short, turning into
a rentier class.

Why Corporate R&D is not the Answer

As everybody knows, even with compulsory licensing,
HIV-AIDS treatment costs are still too high relative to the resources
of patients and governments. Bringing down treatment costs to $200 a
year will not be enough since at that price many millions of poor
people will still be priced out of the market. We desperately need
R&D breakthroughs to come out with affordable drugs. But to expect
this from an increasingly sclerotic industry that is marked by a
rentier mentality is maybe unrealistic.

But there is a more basic question: Does the
industry really have an interest in developing drugs for which there is
great need but from which o­ne can derive little profit? Well, the
answer is no. Despite the fact that tropical diseases were the main
killers of the world’s peoples, o­nly 13 of 1233 new drugs that reached
the market between 1975 and 1997 were approved specifically for
tropical diseases. There was simply no market to support R&D in
this area. I would venture to suggest that for Big Pharma, the market
constituted by the millions of people suffering from HIV/AIDS in
Africa, South Asia, and Southeast Asia simply pales in comparison to
the market for rich peoples’ diseases in the North. Profits determine
corporate R&D, not human needs.

It must be pointed out that it is not o­nly HIV/AIDS
groups that are up in arms against Big Pharma’s regimes of monopoly
pricing. Indeed, there is strong and vocal resistance in both the North
and South. In the United States, for instance, senior citizens’ demands
for lower prices have become so strong that Republicans in Congress are
spearheading legislation to legalize import of drugs from Canada that
are priced much lower than those put out by Big Pharma. Not
surprisingly, Big Pharma has opposed this legislation, raising the
bugaboo that these imported drugs are "unsafe"—a familiar charge that
they have tossed around in the case of cheap generic HIV/AIDS drugs.

Why We Need a new R&D Paradigm

Herein lies the reason why, despite all the
humanitarian pleading o­n the part of NGO’s, Big Pharma refuses to
abandon its hard stance against loosening patents for HIV/AIDS drugs.
This rentier industry (Is this a contradiction in terms?) worries that
concessions in this area would undermine its whole structure of
monopoly pricing based o­n TRIPS, leading to its eventual collapse and
the end of corporate superprofits.

Now I have no problem with giving Big Pharma 20 or
30 years of strict patent rights to Viagra and other chemical toys to
enable 70 year old white men and women to have another fling. But
essential drugs to save millions and millions of lives, that is another
matter. Having been drafted mainly by Big Pharma, the TRIPS Agreement
is a rigid and blanket defense of corporate patents that cannot and
will not make vital distinctions like this. Which is why corporate
R&D protected by the WTO TRIPS agreement is simply an obsolete
framework when it comes to the research and development of essential,
life-saving drugs.

We need a new R&D framework, based o­n a
people-oriented approach to patents, maybe coordinated by the UN, in
which there is room for participation by many other actors, including
governments, government institutes, and civil society organizations.
This new Manhattan Project can be funded from a Global Fund, the bulk
of which could come from a tax imposed o­n global drug sales. A 1 per
cent tax o­n current global sales of $450 billion, for instance, would
create a fund of $4.5 billion.

Executive Pay

But before ending, let me return to the matter of
executive pay. Increasingly, more and more resources that could
otherwise go to corporate R&D are being funnelled into pay packages
for the top layers of the pharmaceutical industry. Here are the total
pay packages for the CEO’s of the top five pharmaceutical corporations:

Pfizer: Hank McKinnell, total annual pay package: US$28 million, plus US$30.6 million in unexercised stock options;

Merck: Raymond Gilmartin: US$ 19.5 million, plus $48 million in unexercised stock options;

Bristol Myer Squibb: PR Dolan, US$8.5 million, plus US$3.4 million in unexercised stock options;

Glaxo Smith-Kline: Jean Pierre Garnier, US$11.8 million; and

Du Pont EI: CO Holliday, $US$13.5 million.

Now add the lower but still super salaries of a
couple of thousand top executives in the industry, and you will
understand why R&D costs have been going through the roof.

These are the very people who have been crying
"intellectual property rights" and begrudging the millions and millions
of people infected with HIV the radical price reductions that would
save their lives.

HIV/AIDS can be licked, but o­nly by undertaking
today’s equivalent of a Manhattan Project armed with new R&D
paradigm that is not hostage to corporate waste and corporate profits.

Leave a Reply