Drug industry expenditures for research and development, while large, were consistently far less than profits. For the top ten companies, they amounted to only 11 percent of sales in 1990, rising slightly to 14 percent in 2000. The biggest single item in the budget is neither R&D nor even profits but something usually called "marketing and administration"—a name that varies slightly from company to company. In 1990, a staggering 36 percent of sales revenues went into this category, and that proportion remained about the same for over a decade.¹³ Note that this is two and a half times the expenditures for R&D.

Earlier:

The most startling fact about 2002 is that the combined profits for the ten drug companies in the Fortune 500 ($35.9 billion) were more than the profits for all the other 490 businesses put together ($33.7 billion).

Later:

In the 1990s, Congress enacted other laws that further increased the patent life of brand-name drugs. Drug companies now employ small armies of lawyers to milk these laws for all they're worth—and they're worth a lot. The result is that the effective patent life of brand-name drugs increased from about eight years in 1980 to about fourteen years in 2000.¹⁰ For a blockbuster—usually defined as a drug with sales of over a billion dollars a year (like Lipitor or Celebrex or Zoloft)—those six years of additional exclusivity are golden. They can add billions of dollars to sales—enough to buy a lot of lawyers and have plenty of change left over. No wonder big pharma will do almost anything to protect exclusive marketing rights, despite the fact that doing so flies in the face of all its rhetoric about the free market.

Assertions supported at length in the article:

Second, the pharmaceutical industry is not especially innovative. As hard as it is to believe, only a handful of truly important drugs have been brought to market in recent years, and they were mostly based on taxpayer-funded research at academic institutions, small biotechnology companies, or the National Institutes of Health (NIH). The great majority of "new" drugs are not new at all but merely variations of older drugs already on the market. These are called "me-too" drugs. The idea is to grab a share of an established, lucrative market by producing something very similar to a top-selling drug.

And:

Third, the industry is hardly a model of American free enterprise. To be sure, it is free to decide which drugs to develop (me-too drugs instead of innovative ones, for instance), and it is free to price them as high as the traffic will bear, but it is utterly dependent on government-granted monopolies—in the form of patents and Food and Drug Administration (FDA)–approved exclusive marketing rights. If it is not particularly innovative in discovering new drugs, it is highly innovative— and aggressive—in dreaming up ways to extend its monopoly rights.

And there is nothing peculiarly American about this industry. It is the very essence of a global enterprise. Roughly half of the largest drug companies are based in Europe. (The exact count shifts because of mergers.) In 2002, the top ten were the American companies Pfizer, Merck, Johnson & Johnson, Bristol-Myers Squibb, and Wyeth (formerly American Home Products); the British companies GlaxoSmithKline and AstraZeneca; the Swiss companies Novartis and Roche; and the French company Aventis (which in 2004 merged with another French company, Sanafi Synthelabo, putting it in third place).⁵ All are much alike in their operations. All price their drugs much higher here than in other markets.

Since the United States is the major profit center, it is simply good public relations for drug companies to pass themselves off as American, whether they are or not. It is true, however, that some of the European companies are now locating their R&D operations in the United States. They claim the reason for this is that we don't regulate prices, as does much of the rest of the world. But more likely it is that they want to feed on the unparalleled research output of American universities and the NIH. In other words, it's not private enterprise that draws them here but the very opposite—our publicly sponsored research enterprise.

Of course:

If prescription drugs were like ordinary consumer goods, all this might not matter very much. But drugs are different. People depend on them for their health and even their lives. In the words of Senator Debbie Stabenow (D-Mich.), "It's not like buying a car or tennis shoes or peanut butter." People need to know that there are some checks and balances on this industry, so that its quest for profits doesn't push every other consideration aside. But there aren't such checks and balances.

Research. Innovation. American. Did you know:

Even worse is the fact that there are very few drugs in the pipeline ready to take the place of blockbusters going off patent. In fact, that is the biggest problem facing the industry today, and its darkest secret. All the public relations about innovation is meant to obscure precisely this fact. The stream of new drugs has slowed to a trickle, and few of them are innovative in any sense of that word. Instead, the great majority are variations of oldies but goodies—"me-too" drugs. Of the seventy-eight drugs approved by the FDA in 2002, only seventeen contained new active ingredients, and only seven of these were classified by the FDA as improvements over older drugs. The other seventy-one drugs approved that year were variations of old drugs or deemed no better than drugs already on the market. In other words, they were me-too drugs. Seven of seventy-eight is not much of a yield. Furthermore, of those seven, not one came from a major US drug company.

Own pharma stock? No worries!

How is the pharmaceutical industry responding to its difficulties? One could hope drug companies would decide to make some changes—trim their prices, or at least make them more equitable, and put more of their money into trying to discover genuinely innovative drugs, instead of just talking about it. But that is not what is happening. Instead, drug companies are doing more of what got them into this situation. They are marketing their me-too drugs even more relentlessly. They are pushing even harder to extend their monopolies on top-selling drugs. And they are pouring more money into lobbying and political campaigns. As for innovation, they are still waiting for Godot.

Don't you love a happy ending?

Okay, let's close with a prescription, instead:

For example, we need to get the industry to focus on discovering truly innovative drugs instead of turning out me-too drugs (and spending billions of dollars to promote them as though they were miracles). The me-too business is made possible by the fact that the FDA usually approves a drug only if it is better than a placebo. It needn't be better than an older drug already on the market to treat the same condition; in fact, it may be worse. There is no way of knowing, since companies generally do not test their new drugs against older ones for the same conditions at equivalent doses. (For obvious reasons, they would rather not find the answer.) They should be required to do so.

The me-too market would collapse virtually overnight if the FDA made approval of new drugs contingent on their being better in some important way than older drugs already on the market. Probably very few new drugs could meet that test. By default, then, drug companies would have to concentrate on finding truly innovative drugs, and we would finally find out whether this much-vaunted industry is turning out better drugs. A welcome by-product of this reform is that it would also reduce the incessant and enormously expensive marketing necessary to jockey for position in the me-too market. Genuinely important new drugs do not need much promotion (imagine having to advertise a cure for cancer).

A second important reform would be to require drug companies to open their books. Drug companies reveal very little about the most crucial aspects of their business. We know next to nothing about how much they spend to bring each drug to market or what they spend it on. (We know that it is not $802 million, as some industry apologists have recently claimed.) Nor do we know what their gigantic "marketing and administration" budgets cover. We don't even know the prices they charge their various customers. Perhaps most important, we do not know the results of the clinical trials they sponsor—only those they choose to make public, which tend to be the most favorable findings. (The FDA is not allowed to reveal the results it has.) The industry claims all of this is "proprietary" information. Yet, unlike other businesses, drug companies are dependent on the public for a host of special favors—including the rights to NIH-funded research, long periods of market monopoly, and multiple tax breaks that almost guarantee a profit. Because of these special favors and the importance of its products to public health, as well as the fact that the government is a major purchaser of its products, the pharmaceutical industry should be regarded much as a public utility.

The recent move to mandate that results of clinical drug trials be publically available in a federal registry is a small step in the right direction.

Read The Rest Scale: 6 out of 5. This is a small part of a damned important article, and a matter of, literally, life and death for millions of people.

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AFGHANISTAN * While the big Spring offensive against al Qaeda has yet to start, things are heating up already. Pakistan announced an initiative of their own, but I doubt it will be sufficient to hold off the US too very long, amid concerns that Khan may have helped al Qaeda learn how to construct a dirty bomb. * As a record Afghan poppy crop near harvest, funding terror networks via the international heroin trade, the country faces a drug problem of its own. * Rantburg has more background. * NATO agrees to beef up its force in Afghanistan. but no word on who would actually send the additional troops. NATO's earlier inability to even send 12 helicopters does not bode well. IRAN * Last Friday, our Iran in Focus Regional Briefing provided in-depth coverage of recent events. * The "moderates" have caved on the issue of candidate approvals. * Protests at the Technical College of Tehran University. * The US says it has new proof of a nuclear weapons program Iran is keeping secret from the UN inspectors. * John Kerry appears to favour a softer policy toward Iran. HOMELAND SECURITY * The Chicago Tribune details the story of a large Chicago-area mosque with a long history of radical affiliations and terrorist sympathies. Not a comfortable read. * The US has clarified some of rules it will follow during upcoming military tribunals for detainees at Gitmo. * Phil Carter over at INTEL DUMP has a great discussion of Jeffrey Toobin's New Yorker article on the tribunal defense lawyers. * Germany searches mosques and is beginning to believe they have a serious problem with Islamic fanatics. Certainly this story is alarming. ISRAEL AND HER NEIGHBORS * The Palestinian Authority is in chaos: it cannot pay its employees. I bet it still pays some of them quite well. * Looks like others think so, too. 400 younger members resign from Fatah, protesting the corruption of Arafat's movement. "Fatah, as it stands today, is leading us toward tribalism, internal conflict and a bottomless pit," the statement said. * Is Sharon's proposal to dismantle Gaza settlements too little, too late for the US? One Israeli thinks Sharon is acting tactically, without the benefit of a larger strategy. * That story about the brave Palestinian swimmer's resolve in the face of arrogant Israeli suppression? Turns out it's all wet. * JK: Israel rubs out an Islamic Jihad commander. Islamic Jihad promises more terrorist strikes. As opposed to the terrorist strikes that would have followed if Israel hadn't rubbed out the terrorist commander. THE WIDER WAR * How would major shifts in weather patterns affect the war on terror? The Pentagon has some major concerns. * Reports that Islamacist terrorists have developed ways to sneak bombs onto airplanes piecewise and assemble them in flight. This fits with the bits and pieces of information we have about flights cancelled in December and January. * A Saudi leader of the Chechen Islamicists is suspected of carrying out the deadly bombing of Moscow's subway last week. * In the Andes, Bolivia's new government has troubling ties and Columbian marxist gangs are joining a reinvigorated Shining Path in Peru. This report contains more insights on the situation in the Andes - it's 2 years old but still relevant. * Meanwhile, Spain rebuffs attempts to build a European counterweight to the US, seeks to play a role in stabilizing Latin America, and may become the new home port for the US 6th fleet. * Pakistanis find counterfeiting dollars very profitable - at least, those that don't get caught in Jordan with $20 million in fake money do. Worth paying attention to, because many terrorists are turning to this as a method of financing. * Australia says Pakistani terrorists from Lakshar e Taiba have established a cell in their country and may have links to the French terrorist Brigitte, who planned to blow up a defense installation there, with the help of an ally in Sydney. Did the Aussies fail to follow up on French warnings due to undermanning? * The Filipino government and the Moro Islamic Liberation Front continue their talks but are sidestepping the issue of Jemaah Islamaya training camps in MILF controlled territory. Islamacist organizations seem to be replacing the older Filipino communist groups such as the Alex Boncayao Brigade. * Sri Lanka dissolved its parliament in preparation for new elections after Kumaratunga's Sri Lanka Freedom Party formed an alliance -- the United People's Freedom Alliance -- with a powerful Marxist political party in January. Watch for more Tamil violence in protest. * Demonstrators protest what they claim was the death of civilians forced to be human shields by Indian troops in Kashmir. * Talks between Berbers and the Algerian government have collapsed, threatening elections there. The Berbers are demanding that their language be given equal status with Arabic. How this will play into the ongoing civil war there involving the al-Qaeda affiliate GSPC remains to be seen. * Egyptian President Mubarak is coming to Washington in an attempt to mend fences. * The Somali peace process is threatened but not yet dead. * Did al Qaeda buy suitcase-sized nukes from the Ukraine? A pan-Arab newspaper says they did, but the tone of the report suggests wishful thinking. They apparently are, however, trying to recruit Arab pilots (hat tip: our Dan Darling, posting over at Rantburg) * We try to close on a lighter note if possible. Here's how real men relax, Turkish style. Ahhhh .... sounds great! Thanks for reading! If you found something here you want to blog about yourself (and we hope you do), all we ask is that you do as we do and offer a Hat Tip hyperlink to today's "Winds of War". If you think womething important, use the Comments section to let us know.

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