By Russell Mokhiber and Robert Weissman

Focus on the Corporation, June 30, 2006

http://lists.essential.org/pipermail/corp-focus/2006/000244.html

Whether you think the pharmaceutical industry is a success or failure depends crucially on how you measure performance.

Although some leading firm's share price has declined over the last year, from an investor point of view, the industry does remarkably well. It consistently earns a 15-20 percent return on investment. Last year, a down year, the U.S. industry return was 15.7 percent, according to Fortune magazine, ranking it fifth among 50 industry groups.

From a public health perspective, however, the situation is rather different. Thanks to the patent system, Big Pharma companies invest not to address priority public health needs, but to take advantage of potential markets. These are not the same thing.

For example, Big Pharma tends not to invest in diseases that primarily afflict people in developing countries. Between 1975 and 2004, according to Doctors Without Borders, only a tiny fraction of new drugs -- only 20 of the 1,556 new chemical entities marketed globally, just over 1 percent -- were for tropical diseases and tuberculosis, diseases which account for 12 percent of the total global disease burden.

In the rich countries, too, R&D efforts are badly skewed. The brand-name drug companies tend to invest in drugs for which there are big markets -- like erectile dysfunction -- as the expense of higher priority health needs. And, Big Pharma emphasizes "me too" drugs -- pharmaceuticals which pretty much do what existing products can do -- because they are easier to develop and have demonstrated markets. Three quarters of new drugs fall into the me-too category.

The patent-conferred monopoly lets drug companies charge astronomical sums for their products. Prices have no relationship to the cost of manufacture, and virtually none to the more substantial cost of R&D. As New York Times reporter Alex Berenson noted in a recent story, "After years of defending high prices as necessary to cover the cost of research or production, industry executives increasingly point to the intrinsic value of their medicines as justification for prices." Thus some new cancer treatments are now being priced around $100,000 a year.

The patent system also gives brand-name drug companies a major incentive to invest heavily in advertising and other forms of marketing. This is because the companies are able to charge so much over marginal cost, and because there is no direct competition during the period of patent protection.

In short, under the patent system, we get lots of heavily marketed treatments for erectile dysfunction or male pattern baldness, but way too few for sleeping sickness or dengue fever.

The situation could be different.

When the member countries of the World Health Organization met this past May, an interesting and somewhat unexpected thing happened. Shunting aside objections from Big Pharma, they recognized the shortcomings of the existing drug development system, and they committed to developing plans to "secur[e] an enhanced and sustainable basis for needs driven, essential health research and development relevant to diseases that disproportionately affect developing countries."

What precisely this means will only be worked out over time, but it may be a major breakthrough.

"The global trade framework will be transformed by this initiative," says James Love of the Consumer Project on Technology, pointing to the central role of expanded patent and other monopoly protections for Big Pharma in many trade agreements. "No longer will countries see trade agreements about intellectual property rights or drug prices as the only mechanism for sustainable funding of R&D, or the only possible outcome of a bilateral or multilateral trade negotiation."

Through the WHO initiative, countries may be expected to give greater attention to new public-private efforts to develop medicines, like the Gates Foundation-backed International AIDS Vaccine Initiative. It may also inspire more support for nongovernmental efforts like the Doctors Without Borders-sponsored Drugs for Neglected Diseases Initiative.

Hopefully, it will also lead governments in both rich and poor countries to invest more directly in needs-driven medical research and development. The United States is the global leader in this regard, through the National Institutes of Health. But a key problem with the current NIH model is that the fruits of public investment are licensed away on an exclusive basis, with no price restraints -- meaning the public has to pay exorbitant prices for the drugs that taxpayer dollars financed. (For an altogether different and more sensible approach, see the Free Market Drug Act, introduced in the U.S. House of Representatives in 2004 by Representative Dennis Kucinich.)

The WHO initiative should also spark debate over alternatives to the patent system. Organizations like the Consumer Project on Technology have suggested moving away from the award of a marketing monopoly to drug developers, and instead paying them directly, based on the value in public health terms of their product. Then prices to consumers or public or private insurers could be set competitively. All drugs would be generic. This approach could cut out the massive industry waste on marketing and direct what is spent on R&D more efficiently

We could end up with a win-win-win: more money for R&D, directed more effectively, and lower prices.

 Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime Reporter, http://www.corporatecrimereporter.com. Robert Weissman is editor of the Washington, D.C.-based Multinational Monitor, http://www.multinationalmonitor.org and associate counsel for the Consumer Project on Technology www.cptech.org. Mokhiber and Weissman are co authors of On the Rampage: Corporate Predators and the Destruction of Democracy (Monroe, Maine: Common Courage Press).

(c) Russell Mokhiber and Robert Weissman

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