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June 29, 2007

Things You Won't Learn From Industry Propaganda

I'm not entirely sure there are words to describe how bizarre it is to watch Andrew Sullivan rely entirely on research from the pharmaceutical industry's web site to make his case for why drug companies should get to charge anything they want. I mean, really, we're going to need a new term. Gullimarkable?

In any case, Sullivan's case is a mess even if you excuse his sources. He gets really excited about a 1994 European Commission report saying "Europe as a whole is lagging behind in its ability to generate, organise, and sustain innovation processes that are increasingly expensive and organisationally complex." The quote from the report then ends, and we have to rely on Pharma's interpretation of how it relates to drug research on the continent.

If Sullivan weren't just parachuting into the issue with a copy of Free to Choose and a tone of extreme indignation, he'd know that a similar study was released last year showing problems in the American pharmaceutical market -- notably, a precipitous drop in new drug development from the pharmaceutical industry.

A report by the General Accounting Office concludes that current patent law discourages drug companies from developing new drugs by allowing them to make excessive profits through minor changes to existing pharmaceuticals. While pharmaceutical research and development expenses have increased by 147% since 1993, applications for approval of "new molecular entity" (NME) drugs, or drugs which differ significantly from others already on the market, have risen only 7%. According to the report, the majority of newly developed medicines are so-called "me-too" drugs, which are substantially similar to existing drugs, are less risky than NMEs drugs to develop, and which "offer little in the way of therapeutic breakthroughs."

Entirely 68 percent -- two-thirds -- of the industry's new drug applications are for knock-off, me-too drugs. The incentives for copying tried-and-true products are far, far too high. So it turns out profit -- generated here by patents -- can actually harm drug development! Am I blowing your mind yet?

Here's a bit more: Those molecular advances Sullivan thinks come entirely from the magic of private enterprise? They're socialism in action. One survey found that taxpayer-funded research developed 15 of the 21 most important drugs introduced between 1965 and 1992. And these aren't joke pharmaceuticals:

A study of the 21 drugs introduced between 1965 and 1992 that were considered by experts to have had the highest therapeutic impact on society found that public funding of research was instrumental in the development of 15 of the 21 drugs (71 percent). Three-captopril (Capoten), fluoxetine (Prozac), and acyclovir (Zovirax)-had more than $1 billion in sales in 1994 and 1995. In addition to these drugs, other members of the group of 21 drugs, including AZT, acyclovir, fluconazole (Diflucan), foscarnet (Foscavir), and ketoconazole (Nizoral), had NIH funding and research to help in clinical trials.

Another study, this one from 1990, looked at 32 drugs on the market and concluded 60 percent would've never been developed without public funds. Yet another "traced more than 45,000 references from U.S. patents to the underlying research papers, and tabulated both the institutional and financial origins of the cited science. We found that more than 70 percent of the scientific papers cited on the front pages of U.S. Industry patents came from public science -- science performed at universities, government labs, and other public agencies."

Pharmaceutical companies don't develop all their drugs. They spend a lot of time buying, patenting, and bringing to market advances made in the public sector through NIH grants and university research. If you're curious as to how this works, take a look at the cancer drug Taxol. Discovered by the NIH and licensed to Bristol-Meyers-Squibb, Taxol is sold for $20,000, costs $1,000 to produce, and the NIH gets .5 percent of the royalties. The pharmaceutical industry was damn innovative, to be sure, but not in the development of this drug -- only in the selling of it.

But you won't find that on the pharmaceutical industry's web site.

June 29, 2007 in Health and Medicine | Permalink


Ezra your link to the study is borked. Someone let the domain registration slip and it is in the hands of squatters.

Posted by: zAmboni | Jun 29, 2007 4:16:22 PM

I think this is the same study you were talking about:

Posted by: zAmboni | Jun 29, 2007 4:17:54 PM

So what you're saying, then, is that the reason there is more pharmaceutical research going on in the USA - if that is indeed the case - is because America has a more socialized system for pharmaceutical research and development than Europe.

Also, did Three-captopril (Capoten), fluoxetine (Prozac), and acyclovir (Zovirax) have over $1 billion in sales worldwide or just in the US? Pharmaceutical companies do sell drugs outside America, and I don't buy for a second the idea that without outrageous prices in the US they'd all go bankrupt.

Posted by: Stephen | Jun 29, 2007 4:22:53 PM

research decreased because american drug co's rely on blockbuster drugs and marketing as their approach. this can be found in every other business article on profitability in the industry. well thats if you wanted to know.

Posted by: akaison | Jun 29, 2007 4:53:55 PM



Posted by: Uncle Kvetch | Jun 29, 2007 4:55:54 PM

Sullivan is such a stooge for the pharmaceutical companies because he says they saved his life. Surely, without HIV medicine he'd be a corpse now.

Which is fine. I would do the same in his position. But I wouldn't talk about it like he has. It doesn't mean he is impartial or learned on the subject. Indeed, these companies love the fact they have this guy touting around his credibility in their service.

Posted by: Joshua | Jun 29, 2007 4:57:43 PM

But even that doesnt make much sense. many of the inhibitors etc he maybe on are a product of both basic research by the govt and the private sector

Posted by: akaison | Jun 29, 2007 5:03:01 PM

I don't understand the lead off statement about pharms not being able to charge whatever they want. They're perfectly free to charge any price they'd like. And the national health services are perfectly free to not buy products from them if they don't like the price.

Why is it that when buyers don't like a deal it's an assault on the free market?

Posted by: MIkeJ | Jun 29, 2007 5:05:42 PM

because of idealogy- see- since it's the government acting as consumer they aren't suppose to want the best price because they are so large that they can affect the market. it's bizzare logic when you realize they also seem to often argue that sellers can have similar unequal bargaining positions

Posted by: akaison | Jun 29, 2007 5:19:08 PM

It's not a free market if patent protections allow them to rig it, is it MikeJ?

Posted by: spike | Jun 29, 2007 5:19:55 PM

okay now that last post was beyond bizzare logic

Posted by: akaison | Jun 29, 2007 5:31:19 PM

IP law screwing up our corporate healthcare system?

Throw in a gay-rights issue, and a reason to conclude that Bush must be impeached and you will have honed the ultimate channel for my liberal indignation!

Posted by: Anthony Damiani | Jun 29, 2007 5:52:27 PM

Ezra writes:

In any case, Sullivan's case is a mess even if you excuse his sources. He gets really excited about a 1994 European Commission report saying "Europe as a whole is lagging behind in its ability to generate, organise, and sustain innovation processes that are increasingly expensive and organisationally complex." The quote from the report then ends, and we have to rely on Pharma's interpretation of how it relates to drug research on the continent.

Er, no. First, the report was published in late 2000, not 1994. You and Sullivan seem to be confusing the report with a 1994 "European Commission Communication" referred to in the previous paragraph.

And second, you don't have to rely on "Pharma's interpretation." You can follow the link to the report itself and read the authors' findings in their own words. And those words really are quite damning of the European pharmaceutical industry and European pharmaceutical regulation, repeatedly comparing them unfavorably to those of the U.S. and Japan. The European drug industry, according to the report, is characterized by a lack of innovation, insufficient R&D, and insufficient market-based competition.

Perhaps there is a good case for reform of U.S. patent law regarding pharmaceutical drugs (and I do mean "perhaps"). But whatever the deficiencies of the U.S. industry, the European one seems considerably worse.

Posted by: JasonR | Jun 29, 2007 5:57:14 PM

Michael Moore's controversial film SiCKO opens nationwide this weekend. But before the inevitable discussions about the accuracy of the film's portrayal of the U.S. health care system, you can make up your own mind. The summary below includes comparisons of the American health care system relative to other countries and between the states, data on the uninsured, rising health care costs, the woes of Medicare and Medicaid and more.

For all the details, see:
"SiCKO Required Reading: U.S. Health Care by the Numbers."

Posted by: Furious | Jun 29, 2007 6:02:24 PM

Here's my take on a Sullivan's post:
Andrew Sullivan identifies a whole bunch of problems that are supposedly caused by “socialized medicine” in the context of arguing against a universal health insurance system in the US. However, when you look at his list, it's almost all supply side—while universal health insurance presumably primarily affects the demand for pharmaceuticals. Given that transportation costs are low, the country that you develop a drug in should be mostly unrelated to demand in that country (I could imagine that it's slightly easier to get a drug approved by the FDA if it is developed entirely in the US, but the FDA approval process is probably quite distinct from the R&D side).

Why does it matter where the pharmaceutical companies are located? If European companies are being over-regulated such that they are moving their operations to the US, this is probably due to things like better employment laws or a better university research system in the US.

So universal health insurance won’t affect the supply side of the market and there’s no reason it would cause many companies to leave the US to run their operations elsewhere (unless they are being churlish about somewhat lower US drug prices).

Posted by: Joel | Jun 29, 2007 6:24:26 PM

Why does it matter where the pharmaceutical companies are located?

Here's the answer for this question, which is an important one.

Developing a drug properly (versus the basic research that NIH or universities do-- Ezra you do need to understand the different at some point)involves an intimate understanding of patient needs. Specifically, what do physicians believes are existing gaps in treatments for a given disease, what are the corresponding patient needs, what data is most helpful to physicians in determining whether a new drug is useful, etc. You need people on the ground in a given country, who can converse with local physicians and patient groups and develop this understanding. Accordingly, a drug will be developed based on the company's understanding of the market needs and clinical trials are designed accordingly.

The importance of the geographic market value is that it directly bears on the focus of which country's you spend time to understand these physician and patient needs. The US market, as Sullivan correctly notes, is estimated to be around 50% of a drug's total global value. The other remaining 50% will be spread among 20+ countries in the EU, along with South America, Japan and maybe a few others. With this type of split, it clearly makes most sense to invest most heavily in an R&D organization located in the U.S. in order to develop that local physician/patient knowledge.

The result is not surprising: non-US pharma companies have heavily moved their operations to the US over the past 10-20 years, and more recently to MULTIPLE sites in the US (i.e. New Jersey, Boston, RTP, West Coast). Similarly, the flow of venture capital dollars, which are necessary to help translate the early basic research from academic labs into young biotech opportunities, have increasingly become more US-based. Venture capitalists understand the importance of local physician/patient knowledge: even biotechs that are based on European university science and initially founded in Europe are increasingly being forced to open US affiliates or move operations to the US as contigency for funding.

Posted by: wisewon | Jun 29, 2007 6:47:28 PM


Well done. I'm sure writing that mess must have taken you a long time. What a shame it's such a shallow, uninformed and misleading analysis. For example, right at the start you cite the infamous WHO World Health Report 2000. Are you aware that the report has been strongly criticized in the academic public health community for its flawed methodology and unjustified conclusions? (See this paper, for example). In particular, the study's reliance on a single aggregate health indicator (disability adjusted life expectancy) to measure health care system effectiveness is completely without foundation in public health research.

You next cite a study published in JAMA that found that Britons tend to be healthier than Americans. You attribute those health differences to the alleged inferiority of the U.S. health care system. That claim directly contradicts the statements of the study's author, who explicitly denied that the health differences can be attributed to health care system differences, and suggested lifestyle differences are the likely cause.

Similar problems and confusions plague the rest of your post. But I'm sure you're just uncritically regurgitating material you found elsewhere in the liberal blogosphere, rather than making a real effort to understand the issue of health care policy in any serious way.

Posted by: JasonR | Jun 29, 2007 6:51:35 PM

all these theories would make sense if they had anything to do with what the business of selling drugs int eh us is about- which certainly isn't research. again, read the wall street journal or any other business magazine. better yet spend about a year working at oen of these places, and tell me- if blockbuster drugs with multiple, not necessarily vital, applications is the core focus.

Posted by: akaison | Jun 29, 2007 6:57:02 PM

Let me educate you guys on how pharma research works in the USA.

1) Clinical problem is identified by medical doctors. E.g. we need a treatment for disease X.

2) NIH funds university-based researchers (MDs and PhDs) to study the basic science of disease X. This research has NOTHING to do with therapies, only the pathophysiology of the disease. Key steps in the pathophysiological disease cascade are identified.

3) NIH funds university-based research again to study the mechanics of proteins/genes involved at the key pathophysiological steps of the disease. One or more "candidate targets" for intervention are identified. E.g. enzyme Y is upregulated in disease X, leading to the clinical phenotype.

4) This is where 95% of NIH/university research stops and where big pharma enters. The challenge now is to identify agents that can downregulate the activity of enzyme Y. Big pharma uses its considerable array of computing power (that most universities do not have access to) to suggest possible chemical moieties (or even amino acid sequences) that will change the shape of the upregulated enzyme Y into an inactive form.

5) Based on this "raw list" of chemical moieties, big pharma undergoes an exhaustive "candidate molecule" search. The goal of this is to find naturally existing or previously synthesized compounds which come close to recreating the desired molecular activity.

6) Once a candidate molecule is identified, an organic pathway for synthesis must be designed.

7) Once an organic synthesis pathway is defined, preliminary in-vitro trials can begin. Cell lines exhibiting the disease X process are grown in culture and exposed to the candidate molecule. Molecular genetics techniques are used to detect if the activity on enzyme Y is this cell line is reduced.

8) If in-vitro activity is established, the next step is in-vitro toxicity. If the candidate molecule causes premature death of hte cells, research is halted or re-started from an earlier branch point.

9) If the drug passes the in-vitro toxicity screen, the next step is small animal trials for toxicity. inject the drug into rats and see if they croak

10) If the drug passes the in-vivo toxicity screen, they run an in-vivo efficacy screen. Mice w/ the disease process are generated and exposed to the drug to see if their disease process is altered.

11) If the in-vivo efficacy screen passes, the company can apply for FDA approval of phase I, II, III clincal trials.

The idea that NIH/universities do most of the work and big pharma simply piggybacks off their ideas is bullshit. Yes, NIH/university role in basic science research is key and yes, big pharma bootstraps its efforts based on the publicly available research that the NIH puts out.

But that is in NO WAY equivalent to running the full gamut of the research pathway needed to produce a drug.

If we banned all private pharma industry and charged the NIH with all drug development, you'd be sorely disappointed because drug research would grind to a halt. You'd have to massively increase the NIH funding to accomplish this. I'm talking orders of magnitude higher.

Maybe we should do that, I think an all-NIH drug development process could be pretty cool. But lets not be fools--the current system of NIH research is NOT SUFFICIENT TO TAKE OVER FOR BIG PHARMA.

Posted by: joe blow | Jun 29, 2007 7:28:31 PM

Joe blow,

Nice post-- if people understood 50% of what you wrote, the dialogue would be much more informed. A few nuances for those interested:

--Industry does do #2 and 3 as well, but dollar expenditures in the US are probably 80% NIH/academic and 20% industry for these activities.

--Some entrepreneurial academic labs do #4 and the even more entrepreneurial ones form their own biotech companies at this point

-- #5 is optional, but will lead to better drugs in the long run (fewer side effects, more targeted treatments)

--#7-11 are required by FDA regulations-- its important to note that while many people rightfully point out the patent exclusivity as a divergence from free market principless-- it should also be noted that drug development is probably the most regulated and closely monitored business

Otherwise, to reiterate Joe blow's point, its completely wrong to think NIH could take on drug development in its current form.

Posted by: wisewon | Jun 29, 2007 7:43:33 PM

the current system of NIH research is NOT SUFFICIENT TO TAKE OVER FOR BIG PHARMA.

to reiterate Joe blow's point, its completely wrong to think NIH could take on drug development in its current form.

Gee, it must be really fun to oppose arguments that no one is making, considering how often these jokers do it.

But that's a fairly standard tactic: if you can't really engage the subject at hand, disprove something no one is talking about and claim victory.

Posted by: Stephen | Jun 29, 2007 8:19:56 PM

it must be really fun to oppose arguments that no one is making

Um, Stephen?

Read a little more carefully. From THIS post:

One survey found that taxpayer-funded research developed 15 of the 21 most important drugs introduced between 1965 and 1992.

Research isn't development-- that's the point.

Pharmaceutical companies don't develop all their drugs.

Pharma companies DO develop all of their drugs, i.e. steps 7-11 above. Its the early stage research, i.e. steps 2-4, that are done by others such as NIH.

The pharmaceutical industry was damn innovative, to be sure, but not in the development of this drug.

Same exact point. The initial research was done by NIH, i.e. steps 2-4 above, and then licensed to BMS for development.

FYI-- The "claim victory" sentence? Just so childish. I'm looking to engage in dialogue, share views-- you end your post with complete garbage.

You're wrong on the substance (Ezra IS confusing NIH and pharma activities) and a complete jerk in style.

Well done.

Posted by: wisewon | Jun 29, 2007 8:32:35 PM

wisewon- it makes sense that the country a company is located in is a country about which you have more information/contact with physicians. But it's not like drug companies are abandoning operations in Europe- they still sell drugs in Europe and given this they will presumably do all of the same things that they do in ensuring that their drugs are successful in the US. People have the same health problems in Europe as in the US and biochemistry is the same on both sides of the Atlantic.

There's probably some advantage for a drug company to have its headquarters at the most profitable market in the world- but Glaxo has headquarters in England and RTP and I have to suspect drug company operations are plenty divisible at the level of countries (after all, these are huge companies).

In any case, the US will presumably be the most profitable market even with some form of universal health insurance. As Kevin Drum pointed out, no one expects the government to be more ruthlessly devoted to cost-cutting than, say, Wal-Mart.

Posted by: Joel | Jun 29, 2007 8:47:13 PM


They sells drugs in the the European countries, for sure. This requires Commercial operations, not R&D operations. They acutally have moved a fair amount of their R&D operations to the US, that was the focus of my post.

Europe is a very important market, 30-40% of total global value. But its extremely fragmented, meaning, that medical practice varies widely across countries, so the local patient/physician knowledge would be needed in many different countries.

Even big, BIG phama-- GSK, Pfizer, Merck, Novartis-- have less than 5 major R&D sites per country, with an average of around 3. Of those 3 sites are so, a number of them have moved from Europe to US. As I said at the top of this post, there are clearly operations in all countries, but the actual innovation happens in a select few places and increasingly those centers are in the US for the reasons mentioned in my earlier post.

Posted by: wisewon | Jun 29, 2007 9:00:34 PM

I agree with Stephen. No one that I know is suggesting the NIH, as currently comprised, take over for Pharma. And these points that there's a difference between bringing a drug to market and researching its basic molecular structure are obvious, too. Hence "Pharmaceutical companies don't develop all their drugs. They spend a lot of time buying, patenting, and bringing to market advances made in the public sector through NIH grants and university research." Yes, bringing to market involves science, and trials, and various other important, complex, and even worthwhile tasks.

But that's now what Andrew's talking about here, is it? "America is the last refuge for pharmaceutical innovation. And the left wants to kill that off." I don't think what he means is that government funded research labs are the last refuge for pharmaceutical innovation. And nor do any of you. If you want to have a more subtle discussion of pharmaceutical policy, we can, but that's not the point of this post. The point is that Sullivan really, really, really doesn't know what he's talking about. It's straight folly to attribute all drug development in this country to the Magic of Capitalism. And yes it's done, all the time, over and over again.

Posted by: Ezra | Jun 29, 2007 9:14:23 PM

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