Regular Member
Reaction score
ZNet | Economy

by Sanjay Basu and Rahul Rajkumar, and David Scales ; February 22, 2004

During the recent heated arguments about AIDS drug access and Medicare prescription drug bills, a few facts have emerged that would shock any reasonable American taxpayer: that while so many persons struggle for access to medicines, 85 percent of the basic and clinical research for drugs on our market today was funded by taxpayers. And yet the industry reaping the benefits for our high drug costs--making three times that profit of the Fortune 500 average--spends only 11% of its revenue on R&D and 27% on marketing.

Those who are ill with treatable diseases are charged twice in the prescription drug game--once at the IRS, and a second time at the pharmacy. But there's a way to regulate the pharmaceutical industry that offers hope to the taxpayer, and to those who struggle to gain access to vital medicines.

In 1980, Congress passed the Bayh-Dole Act on prescription drugs, authorizing the Secretary of Health and Human Services to "march in" on drugs priced "unreasonably", especially when the research on such drugs was subsidized by taxpayers. Now a leading Washington watchdog is asking HHS Secretary Tommy Thompson to use that right for the first time, and "open license" two key drugs--one for AIDS (Norvir), another for glaucoma (Xalatan)--allowing competition to drive the prices of these drugs down to reasonable levels.

Seniors who use Xalatan are paying for a drug whose production cost is less than 1% of the $65 price tag the Pfizer Company charges for a four to six week supply; U.S. consumers pay two to five times more for the drug than consumers in Canada or Europe. The company also puts 35% of its profits into marketing and only 15% into R&D. The R&D to produce Xalatan, in fact, came out of taxpayer-funded university labs. The National Eye Institute at the National Institutes of Health (NIH) gave Dr. Laszlo Bito of Columbia University over $4 million in grants in the 1970s and early 1980s to produce the drug, which Columbia then licensed to Pharmacia (now owned by Pfizer) for just $150,000 plus royalty payments. Sales of Xalatan totaled over $500 million per year by 2000, and now top $1 billion annually. The drug's price was raised at a rate three times that of inflation over the past year. Those who can't pay must face difficult and painful glaucoma surgery, or experience blindness.

While seniors suffer due to the high price of Xalatan, AIDS patients in the United States and abroad are suffering due to recent price increases of the drug Norvir. Taxpayer funds distributed through the National Institute of Allergies and Infectious Disease at the NIH were used to design this protease inhibitor to treat HIV. Despite making $1 billion from the drug in the last five years, Abbott, which manufactures the drug, increased the price five-fold as soon as they recently realized that they had a monopoly market on the class of medicine.

Why would Abbott risk alienating so many AIDS patients to raise the price of their drug? As always, they claim the price increase is necessary to ensure research and development on new HIV medications, even as they spend 23% of their revenue on marketing and only 10% on R&D according to their 2002 income tax returns. The real reasons for the price increase are more dubious. Norvir is a "booster" drug--that is, it makes other anti-HIV drugs more effective. Therefore it is almost never used on its own, but primarily in combination with other drugs, such as in Bristol-Myers Squibb's Reyataz or GlaxoSmithKline's Lexiva. By increasing the price of Norvir, Abbott essentially forced up the price of combinations using their competitor's drugs, while Abbott's own combination drug (Kaletra) was price-fixed to a lower level to dominate the market. Such price-fixing is banned in the airline industry, but seems to go without notice on more important prescription drugs.

If Secretary of State Tommy Thompson authorizes a "march in" on these drugs, he opens the possibility that multiple suppliers will be able to produce a competitive market place to prevent price-gouging by Pfizer and Abbott. What's also great about the proposal to "march in" by the Washington D.C. organization Essential Inventions is that it requires competitors to each pay a small royalty per pill sold into a collective government R&D fund--producing a much more effective means to sustain R&D than would be the case if Thompson helped maintain a monopolistic and inefficient marketplace.

It's time that HHS took a serious stand on prescription drug pricing and used the laws available to it to regulate America's most profitable industry, supporting taxpayers and improving the future of health in the United States and elsewhere.

For further information, visit:

This thread has been viewed 2837 times.