The Covert Rationing Blog

Taxpayer Support of the Evil Drug Companies

August 25th, 2008 by DrRich

Demonizing the drug companies is a necessary and indispensable strategy under a healthcare system that covertly rations healthcare. Quite simply, it is necessary because drug companies are in the business of developing expensive new products that doctors and sick people will demand for themselves.

If we can paint the pharmaceutical industry as being sufficiently evil and corrupt, then we can justify constraining drug companies so as to limit the introduction of these expensive new products. We can, for instance, build daunting regulatory hurdles or legislate “windfall profits” penalties. Fortunately for us, drug companies are indeed not the most fastidious members of the corporate community, and their actions and methods provide us with many fruitful avenues for demonization.

One such avenue is to show how the corrupt pharmaceutical industry feeds at the trough of the American taxpayer. As an example of this reprehensible behavior, the New York Times has pointed us to the case of Dr. Laszlo Bito and the anti-glaucoma drug Xalatan.

In the early 1980s Dr. Bito, a researcher at Columbia University, made a key discovery about a new class of substances that could potentially treat glaucoma. His research was funded with American tax dollars through the National Institutes of Health.

Subsequently, the pharmaceutical giant Pharmacia purchased the rights to Bito’s discovery for a mere $150,000. Based on Bito’s tax-supported work, eventually Pharmacia released the anti-glaucoma eyedrop preparation Xalatan. Xalatan rapidly became a worldwide best-seller, yielding as much as $500 million in sales per year. For their part in this wondrous success story, Columbia University has netted over $20 million in licensing fees and royalties, and Bito himself became a millionaire.

Meanwhile American glaucoma sufferers are forced to spend upwards of $50 every six weeks for a tiny vial of the drug, which costs the company only a small fraction of that amount to produce, and whose discovery the glaucoma sufferers paid for with their own tax dollars. And, as if to guild this already brazen injustice, Pharmacia makes Xalatan available in Canada, France, and most other countries around the world (where taxpayers decidedly did not support the discovery of the drug), for less than half what American patients pay for it.

It seems, the Times points out, that the American taxpayers are the only parties in this little scheme who reap no financial return on their investment. All they got were some expensive eyedrops.

And so, drug-company demonizers would have us conclude, this is a particularly egregious example of how the evil pharmaceutical industry is ripping us off. Not only are the drug companies mercilessly profiteering from sick Americans (which, after all, is their openly-admitted business model), but they are also picking the pocket of every American by using our tax dollars to invent new drugs, then selling those drugs back to us at exorbitant prices. This, one could reasonably argue, is at least as sociopathic as anything the tobacco companies ever did. (The tobacco companies, in contrast, at least had the good graces to eventually stop claiming that they were a major boon to the public health.)

And (we are all supposed to agree), if this reprehensible behavior doesn’t give our government the right to control the prices charged by drug companies, one would be hard pressed to say what does.

To all this, of course, DrRich says, “Bosh.”

DrRich certainly doesn’t want to absolve the pharmaceutical industry of all responsibility for drug prices that seem obviously too high, or for the striking pricing disparities we see between the U.S. and other countries. He has read the complex justifications, published by apologists for the pharmaceutical industry, as to why drugs in Canada cost so much less than in the U.S., and why a drug that costs $.05 a tablet to manufacture is sold to the elderly sick for $5.00. DrRich thinks that, despite all the pretty explanations for these “seeming disparities,” drug companies simply do what every other industry does - they charge the highest price that the market will bear, for each market in which they participate. If they didn’t do this, they would be abrogating their fiduciary responsibilities to their shareholders.

There is much not to like about high drug prices, or the fact that people in other countries reap the benefits of American research for far lower prices than Americans do. And it is reasonable for us to seek to address these pricing issues. But as we address certain inequities in drug pricing, we should be careful that in doing so we don’t throw the baby out with the bath water. So if we’re going to alter the arrangement we have with the pharmaceutical industry, let’s be clear on how that arrangement works, and why we set it up in the first place to operate as it now does.

Consider once again the glaucoma drug Xalatan, and consider how Dr. Bito’s discovery was actually used by Pharmacia.

Bito did not discover a finished product. Instead he discovered a new concept for reducing intraocular pressure (that is, for treating glaucoma), and demonstrated that it could be effective - but the specific compound he discovered was not marketable. In fact, it was so highly irritating when applied to the eye that it was simply not suitable for clinical use. Indeed, Bito’s discovery was offered to and rejected by a host of drug companies as being completely infeasible.

When Pharmacia finally agreed to pay for the rights to Bito’s patent, they took on an expensive risk that, some estimated, had less than a 5% chance of achieving success. Pharmacia assumed the difficult task of developing a brand new synthetic molecule that would have all the benefits described by Bito, but at the same time would not have the prohibitive side effects. There was no assurance that such a molecule could be found. Then, they would have to shepherd their new compound through a time-consuming and costly regulatory gauntlet that proves fatal to most new drugs, and pray that it would gain FDA approval. That their efforts were ultimately successful does not diminish the fact that, when they agreed to invest the time, money and opportunity cost to develop Dr. Bito’s discovery, they were taking on a large risk with no assurance of making a profit or even recouping their losses.

Bito’s (tax supported) idea was a promising one, but the challenge of developing that idea into a product that was useful to patients and that could be brought to market was very expensive and highly risky. Pharmacia took on that risk (all of which was borne by its shareholders, and not by taxpayers) only after difficult, internal corporate soul-searching. If not for the prospect of making enormous profits if this risk worked out, the company (like several other drug companies did in this particular instance) certainly would have walked away.

Before 1980, it is likely none of this would have happened. The Bayh-Dole Act of 1980 was passed expressly to encourage the further development of federally financed, university-based basic research. Until then, a large proportion of basic university research was never “translated” into useful medical products. Such translation of basic research was recognized by Congress to benefit society not only by advancing the practice of medicine, but also by stimulating the overall economy. So industry was actively encouraged to take on the risk of developing promising ideas that came out of federally-funded research. And the profit that greeted successful enterprises was designed to be the one thing that would lure industry into taking that risk.

So when the Times “discovers” a company “profiteering” from work done with tax dollars, it should not be a revelation, nor should it be an unmistakable sign that the company is inherently evil or dishonest, nor does the company’s activity in this regard give us the right to arbitrarily restrict its profits. Rather, that’s simply the deal we taxpayers made with the drug industry (through our elected officials). We made this deal because we felt, in the long run, that it would benefit American society, and quite probably, us as individuals. If we want to change that deal now, so be it. It is within our rights to do so.

Without Bayh-Dole, perhaps patients with glaucoma would still be getting surgical therapy and wearing those coke-bottle lenses instead of just using eyedrops. And if we want to put the brakes on such medical advances (in order to prevent unseemly profiteering), we certainly can.

But we shouldn’t vilify the drug companies for taking us up on the deal we offered them.

Posted in Evil Drug Companies

3 Responses to “Taxpayer Support of the Evil Drug Companies”

1. Red Baron wrote on 08/25/08 at 2:08 am :

   Nice post

2. Dan wrote on 08/25/08 at 1:13 pm :

   Good riposte to the “let’s socialize everything” New York Times. If NObama gets elected we may see a first hand, up-close view.

3. Dr. David Eade wrote on 11/12/08 at 2:31 pm :

   Drugs and demonization. I believe that the allopathic community has chosen to use pharmaceuticals to treat symptoms of disease and not the actual cause. “If Diet and Exercise don’t Work” quote for statin meds is true then our genetics is spiraling into the abyss. We has humans have encoutered a period in time where genetic diseases are diagnosed in 1 or 2 generations. Where obeisity is treated with drugs and surgery because diet and exercise don’t work.
   Get Real. If we don’t allow for 9 and 10 medications then physcians have to choose wisely. Physical recommendations are done more often. If diet and exercise don’t work, then your not doing it properly because lack of diet and lack of exercise is what got us there in the first place.
   NObama was elected on that premise. We spend too much money on drugs. It won’t continue to work for our future. So, a healthy approach to health is better than a drug and surgical approach to health. That’s my .02 cents!

   By the way, the CDC and NIH website on recommendation of statin drugs apparently has commited a major faux pas by allowing patients with diabetes and high cholesterol to be active participants for their study. They then concluded that statin drugs can help reduce the risk of CVD and heart attacks using this biased study?! This is not scientific as it combines diseases that are multi-factorial, type II diabetes is not the same as high cholesterol and treating diabetic patient’s is not the same as treating just high cholesterol patients.
   What if we didn’t treat diabetes with statins but rather with mandatory exercise! Weight reduction programs.
   How about taxing foods with HFC, high fructose corn syrup, How about not allowing Fast food into schools. How about not allowing soda companies to sell products in schools?
   Think about it.

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