(This is Part 4 of a series examining the current drug shortages and what they might indicate about our approach to health and healthcare. Part 1 described the shortages; part 2 the response of the healthcare industry; part 3 examined one case in which the demand for a drug, oxytocin, seemed to be excessive, and asked how much of our reliance on chemical tinkering actually manifests cultural preoccupations with control over nature and self-improvement.)
The New England Journal of Medicine published a pointed article in 2010 on incentives for drug development. I excerpt it here; if you have access, you can read the full article .
In July 2009, the Food and Drug Administration (FDA) officially announced what physicians have long known — that the drug colchicine can effectively treat acute flares of gouty arthritis. The plant from which colchicine is derived was first used as a therapeutic agent for gout more than 3000 years ago in ancient Greece, and the tablet form has been widely available as a generic prescription drug in the United States since the 19th century. On the basis of evidence that had built up over the years, numerous consensus guidelines recommended colchicine as an effective second-line treatment for gout — for example, in patients who had adverse effects from nonsteroidal anti-inflammatory drugs.
It came as a surprise to many patients and physicians that the FDA not only approved the new version of colchicine (Colcrys) but also granted the manufacturer, Philadelphia-based URL Pharma, 3 years of market exclusivity for this ancient drug. The possibility of such an exclusivity period arose because colchicine, despite its longevity, had never been officially approved by the FDA for a particular indication. The 1938 Food, Drug, and Cosmetic Act required that all new drugs be approved by the FDA for safety before being introduced on the market, but it allowed drugs that were already on the market to remain available...
In 2007, URL Pharma organized pharmacokinetic studies testing its version of colchicine in healthy volunteers and a randomized, controlled trial involving 185 patients with acute gout. The combined findings of these studies confirmed the drug's safety and efficacy.... On the basis of this new trial, combined with the previously published evidence, the FDA approved Colcrys for treatment of acute gout. Because this was technically a new indication for the drug, the Waxman–Hatch Act authorized the FDA to award the company 3 years of market exclusivity — an incentive that the agency believes could encourage voluntary compliance with the drug-approval process.
At the same time, under the Orphan Drug Act, the manufacturer also received 7 years of market exclusivity for the use of Colcrys in the treatment of familial Mediterranean fever (FMF), a genetic inflammatory disorder that affects only about 100,000 patients worldwide. The Orphan Drug Act provides federal grant funding and tax credits for clinical trial costs, as well as market exclusivity, to encourage research into rare diseases. The orphan-drug incentive is not restricted to new products: currently available drugs that are approved for a new orphan indication can also be granted exclusivity. For example, thalidomide, a drug designed as an antiemetic agent that fell out of favor in the 1960s after it was linked to birth defects, was approved in 1998 as an orphan product for the treatment of leprosy and in 2006 for the treatment of multiple myeloma. In the case of FMF, the usefulness of colchicine in helping to control debilitating attacks of fever and abdominal pain was already established, and the orphan indication for Colcrys was approved on the basis of a review of previously collected data, along with additional limited safety information from the pharmacokinetic trials.
...After the FDA approved Colcrys, the manufacturer brought a lawsuit seeking to remove any other versions of colchicine from the market and raised the price by a factor of more than 50, from $0.09 per pill to $4.85 per pill. These increased prices directly affect the availability of the drug to patients with gout or FMF who have long been using colchicine safely in an evidence-based manner. Exclusivity can also affect health care delivery more broadly. According to the Centers for Medicare and Medicaid Services, state Medicaid programs filled about 100,000 prescriptions of colchicine in 2007 and paid approximately $1 million for the drug. Use of the new brand-name colchicine could add as much as $50 million per year to these insurance programs' budgets....
Drug companies regularly complain that the costs of R&D are so high they are simply forced to charge more for drugs. There are several problems with this claim. First, many drugs, like colchicine, have been in use for centuries: not a lot of research investment needed in these cases, and no one is offering patent royalties to native tribes. Second, the vast majority of drugs are “me-too” compounds that differ remarkably little from their predecessors. Again, not much research investment required. Third, the figure bandied about by the industry, a little under $1 billion to develop a new drug, remains vastly inflated even if we limit it to cases in which all the research is undertaken by the company (which is hardly ever the case, since most basic discoveries are made in academic medical centers, where research is funded largely by the NIH). As Marcia Angell, MD, Editor of the New England Journal of Medicine for twenty years, explains:
A group of economists—mainly funded by the drug companies—came up with the widely quoted figure on this. They said that it cost $802 million to bring a drug out. They, however, were looking at the most expensive drugs to develop: new chemical compounds developed entirely in house. Most new drugs aren't that at all. Most are what people call "me too" drugs, which are slight variations of older drugs already being sold.
According to these economists, the real cost of bringing out those rare original drugs is actually around $403 million. But they doubled it by factoring in how much money the companies might have earned if they'd invested that $403 million. Moreover, the economists did not figure into their total the many generous tax breaks these companies receive for doing research and development. This is a highly inflated figure.
The fact is that for the last two decades the drug companies have been hugely profitable. Last year there was a little wiggle downward, but in 2002, the 10 biggest American drug companies had a median profit of 17 percent of sales compared to a median of 3 percent for the other Fortune 500 companies. In the 1990's, profits ran between 19 and 25 percent. Prices are high to keep profits high.
Dr. Angell is actually a little off on one point. She implies that drug companies have enjoyed chubby profit margins for only the past two decades or so. In fact, as economist Alek Rozental wrote fifty years ago in “The Strange Ethics of the Ethical Drug Industry” (Harper’s Magazine, May 1960):
Insulation from the cold wind of pure competition is provided by our patent system which actually encourages "limited islands of monopoly." Our laws are, in fact, more lenient than in most industrial countries, especially as they apply to drugs. [...]
Today whether measured as a proportion of sales or of return on invested capital, the net profit after taxes of ethical drug makers are double those of manufacturing as a whole. In 1958, a comparatively poor year, Smith Kline & French netted nearly 17 per cent after taxes, G. D. Searle, over 20 per cent. In the same year American auto makers got less than 4 per cent. The Wall Street Journal commented: "The 1958 performance showed no signs that drug makers were affected by the recession that had other industries stumbling."
The drug industry's favorite defense of its high returns is the fact that it spends more than three times as much on research, in proportion to sales, as does American industry as a whole. But in fact for every pharmaceutical dollar spent on research four are spent on promotion and selling. Moreover, much of this research money goes into "development," which consists chiefly in devising new dosage forms and combinations of ingredients.
So 17-20% in the recession of '58, a median of 17% in the recession of the 2000's: the industry has consistently enjoyed the same extraordinary profit margins and dominated American industry by the same ratio for over 50 years. Remember this when you hear that it’s not profitable to continue producing drugs once they’re off patent. And remember colchicine when you’re told that the pharmaceutical industry should not be regulated, because the “free market” and “competition” ensure the best quality for the best price.
Finally, as an addendum to my previous post, which asked whether the availability of a drug didn’t create a need for it as much as the other way around, Prof. Rozental has this to say:
The story of the tranquilizers illustrates the relaxed attitude toward "ethics" of even the most respected firms. To the manufacturers, tranquilizers were much more than an important adjunct in the treatment of severe psychotics in mental hospitals. Sales could be pushed into doctors' offices and into private homes, providing a unique opportunity to reap a harvest. More than half of the $200 million worth of tranquilizers sold annually are bought by normal people who, whatever their inner tensions, lead humdrum useful lives. Reserpine derivatives, based on Indian snake root, are promoted not only for the severely disturbed but also for the "nervous, the tense, the emotionally unstable." Roerig lists twenty-five situations where Atarax is indicated, including apprehension over weddings, depression at funerals, and anxiety over examinations. Meprobamate (under the trade names of Miltown and Equanil) has become a household word and in the space of less than two years fourth among all drugs sold. Smith Kline & French's tranquilizers are said to account for over half of the firm's total profits. No one can deny that tranquilizers have helped the mentally ill and even made it possible to buy commercial insurance against psychiatric ailments.[!] But many of the more potent tranquilizers have dangerous side effects...Others have very debatable therapeutic value or, in the dosage suitable for office patients, are little better than older sedatives at one-twentieth the cost.
In promoting tranquilizers to physicians, one firm spent $100,000 on a single mailing. In elaborate, multi-colored spreads, the industry combines quasi-scientific information with emotional, often subconscious symbols. Atarax ads, for instance, are said to favor blue on the advice of "motivational" specialists. Thorazine for menopausal upsets [!] is illustrated by a heart-rending picture of a woman anxiously watched by her daughter. Doctors are reached by the frequent repetition of "O.K." words such as "synergistic," "potentiating," "sure-fire", and "low toxicity." Little presents are often sent along with the literature and samples.... Wallace Laboratories sent physicians a record with an Oistrakh violin solo on one side and a product plug on the other.
Thorazine, by the way, was and is used to treat schizophrenia and other psychotic states. And you wondered whether Mad Men was exaggerating the misogyny and manipulation of Madison Avenue....
The next(and final) post of this pharmaceutical series, Part 5, explores a link between the burgeoning demand for a cancer drug, its limited supply, and our environmental problems.
As a treat for having made it through such a lengthy post, check out this page to see Thorazine advertised as a treatment for anxiety, arthritis, asthma, alcoholism, burns, cancer, cancer-phobia, hiccups, ulcers, menopause, busy hospital wards, disturbed patients, nondisturbed patients, former patients, vomiting, radiation sickness, and, yes, schizophrenia.
 “Incentives for Drug Development — The Curious Case of Colchicine,” Aaron S. Kesselheim, M.D., J.D., and Daniel H. Solomon, M.D., M.P.H. N Engl J Med 2010; 362:2045-2047June 3, 2010