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Wednesday, 07 March 2018 06:00

Big Pharma Depends on Our Tax Dollars to Profiteer Off of Us

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pillsbigpharmaBig Pharma gouges us coming and going. (Photo: Rodrigo Senna)

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Amid ongoing uproars over the high cost of life-saving medicine, it is worth remembering that the US government pays for a significant portion of the research funds for new pharmaceuticals. Alexander Zaitchick of the Other98 website notes that a recent study by the Center for Integration of Science and Industry (CISI) came to the conclusion: "No NIH [National Institutes of Health] funds, no new drugs, no patents, no profits, no industry."

Zaitchick reports:

The CISI study, underwritten by the National Biomedical Research Foundation, mapped the relationship between NIH-funded research and every new drug approved by the FDA between 2010 and 2016. The authors found that each of the 210 medicines approved for market came out of research supported by the NIH. Of the $100 billion it spent nationally during this period, more than half of it — $64 billion — ended up helping the development of 84 first-in-class drugs.

But the NIH doesn’t get to use the profits from these drugs to fund more research, the way it might under a model based on developing needed drugs and curing the sick, as opposed to serving Wall Street. Instead, publicly funded labs conduct years of basic research to get to a breakthrough, which is then snatched up, tweaked, and patented (privatized) by companies who turn around and reap billions with 1,000-times-cost mark-ups on drugs developed with taxpayer money.

We, the taxpayers, are providing the money for the initial research on many proprietary drugs, only to see the end results privatized. Furthermore, we become the victims of profiteering after providing government funding to build the basic formulas for the drug companies. Yes, generic drugs may be much less expensive, particularly with some form of insurance, but drugs that are patented can be manipulated in price to become onerous in cost to the point of threatening survival.

Truthout journalist Mike Ludwig reported last year on the machinations behind drug prices, which are negotiated by insurance companies, pharmaceutical firms and pharmacy benefit managers. Even with coverage, prescriptions can be exorbitantly costly because of deductibles. Ludwig uses the example of how insulin prices are raised annually without any justifiable cost basis. There is also the financial burden that the consumer assumes when a proprietary drug is not on the formulary of a particular insurance company. A formulary is the list of medications that an insurance company covers (minus co-payments and deductibles, of course). Many high-cost, essential pharmaceuticals are not included.

Woe to the person who doesn't have insurance and must pay the full list price of an expensive medicine. It is like paying the full sticker price on an expensive diamond, except that health and even lives are at stake. Furthermore, the determination of the list price is often inflated to give an edge in negotiations with insurance companies and pharmacy benefit managers, Ludwig reports.

As the Los Angeles Times reported:

However, studies looking at cancer treatments have shown no correlation between the price of cancer drugs and the benefits they provide. Peter Bach, a renowned oncologist, has found that, for most drugs, a value-based cost is actually lower than the current market-based price.

This state of affairs is not simply a huge failure of the so-called free-market; it is a long con. The supposed partnership between public and private sectors is increasingly parasitic, hurting innovation and fueling inequality through reduced investment, exorbitant prices for consumers and more money siphoned off for shareholders.

Drug companies, being part of the capitalist system, want to see their share prices rise and healthy dividends paid out. This means that much of what could go to more Big Pharma research is doled out in dividends and salary bonuses. It is well known that more money in the pharmaceutical industry is paid for marketing to doctors (and direct-to-consumer ads) than to research on needed medicine.

The City View website reports that,

In 2016, the pharmaceutical industry earned profits of more than 202 billion on revenues of $1.1 trillion. That is a profit margin of more than 18%. No other industry has that large of a profit margin.

Couldn't that excessive profit be used to lessen drug costs and treat more health problems?

Not if the reaction of pharmaceutical companies to the tax restructuring bill just signed into law is any sign. The St. Louis Post-Dispatch editorial board recently wrote,

A new survey of U.S. companies from analysts at Morgan Stanley estimates that 43 percent of the savings from the Republican tax cut bill will be paid to investors in the form of higher dividends and stock buybacks. Leading the way are large pharmaceutical companies, which Axios.com reported last week are spending a combined $50 billion on stock-buyback programs....

The buybacks at Big Pharma are particularly galling. This is the industry that defends high drug prices by citing the high research and development costs of creating new drugs. Did they use that $50 billion in tax savings for R&D? No, they pocketed it.

That leaves them with the ability to continue gouging and running up a profit at the expense of the American people. We pay for a big chunk of the research, and they turn our investment into life-threatening greed.