Prescription-drug spending increased 13 percent annually between 1993 and 2003; retail prescription prices increased 8.3 percent between 1994 and 2004; and pharmaceutical manufacturing in the U.S. was the third most profitable industry in 2004 alone. Should this make us feel better?

In 2005, U.S. pharmacies filled more than 3 billion prescription drugs. In 2003, prescription drugs accounted for 11 percent of the total American health care spending, according to The Kaiser Family Foundation.

The rate of increase in drug spending now is about 8 percent, Robert Goldberg, Ph.D., VP of The Center for Medicine in the Public Interest, recently told Industrial Market Trends.

What may be rankling, though, is that prescription-drug spending increased 13 percent annually between 1993 and 2003. This is more than the approximately 8 percent annual growth in other areas in the health sector. Also, retail prescription prices increased an average of 8.3 percent between 1994 and 2004 — much faster than the average inflation rate of 2.5 percent. Yet use has increased, too. The number of prescription drugs purchased rose 68 percent from 1994 to 2004 while the population grew 12 percent during the same time.

Determining the most prudent course of action regarding this situation is not going to be easy. If investors in the pharmaceutical companies see declining profits due to fewer new and effective drugs being brought to market, the investment in research may go abroad. Already, some companies offshore research. On the other hand, many Americans feel they are being taken to the cleaners, as they’re paying premium prices for a necessity for which people in other countries pay less.

The view from inside the pharmaceutical industry differs. The reasons observed by the Pharmaceutical Manufacturers Association include the following:

• It takes 12-15 years to bring a new effective and approved drug to market;
• It costs about $800 million to bring a new drug to market;
• For every 10,000 compounds studied, five go to clinical trial, and of these five, only one is effective and wins approval; and
• Only three of every 10 prescription medications on the market generate revenues to support the next round of R&D.

Probably, these figures do not elude financial analysts who place their bets on which companies will invent a new drug on which consumers will spend their last nickel.

When it comes to making medicine, lawmakers have learned that manufacturing changes, “no matter how small, affect the final product’s imunogenicity profile and other characteristics.” When the Senate Committee on Health, Education, Labor and Pensions recently heard comments from interested parties, it was made to understand that even small manufacturing adjustments alter drug effectiveness, a point made by pioneer drug makers.

The hearing hinged on a question of giving the Food and Drug Administration (FDA) discretion to determine if there are clinically meaningful differences between follow-ons and original biologicals and other matters, according to Aaron Lorenzo at BioWorld Today.

Nonetheless, pharmaceutical manufacturing was the third most profitable industry in the U.S. in 2004 alone, with profits after taxes at about 16 percent.

Are delays before getting health care or medication acceptable? Already, U.S. consumers are paying more because some pharmaceutical companies whose product patents haven’t yet expired pay off other pharmaceutical companies that make generic drugs, delaying manufacturing, The Associated Press reported in January. In a 52-week period ending late last September, 14 of 28 patent litigation settlements between brand name and generic drug manufacturers included an exclusion payment settlement, according to the Federal Trade Commission. This compares with only three such settlements in the previous year and none in the year before that.

Exclusion payment settlements occur when a brand-name drug firm pays its potential generic producing competitor to abandon the patent challenge and delay entering the market — for years, in some cases. This ensures consumers will pay more for prescription drugs than if these settlements were not allowed.

When you look at the amount of money that the pharmaceutical industry spends to persuade health care providers and consumers to prescribe and ask for drugs, you really have to wonder how much of each dollar spent by consumers is going toward marketing. A 2003 study by researchers at the Stanford Center for Research in Disease Prevention provided the first comprehensive picture of the pharmaceutical industry’s drug promotion efforts in advertising and marketing, estimating that the industry spent $12.7 billion promoting its products in 1998 alone (via The Stanford Report). Moreover, advertising expenditures rose from $800 million in 1996 to $2.7 billion in 2001 as drug manufacturers learned that each additional dollar invested in direct-to-consumer advertising yielded an additional $4.20 in drug sales in that year, according to a 2003 study by researchers at the Harvard School of Public Health, Massachusetts Institute of Technology, and Harvard Medical School for the Kaiser Family Foundation.

Given the greater incidence of drug ads to consumers on television in the years since the Stanford study, not to mention the lavish attention pharmaceutical company representatives bestow on physicians and physicians’ assistants, it seems safe to assume the promotional expenditures are significantly higher today.

The pharmaceutical industry probably should have the right to market its products just as milk producers do, but what makes the issue questionable is the huge amount spent. After all, no one wants to be ill, but if they are, they are bound to their doctor’s prescribed treatment.

Although Americans generally do not like government intruding where it’s not needed, an AARP poll last month of 1,000 Americans over the age of 18 showed that 86 percent of younger people back the right of government to negotiate prices.

The catalyst for the debate, of course, is the high cost of health care in the U.S. In 2003, Americans spent about $709 each for drugs, whereas the figure in 1980 was only $96. By way of comparison, the figure in France was $572 per person in 2003. The well-covered trials involving plaintiffs who claim to have been injured by medications probably doesn’t help the drug manufacturers either.

Prescription drugs are intended to make us feel better, and they often meet that expectation. Yet rising costs make them less accessible, and thus less helpful, to increasingly more people who just might need them most.

Resources

Prescription Drug Costs: Background
by Allison Woo, Usha Ranji, and Janet Lundy
The Henry J. Kaiser Family Foundation

The Center for Medicine in the Public Interest

What goes into the Cost of Prescription Drugs?
Pharmaceutical Research and Manufacturers of America (PhRMA)

Hearing on Follow-On Law Raises Hope For Drugmakers
by Aaron Lorenzo
BioWorld Today, March 9, 2007

Drug makers purposely stall release of generics
The Associated Press, Jan. 17, 2007

Prepared Statement of the FTC … on Anticompetitive Patent Settlements in the Pharmaceutical Industry
Testimony of The Hon. Jon Leibowitz
United States Senate Committee on the Judiciary, Jan. 17, 2007,

Study calculates outlay of pharmaceutical marketing
by Sara Selis
The Stanford Report, May 21, 2003

Direct-to-Consumer Prescription Drug Advertising Adds Significantly to Prescription Drug Spending Growth, New Study Finds
The Henry J. Kaiser Family Foundation press release, June 11, 2003