Tag Archives: pharmacautical profits

The Myth of Pharmaceutical R&D: Why are drug makers so rich?

Last Thursday, Canada’s Supreme Court invalidated Pfizer’s patent for Viagra in that country.  The reason:  Pfizer’s failure to comply with patent rules in Canada that require disclosure of the mechanisms of action for drugs.  In a country that typically allows patents for a mere 5 years, Viagra had enjoyed patent protection since 1998.  But generic drug makers sued to begin generic production, and the Supreme Court determined that Pfizer gamed the patent system to unfair advantage.

While I am a free market supporter in general, Pfizer’s secrecy in this case earned it what it deserves.  If sildenafil were disclosed clearly as the active agent – instead of the 260 quintillion different chemical compounds addressed in the 7 part patent (that’s right, 260 quintillion!) – Pfizer would have enjoyed another 2 years of protection.  Now, generic producers like Teva will race to bring generic Viagra to market, and Pfizer’s estimated $50+ million market for the drug in Canada will be significantly eroded.  When you include online drug sales to American consumers, the loss to Pfizer is not an insignificant one, although global sales for the drug are in the range of $2 billion.

This story reminded me of the pharmaceutical industry’s claims that R&D costs to bring drugs to market are so prohibitive that long-term patent protection is a necessity.  So, I dug a little into the realities of the industry, and I can’t help but conclude that the onerous cost of drug R&D is nothing more than an urban legend.

Fortune Magazine’s 2012 Industry Rankings list shows Pfizer returning 28.7% to shareholders in 2011.  In fact, 9 of the 12 giants listed returned healthy double digits to shareholders during a year in which shareholder returns were single digit or negative across a majority of  industries.  Only petroleum producers compared in profits generated, but they certainly don’t share the positive reputations enjoyed by U.S. drug manufacturers.

Pharma profitability has been exceptional, and the dollars have been huge for a very long time.  From 1995 to 2002, the pharmaceutical industry was the MOST profitable industry in the US, delivering profits of between 3 to 5 times the average of all other industries combined (KFF).  Since 2002, big pharma has retained superstar profitability, landing no lower than 5th on the Fortune 500 list of most profitable industries (Fortune).

Wow.  Those poor drug developers.  So, we need to provide government-funded research – think NIH, FDA, HHS supports of all kinds – and preferential tax credits because these folks have a long product life cycle with which to contend?   I would suggest that healthcare reform overseers consider boxing gloves when negotiating with pharmaceutical manufacturers.  We’ve seen nothing suggesting meaningful drug cost controls in the pre-PPACA guidance, and insiders have argued that pharma got a huge pass in the process.  Whether this is true or not, drug costs are as important a factor as any other in the healthcare debate, and the pharmaceutical industry can afford to bring a few concessions to the table.

Let’s not punish an industry that has figured out how to make money, even if it lies to us about it in the process.  The only factor here is the transparency of the expenses driving the so-called healthcare crisis.  If we have a crisis, then pharma is front and center.  So, in the spirit of problem-solving, I recommend an acceleration of drug patent expiration by 5 years.  How does that sound, Pfizer?