Should pharmaceutical companies be allowed to overcharge Americans for drugs developed with taxpayer dollars? That’s the question recently put to the Bush Administration by Essential Medicines, a Washington watchdog organization.
In 1980, Congress passed the Bayh-Dole Act, allowing inventors to retain ownership of drugs developed with the help of federal grants. The promise of profits, it was hoped, would spur companies and universities to bring these inventions to market; economic incentives would be harnessed in the service of the public welfare.
But Bayh-Dole also granted the government so-called “march-in rights,” empowering it to circumvent privately held patents if a drug were not made “available to the public on reasonable terms” or if “necessary to alleviate health or safety needs.” On Jan. 29, Essential Medicines petitioned Secretary of Health and Human Services Tommy Thompson to exercise these rights for the first time and allow for competitive production of Xalatan and Norvir–two blockbuster drugs that are scandalously overpriced.
With worldwide sales now exceeding a billion dollars annually, Xalatan, a glaucoma drug, has proven to be one of Pfizer’s biggest moneymakers. Yet although the drug’s initial research was funded by a $4 million federal grant, American consumers today pay two to five times more for Xalatan than their Europe counterparts. Norvir, a critical AIDS medication, was also developed with the help of taxpayer dollars. It too has earned millions for its manufacturer, Abbott Laboratories. But seeking bigger profits, Abbott raised the price of Norvir by an unprecedented 400 percent last December.
The Norvir case is particularly troubling. Used as a boosting agent to increase the potency of other AIDS drugs, Norvir is an essential component of many treatment regimes. Although costs will vary between treatment plans, Abbott’s price hike will set many AIDS patients back anywhere from an extra $6000 to $12,000 per year.
Abbott’s actions have angered not just AIDS activists; other big name pharmaceutical companies–like Bristol-Myers Squibb and GlaxoSmithKline–are also livid. These companies produce AIDS drugs that must be combined with Norvir for optimal efficacy, so the Norvir price increase effectively raises the cost of their drugs as well. But Abbott has declined to pass along the Norvir price hike to its own combination drug, Kaletra (which is pre-boosted with Norvir), thereby undercutting its competitors. A savvy business move? Certainly. Kaletra will doubtless gain increased market share as higher Norvir prices force AIDS patients to switch off of their old treatment regimes. But this market manipulation will likely have serious medical consequences. AIDS patients often respond better to certain drugs than to others, and changes in treatment increase the risk of developing drug resistance. Treatment choices should be driven by medical expertise, not by cynical price fixing.
Pharmaceutical companies have always had a ready defense for high prices: given the hefty costs of drug development and the high chances of failure, they argue, big profits are necessary in order to fund continued R&D. Defending Xalatan’s price tag, a Pharmacia exec (that company has since been bought out by Pfizer) told the New York Times, “We are bringing forth innovation . . . and innovation always brings a premium.” True, but how much incentive do these companies really need? After all, taxpayer dollars paid for 85 percent of the basic and clinical research for drugs currently on the market. And a closer look at company balance sheets reveals that the pharmaceutical industry spends 27 percent of its revenues on marketing, compared to a paltry 11 percent on R&D (Pfizer spends 35 percent on marketing and only 15 percent on R&D; Abbott is no better, spending 23 percent on marketing and 10 percent on R&D). To top it off, the pharmaceutical industry is also the world’s most profitable, raking in three times the Fortune 500 average.
Indeed, despite all the worries about endangering innovation, R&D expenditures will likely increase if the Bush Administration chooses to exercise its march-in rights in the Norvir and Xalatan cases. That’s because the Essential Inventions petitions include a clever stipulation that would require generic producers to contribute a small sum to an R&D fund for every pill they sell. Generic manufacturers could easily afford to make these contributions while offering cheaper prices and earning healthy profits to boot.
Xalatan and Norvir are as cut-and-dry a pair of march-in cases as the government is likely ever to face. If Secretary Thompson fails to act, he will not only ensure that Norvir and Xalatan remain inaccessible for many American consumers; he will set a damning precedent for years to come. The Bayh-Dole Act established private ownership of federally supported inventions as a means to better serve the public welfare. But government inaction would turn that calculus on its head, instantiating corporate profits as ends in themselves.
Sasha Post ’05 is a social studies concentrator in Adams House. His column appears on alternate Thursdays.