Barack Obama and John McCain go to war with Big Pharma

Big Pharma’s days are numbered – the age of the truly innovative blockbuster drug is over and this is why Glaxo, for instance, was driven and develop ‘new’ versions of its best sellers – like Paxil CR (in the USA). It’s not better for us punters – it’s just better for Glaxo, as they can get a fresh patent on the ‘new’ version, and make more money – for longer. One analyst says: ‘Big Pharma spends too much time promoting treatments that are mere variations of top-selling drugs already on the market. That way, the companies make big profits, while spending relatively little on research and development.’

Another way that drug companies can extend the cash generating life of their products is to get them approved for new ‘indications’ – such as Seroxat for OCD; for panic disorder; for social phobia; for GAD and for PTSD. Perhaps soon we may be able to add a new money making indication to the list: seroxat for hypochondria.

Another way that drug companies can extend the cash generating life of their products is to get them approved for say, use in children – God knows Glaxo tried hard enough on this idea with Seroxat.

And now, to top it all, the US public and both US Presidential contenders are saying enough is enough…

Carl Mortishead at The Times writes:

America has declared war on drugs, an industry that is bleeding the nation dry. The drug kingpins are running scared and, for the first time, the political mood on both Right and Left is in favour of taking action. The presidential contenders Barack Obama and John McCain have drugs at the top of the agenda and the stock prices of the drug merchants are crumbling.

These are the legitimate drug barons – Pfizer, Merck and Britain’s GlaxoSmithKline (GSK). Selling lifestyle drugs and medicines to alleviate the diseases of America’s affluent society made pharmaceutical companies rich.

But now the pool of available private cash is diminished – drained by the credit crunch and real estate collapse. Government is feeling the pinch and, for the first time since President Johnson signed the original Medicare Bill in 1965, a serious discussion about socialised medicine is beginning in the United States.

It is hardly surprising, because, despite what you may have heard, the US Government is already the biggest buyer in the US pharmaceutical market. Americans spend about £140 billion annually on medicine, compared with £11 billion in the UK. According to World Health Organisation statistics, American expenditure per head on healthcare is double the amount in Britain and a large part of that higher investment is related to the cost of drugs.

On average, for the same drug, an American pays twice that paid in the UK. American insurers pick up a great deal of the bill and their lack of efficiency is a big bone of contention, but the heaviest burden falls on the taxpayer because 45 per cent of total expenditure on healthcare in America is borne by government.

It’s a colossal bill, but the American taxpayer doesn’t get any pricing power for his dollar. In Britain, most other European countries and Canada, national agencies, such as the NHS, negotiate with the pharma giants, bully suppliers and set tariffs for a list of approved drugs.

In the US, such intervention is anathema – the US Food and Drugs Administration (FDA) approves drugs for their safety, but price and availability are market-driven and the drug barons argue that freedom leads to choice, a multiplicity of products and more rapid introduction of new medicines.

Into this jungle of corporate lobbyists, union activists and consumer firebrands, the presidential candidates are taking their first, tentative steps. Healthcare reform is dangerous territory. Hillary Clinton failed at her first attempt, but the costs have risen since – drug prices are rising at a rate of 7 per cent a year at a time when Americans are feeling poorer.

According to polls, healthcare costs are a bigger issue than Iraq for most Americans, hardly surprising given that it affects a greater number. Still, it is alarming for the pharma bosses to hear the Republican candidate bashing their industry, even supporting the direct importation of cheap drugs from abroad.

Many pensioners fly to Canada in search of cheaper prescription medicine and there is a continuing legal battle between state and federal government as state employee health benefit organisations seek to tap sources of cheap medicine north of the border.

Senator Obama also supports imports, but he wants to go further and grasp the nettle of pricing. He wants Medicare to negotiate directly with the drug giants, much as the NHS fixes drug prices in Britain.

This would be a disaster for Big Pharma – a federal agency setting discounted drug prices for senior citizens, the disabled and the poor. According to the Obama camp, it might save $30 billion (£14.9 billion) for the nation’s taxpayers, a huge bite out of the industry’s earnings – and it would not end there.

If Medicare patients were able to secure supplies of Lipitor, the bestselling Pfizer anti-cholesterol drug, at half-price, legions of middle-class and middle-aged taxpaying Americans would ask themselves why they were paying double.

The argument in favour of free market pricing in medicines would be shredded on the rack of fairness and a host of employee benefit organisations would combine forces and demand similar discounts. The Obama cheap drugs plan would open a crack in the foundations of Big Pharma’s tower of cash and quickly bring it tumbling down.

It will happen, it is just a question of when. Monopsony power has already taken root in the healthcare markets of most OECD countries.

You can see faith undermined in the share prices of the drug giants: in the UK, AstraZeneca has lost a third of its value since October 2006, while GSK has shrunk by a quarter. Over the same period, Pfizer has tumbled by 38percent and since December Merck has shrunk by 40percent.

In vain, the drug giants argue that without their US profits, the research that brings new medicines to market would not be possible. It is true that scientific research follows the money.

A big new drug is reckoned to cost $800 million in research and development and Europe has been losing its pharmaceutical edge to US labs, which generated two thirds of the new drugs launched in the world over the past five years.

The problem is that the pipeline is thin and the blockbusters are not emerging. This industry needs a new business model and, in the absence of self-generated ideas, someone in the White House might soon impose one.

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