Arguments Against Drug Pricing Controls

ARGUMENTS AGAINST DRUG PRICING CONTROLS

STIFLES DRUG INNOVATION BY ELIMINATING MONETARY INCENTIVE--BUT INNOVATION IS ALREADY STIFLED NOW WITH "COPYCAT" DRUGS

EXAMPLE--"NEW" DRUG VYTORIN FOR CHOLESTEROL IS BASICLLY TWO DRUGS (EZETIMIBE (BRAND NAME ZETIA) AND SIMVASTATIN (BRAND NAME ZOCOR) PUT TOGETHER IN ONE PILL INSTEAD OF TWO SEPARATE ONES (THAT'S DEFINITELY NOT INNOVATION)

NEED TO RECOUP DRUG R&D COSTS--BUT WHAT COST ACTUALLY INCREASED MORE--THE R&D COSTS OR THE COST OF ADVERTISING?

The average cost of developing a new prescription drug has increased to $802 million, more than double the cost in 1987, according to a new Tufts University study released on Nov. 30, 2001, the New York Times reports. According to the study, drug companies spent about $231 million to develop a new treatment in 1987, and if the cost had risen the same as the rate of inflation, the it would have increased to $318 million in 2000. According to Clay O'Dell, a spokesperson for the Generic Pharmaceutical Association, the "suspect" study also "ignores the fact that some of the drug development costs are tax deductible and that some of the research is subsidized by the government through NIH" (New York Times, 12/1).

**Source: Kaisernetwork.org is the premier online resource for timely and in-depth coverage of health policy news, debates and discussions. This free and comprehensive multimedia service connects users to the events, people, information, and research that shape health policy.

However, in less than a decade, direct-to-consumer (DTC) advertising of prescription drugs increased from $55 million (1991) to $1.8 billion (1999).

*Many health policy experts believe DTC advertising drives up drug prices by increasing consumer demand. However, there is no discernible link between increased DTC spending and drug prices. In the case of prescription oral antihistamines, for instance:

* Among the three leading antihistamines, the amount spent on DTC advertising varies widely, from $42.8 million for Allegra to $57.1 million for Zyrtec and $137.1 million for Claritin. However, there is not a wide difference in costs between the drugs -- Claritin costs $76.69 a month, compared to $69.69 a month for Allegra and $60.69 a month for Zyrtec.

* If there were a direct correlation between advertising expenditures and price, Claritin should be significantly higher than the other two and Zyrtec to be more expensive than Allegra. That is not the case.

*Advertising actually lowers prices by giving consumers information about product availability, quality and cost that allow them to make comparisons. Also, by increasing sales, advertising allows development costs to be spread over a larger number of patients, resulting in a lower average price to each. And the increased demand encourages other manufacturers to enter the market -- where they compete on price and quality. For example, beginning with the release of the first antidepressant drug in 1988, all new antidepressants have been launched at a lower price, indicating an attempt to gain market share.

*Source--The website is www.ncpa.org for National Center of Policy Analysis (NCPA) is a nonprofit, nonpartisan public policy research organization, established in 1983. The NCPA's goal is to develop and promote private alternatives to government regulation and control, solving problems by relying on the strength of the competitive, entrepreneurial private sector. Topics include reforms in health care, taxes, Social Security, welfare, criminal justice, education and environmental regulation.

Another study, by the National Institute for Health Care Management (NIHCM), a nonprofit research group, suggests that ads do lead to more use of the costliest medicines.

Sales increases of the 50 most advertised drugs made up almost half of the $21 billion growth in retail spending on prescription drugs from 1999 to 2000, NIHCM found. The 9,850 other drugs on the market accounted for the rest of the 12-month rise. Prescriptions for these 50 drugs rose by 25 percent in the same period, compared with a 4.3 percent increase for all other drugs combined.

The seven most heavily advertised drugs in 2000 included six that are among the drugs most prescribed to older Americans for chronic conditions: Vioxx and Celebrex (both for arthritis), Prilosec (ulcers), Claritin (allergies), Paxil (depression) and Zocor (cholesterol).

Aggressive promotion can pay off big time. Merck, maker of Vioxx, the most promoted drug, spent $161 million advertising it in 2000, and sales of Vioxx quadrupled to $1.5 billion. (Tovan--please note that this was the drug that was pulled from the market because it increased risks of heart attacks and the like)

In fact, Merck spent more advertising Vioxx, according to NIHCM, than the $125 million spent promoting Pepsi or the $146 million spent on Budweiser beer ads. It even came close to the $169 million spent promoting GM's Saturn, the nation's most advertised car.

The drug industry says its ads not only educate consumers but also prompt people who might otherwise go undiagnosed to see their doctors. Many doctors agree. [For these reasons, AARP publications accept such ads.]

Some economists, though, see the ads as a big driver of consumer demand, known as "utilization." "Drug prices are rising at more than twice the rate of inflation, and utilization is going up even faster," says Steven Schondelmeyer, head of the University of Minnesota's PRIME Institute, which tracks prescription drug trends. "And advertising is a major part of that growth in utilization. (Tovan--this guy was my professor in pharmacy school and he can crunch numbers like you wouldn't believe.)

Will Lower Drug Prices Jeopardize Drug Research? A Policy Fact Sheet

by Donald Light, Joel Lexchin

2004. The American Journal of Bioethics 4(1):W1-W4

This documented fact sheet provides evidence that all drug research by large firms, net of taxpayers' subsidies, is paid for out of domestic sales in each country, with profits to spare. Prices can be lower without jeopardizing basic research for new drugs. More exposure to global price competition would encourage more innovative research and less of the derivative me-too research that now dominates.

This documented fact sheet provides evidence that all drug research by large firms, net of taxpayers' subsidies, is paid for out of domestic