year on research and development in all branches of science and among all industries. Drug companies and medical device manufacturers account for 10% of the total at around $150 billion dollars. The big pharmaceutical firms spend a greater percentage of their revenue (15–20%) on research and development than any other industry, including IT. Just in the United States, drug companies spend over $40 billion annually, compared to a budget for all government funded health research of around $31 billion. It costs about half a billion dollars or more to research, develop, study, and bring a new medication to the marketplace.
When patients complain that a drug is too expensive, it helps to remember that only one in 5,000 compounds ever makes it from the lab all the way to a prescription bottle. Yes, this is private industry and drug companies need to recoup the costs of drug development and make a profit. Profits fund future research and support employees and shareholders. Keep in mind that this industry is outspending the United States government on medical research, and profit is what fuels that ongoing scientific discovery.
The best drug companies make about 12–14% profit based on their revenue, which sure is better than Delta Airlines with a 2% profit margin, but drug company profits as a percentage of revenue are about the same as those at Ford, IBM, and Disney. This is less than Wells Fargo and Coca-Cola at 18%, way less than Apple, Intel, and Oracle at 23%, and nobody is even close to Microsoft which is barely skating by on a razor-thin 33% profit margin. The idea that drug company profits are abnormally large compared to other major industries is incorrect.
Pharmaceutical companies employ over a million people and many of the jobs are kinda boring. There is a lot of monotonous bench work and number crunching behind the brief moments of true scientific discovery. Also, most industry researchers have to contend with being second fiddle to the scientists who work in academia. Even so, some of the biggest advances in medicine in the past few decades have come from drug companies. Treatments for multiple sclerosis, rheumatoid arthritis, coronary artery disease, high blood pressure, vaccines against cervical cancer, shingles, and pneumonia have all been developed by this giant research engine.
Critics will say that drug companies actually spend more on sales and marketing than they do on research. This is debatable. One study from the New England Journal of Medicine put the figures as roughly equal. In some reports, it turns out that general administrative overhead was included in the figure so only a portion of money was really spent on ads and sales reps. Also, one must remember that sales and marketing costs are obviously designed to bring in more money than is spent, and this should be a short term net gain to the business. R & D is much more risky and the profits might not appear until many years later. Allocating a billion dollars to generate a new drug and then not promoting it would be a waste of the capital spent on development. If advertising were not of value, drug companies would not do it.
So there you have one view of the pharmaceutical industry—huge numbers of scientists tolling long hours for less money than they would make at Microsoft or Amazon if these equivalently intelligent types became computer geeks, researchers in industry playing second string to their academic counterparts, companies risking half a billion or a billion dollars each time they introduce a new medication, and an industry outspending the U.S. government on medical research. Ultimately, these companies are responsible for delivering to us some of the greatest advances we’ve seen in medicine over the past three decades.
Unfortunately, there is a dark underbelly to this shining monument and unless you’ve been in a coma since 1980, you’ve probably heard about some of it. Drug companies do a lot of things wrong. They bribe physicians to give “educational” talks which are not really educational but thinly disguised sales and promotion activities. They develop “me, too” drugs which don’t really advance medicine and are there to capture some of the profit from popular medications sold by a competitor. They promote their drugs to doctors for uses that have not been adequately tested and for which there is no FDA approval. They pay huge fines—$3 billion dollars from GlaxoSmithKline recently—for these transgressions. They sometimes charge ridiculous amounts of money for pills, including $28 for Viagra, $16,000/year for an AIDS drug, $100,000 for a course of treatment for hepatitis, and so forth.
But these misdeeds are not the biggest problem. Drug companies have been doing something far more evil than promoting Depakote for agitated elderly patients with dementia or Neurontin for bipolar disorder. No, the real evil has been hiding their unfavorable research data.
Many of the research trials conducted by drug companies never get published. The fact is that the world’s biomedical literature contains a very distorted view of the truth. It is sort of like Hollywood where good almost always triumphs over evil, or the detective always cracks the case. For example, a nice study done in 2008 compared the published trials on anti-depressants to the drug company trials that were never published. No surprise here. Of all studies ever published, 38 were favorable to the drugs and 37 were published. Of the 36 studies showing no benefit from antidepressants, only 3 ended up in published journals. If you look at all the data, published and unpublished, you would conclude that these drugs are weakly effective only for the most severely depressed patients and otherwise not effective at all. But if you just take the research which was published, you’d come to a much more favorable conclusion. Those of us in clinical practice know that occasionally SSRI-type antidepressants are incredibly effective, but for many patients they offer little benefit or even make people worse.
I should point out that even in academia, negative studies are harder to publish in a good journal and not all academically-based scientists publish every negative trial.
The situation is a bit more complicated because sometimes a study is not published for good reasons. Maybe an analysis shows that there were flaws in the study design, or there were too many people dropping out. Some trials fall apart and should not be published. Of course, if you’re a drug company and your drug is shown not to be of benefit, then you are more likely to claim there was a flaw in the study as opposed to a flaw in the product you are selling. If you’d like to read a 373-page exposé on this topic and other misdeeds by the pharmaceutical industry, I recommend Bad Pharma by Ben Goldacre, MD. Dr. Goldacre is from Great Britain and is somewhat of a muckraker in medicine. I’ve borrowed a few of his examples in this article..
Drug companies set up
fake “advisory boards” which are full of
doctors on the payroll.
Imagine that a drug company’s bestselling antidepressants comes under attack from an impartial scientist who thinks that the drug does not really work. He writes an article expressing his opinion. The drug company will respond by hiring a respected physician in academia and writing a paper for him, including in the article some “internal” company data that was never published that says the drug really is effective and safe. This happens a lot. Drug companies set up fake “advisory boards” which are full of doctors on the payroll. They sponsor “educational programs” which are actually advertisements presenting a distorted view of their products.
Right now, there is pressure on drug companies to make all of their data available, even for clinical trials that are not published. This will be helpful going forward, and GlaxoSmithKline has agreed to do so, but we’ll have to see how well it works. One issue is that clinical studies in the past 10–20 years, many which form the bedrock on which modern medicine is based, are unlikely to be included in any mass publication of research data.
The second big problem is in the re-porting and dissemination of research results. When science is done right, the overarching goal is to discover the truth—the world is round, light travels at 186,000 miles/sec, or chlorthalidone is an effective pill for high blood pressure. But pharmaceutical companies have a different goal. Their goal is to serve as advocates for their products. An analogy can be made to the difference between law and medicine. In medicine, we’re concerned with what our patient really has. We run tests to uncover the facts. But in law, attorneys do not focus on their client’s actual guilt or innocence. It’s not what really happened that matters. They start with a goal to make things look best for their clients. A lawyer would be disbarred if he stood up in court and said, “Well, actually I have all the data and my client really is guilty.” When pharmaceutical companies write up their research for publication, they are always looking to put their drugs in the best light, even if this involves a substantial distortion of the truth. This approach might be understandable from a business perspective, but it is antithetical to the goals of science and is not in the best interests of patients. It also hurts the drug companies in the long run because many physicians, including me, no longer fully trust their research. When I read a journal article, the first thing I look at is who paid for the study.
How can this industry regain the public’s trust and the trust of physicians? Full transparency would be a good start. If you do research on human beings, that research should always be made public. All the raw data needs to be out there for independent statisticians to analyze. Also, drug companies should stop hiring shills, physicians who receive thousands of dollars to go on speaking tours or write articles promoting pharmaceuticals.
I remain committed to a philosophy of evidence-based practice. This means that we use the best science available to take care of patients. Unfortunately, physicians and scientists who are advocates of this approach have a lot of work to do. We really must reform the science, marketing, and promotion of pharmaceutical agents.