How Big Pharma Gets to Have Its Cake and Eat It Too

From unprecedented trade protections in the Trans Pacific Partnership to the 5,000 percent overnight increase on an old and life-saving drug, the U.S. pharmaceutical industry has been getting a lot of bad press. Let’s take a look at how one of the most profitable industries on planet Earth keeps the skids greased on the great big green machine.

Last month, Martin Shkreli, a billionaire 32 year-old former hedge fund manager who bought his own pharmaceutical company, made the news when his company raised the price of Daraprim, a commonly-used drug developed in 1953 that is used to treat toxoplasmosis, a potentially-deadly disease caused by parasitic infection, from $13.50 per dose to $750 overnight. The drug costs about a dollar per pill to manufacture.

The price gouge was one of a number of increasingly-common instances in which investors buy out a commonly-used, older drug because they think they can get a lot more than the going rate for it. This not only makes much-needed medicine less accessible for those without insurance or whose insurance won’t cover it, but it also contributes to skyrocketing health care costs in the U.S.–where they typically outpace normal inflation by 300 percent.

Pharmaceutical companies argue that they need to gouge in the U.S. in order to recover the enormous R&D costs of developing a new drug. There’s no question that bringing a drug to market comes with enormous financial costs. Under this argument, the industry has been able to secure favorable conditions in the U.S. economy, including strict copyright laws with more generous provisions than the rest of the world.

Thanks to legislation signed into law by former President George Bush, the industry also doesn’t need to worry about negotiating with the federal government for drugs paid for by Medicare and Medicaid. That’s against the law. Thanks to the Obama administration and aggressive lobbying on the industry’s behalf during TPP negotiation, it will soon benefit from many of those conditions in other countries as well.

However, instead of leveraging the industry to accept conditions that would help lower costs for American consumers, Big Pharma will simply continue to pad its bottom line and dole out campaign cash to the bipartisan politicians who do its bidding. In the last presidential election cycle, Big Pharma sprinkled more than $50 million on candidates, plus another $30 million in the mid-terms. That’s just donations and doesn’t count the hundreds of millions spent on lobbying or the hundreds of millions they hand out to doctors by way of inflated "speaking fees“ to keep the prescription pads moving. That’s a lot of money, but when you consider that prescription drug spending is nearly $350 billion (with a b) annually, it’s a rather small cost of doing business.

While the industry claims that its big nut is research and development, 9 out of the 10 top pharmaceutical companies spend more money on television ads than R&D. With one of the highest profit margins of any industry on the planet–close to 30 percent–there’s a lot left over. Much of that goes to eye-popping compensation for its CEOs.

When Gilead Science developed a revolutionary new Hepatitis C drug, millions of sufferers gained hope. However, its annual cost of $84,000 a year restricted the ability of many would-be patients to access it–and caused a huge spike in Medicare costs. Gilead pointed to its cost to bring the drug to market, but still paid out close to $200 million in compensation to its CEO. It’s these sort of offensively-gaudy numbers and the uniquely-American aspect of the problem that gets most consumers hot under the collar.

Then there’s the instances in which some of the industry’s biggest companies have routinely hidden evidence of side effects that range from inconvenient to deadly by not publishing clinical trial results that could threaten the approval of potentially-profitable but unsafe drugs. Think about that for a second: a pharmaceutical company can do 10 trials in which only 1 shows their drug to be safe and/or effective while hiding the results of the other 9 from the public.

There is much that could be done to change this, of course. We could require that all clinical trials be published, prevent companies from being able to market prescription drugs to the public rather than the medical community (the U.S. is the only country in the world that allows commercial advertising of prescription drugs), allow Americans to import drugs from other countries where they are cheaper and repeal the law that prevents the government from negotiating drug prices for Medicare and Medicaid. I can think of a few hundred million reasons why that won’t happen.