I cover science and medicine, and believe this is biology's century.
8/20/2009 @ 6:00AM
Why Big Pharma Wants ObamaCare
Despite all the Sturm und Drang emanating from town hall meetings, there’s still a very good chance some kind of health care reform bill will pass this year. And one of the biggest forces working toward that goal is America’s biggest pharmaceutical companies, which are expected to pour as much as $150 million into advertisements supporting the reform effort.
If that last sentence makes you flash back to Bill Murray’s line in Ghostbusters about the end times, mass hysteria, and dogs and cats living together, you’re not alone. On Tuesday, John Boehner of Ohio, the House Republican leader, issued an open letter in which he implored drug companies “to halt this short-sighted, misguided campaign and listen to the American people, rather than continue to collaborate on an effort to spin them.”
The only reason anybody is shocked is because they weren’t paying attention. The truth is that the drug industry is fundamentally different than it was in 1993, when Big Pharma was a powerful enemy of Hillary Clinton’s 1,000-page plan to reform health care. This time, drug companies aren’t likely to be hurt by any politically feasible plan and are unlikely to contribute to growing health care costs. This might even repair their broken reputation, at least a little. And whatever landscape emerges from health care reform may actually be more hospitable to drug companies.
The reason: The drug industry has transformed from a business that tries to sell pills to the masses to one that markets very expensive treatments to small groups of sick people–and that changes everything
It’s hard to overstate how much the drug business has changed in 16 years. When the Clintons tried and failed to push through their health-care reform plan, pharmaceutical companies were on the cusp of a new age in which they would sell powerful pills to the masses. The books Listening to Prozac and Prozac Nation were about to be published, and the clinical trials that would establish the lifesaving benefit of cholesterol-lowering statin drugs like Zocor, from Merck , and Pravachol, from Bristol-Myers Squibb , wouldn’t come out for another year. The rule change by the Food and Drug Administration that paved the way for television ads for drugs didn’t come until 1997.
A slew of new medicines, coupled with advertising and a public faith in technology, led to a golden age of profits for drugmakers. An example of how profitable the drug business became: U.S. sales of industry top-seller Lipitor, the Pfizer cholesterol drug, peaked in 2007 at nearly $9 billion, about the same as Hollywood’s domestic box office take that year.
That golden age is over. The drug industry has suffered through a multiyear drought in which the number of new medicines introduced each year has stalled at half the number that were approved in the mid-1990s. Thanks to patent expirations, big sellers like Zocor, Pravachol and Prozac are available in generic versions with commodity pricing. Lipitor loses patent protection in 2011. The stocks of big names including Pfizer, Merck and Bristol-Myers Squibb have been sliding for a decade.
This generic flood is one reason pharma is protected from the health care reform debate. Drug costs are only a 10th of health care spending anyway, and they’re expected to grow at only 2% a year going forward. There’s a real possibility sales will shrink.
Hence the move to smaller markets. Until last year, the top-selling category in the industry was cholesterol medicines, which are prescribed 200 million times a year, according to prescription-tracker IMS Health. But they have been surpassed in terms of dollar sales by antipsychotic medicines, which are prescribed just 50 million times a year.
An expensive medicine that serves a small population can mint money–and it’s pretty tough for even the harshest government system to say no to it.Celgene’s Revlimid for the deadly blood cancer multiple myeloma costs $6,000 a month, and for a while it looked like Britain’s National Health Service wouldn’t pay for it. After Celgene agreed to pay for the drug for patients who stay on it longer than two years, the NHS allowed Revlimid to go on sale. Global sales of Revlimid are $1.3 billion, and they could double over the next few years.
Whatever new business model the pharmaceutical industry is groping toward, it is likely to work as well or better after the major changes currently on the table. Already, the ongoing debate has narrowed the focus of Obama’s planned reforms mostly to the insurance industry, further mitigating the damage. The $80 billion pharmaceutical companies have agreed to save as part of their deal on reform with the Democrats is affordable–especially since much of it will discount drug costs in Medicare, helping to keep seniors from switching to generics.
Besides, the drug companies are in a very different place than most of the health care industry. For one thing, pharmaceuticals have to do better than a placebo. Not so much for the rest of medicine. Recently, a procedure called vertebroplasty, in which glue is injected into the spine to repair fractures due to osteoporosis, turned out to be a sham procedure. It’s very possible that when cost and quality reforms do come to health care, it will be other areas of medicine than pharmaceuticals that bear the brunt.
For another, since Merck’s painkiller Vioxx was yanked five years ago, drug companies have had their ability to market new medicines curtailed. One clear example of the change: As the result of an industry-wide code of ethics, pharma companies no longer hand out promotional knick-knacks like pens to doctors. Drugmakers may well have less to fear from reform than other industries like medical device manufacturers.*
Pharma has already been beaten down more than the rest of the health care sector, but it’s still in a good place. We’re always going to need drugs. It’s no wonder drug companies have maneuvered themselves into finding parts of the reform effort they can support.
*A previous version of this story said medical device manufacturers can give out pens; a new industry code banned the practice as of July 1.