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Bad Medicine: Trade deal myths of research and development

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In the two previous article on trade deals and health, Bad Medicine Part 1 and Part 2, we looked at the negative impact trade deals will have on our health, how they will increase costs, could preclude pharmacare, and how Big Pharma is largely behind pushing these agreements.

In this third article in the Bad Medicine series we will look at how changes to patent regimes resulting from trade deals -- like the TPP and CETA -- create less transparency into the pharmaceutical industries research and development (R&D) and their nefarious influence on medical practices.

Many groups have emphasized that there is a current lack of transparency on patent landscapes, something which the TPP will only make more opaque. Further, Knowledge Economy International (KEI) has highlighted that the TPP prohibits governments from requiring information about drug prices or R&D costs in connection with drug registration. Who wants a trade agreement to enforce a further lack of knowledge of drug prices or R&D costs?

In Canada, the Patented Medical Prices Review Board (PMPRB) has recently shown that spending on pharmaceutical research and development in Canada has hit historic lows.  In their annual report released at the end of 2015, drug companies (specifically pantentees) spent 4.4 per cent of earnings on R&D which is the lowest amount since the PMPRB started reporting in 1988.  When compared to R&D spending to domestic sales in comparable countries, they were three and a half times greater to Canada at 21.8 per cent.

So, this 4.4 per cent is twelfth consecutive year in a row that Canadian pharmaceutical companies have not met the 10 per cent of domestic sales threshold to be put into R&D which they promised in 1987 in exchange for their periods of market exclusivity to be increased.

Jim Keon, President of the Canadian Generic Pharmaceutical Association (CGPA) has said that,

"In Canada, market monopolies for brand-name drug companies have increased no fewer than eight times since 1987. While domestic sales have increased, investments have declined to record lows...In Canada, market monopolies for brand-name drug companies have increased no fewer than eight times since 1987. While domestic sales have increased, investments have declined to record lows."  

In fact, research shows that often public financial subsidies to the pharmaceutical sector to attract R&D investments are in fact great than the total R&D investments by the companies, as was the case in Quebec.

Whether it is in Canada, the U.S., or elsewhere, Big Pharma spends huge resources to spread the rhetoric that drug prices need to remain high to promote R&D. Through the TPP they want to extent their patent rights to keep prices higher and for longer periods and have less transparency into their R&D which they claim will magically produce better "innovation."  

Two recent papers submitted to United Nations Secretary-General's high-level panel on access to medicines by the Academic-Industry Research Network show drug prices keep rising because they are protected by patents and how the, "cult of shareholder value has permeated the life sciences industry...In the 10 years from 2005 to 2014, the 19 pharmaceuticals companies in the S&P 500 Index...distributed the equivalent of 97 per cent of their net income to shareholders through buybacks and dividends."

Canadian economist William Lazonick of the University of Massachusetts Lowell, highlighted Gilead for setting the gold standard for price gouging while also leading the explosion of executive pay. Gilead, which bills itself as a "research-based biopharmaceutical company," spent $27 billion on share buybacks between 2006 and 2015, about 60 per cent more than it spent on R&D.

In 2015 alone, the company spent $10 billion on buybacks, which was 250 per cent more than its R&D outlay. Not surprisingly, Gilead has been a stock market star.

Image source: http://www.forbes.com/sites/liyanchen/2015/09/23/the-most-profitable-ind...


Other reports show that nine of the ten largest pharmaceutical companies in 2013 spent more on promoting their drugs than R&D (and these numbers are inflating their stated R&D costs by neglecting to subtract government subsidies and by factoring in opportunity costs, or the money the company would have generated from alternative investments, to their totals). The former president of Pfizer Global Research and Development has gone so far to state that, "The price of drugs really has nothing to do with how much a company spends on R&D."

In previous blogs we pointed out how pharmaceutical companies are also moving towards more complex therapies, specifically biologics which the TPP grants extended patent rights. Another major trends  lies a business model where they are buying up "orphan drugs" (or sometimes called niche or specialty drugs) through mergers and acquisitions (Canada’s Valeant Pharmacueticals being the best example) or shifting their R&D towards diseases which are relatively rare in the population. In 2015, the U.S. witnessed nearly half (21 of 45) of the novel drugs that were approved FDA in this category.

Because these drugs tend to be less expensive to develop than drugs intended for the larger population (also they tend to focus on long term treatment and not cures), the path to approvals is quicker and there is less competition so prices can be set astronomically high. The result is the rise of biologics and speciality drugs is one of the biggest cost drivers for drug plans (public and private) in Canada where a national formulary does not exist.

It long been established that Big Pharma spends more on marketing and advertising than R&D. Not surprisingly, in the U.S., 2014 saw pharmaceutical companies spent $4.5 billion on consumer ads, which is a 30 per cent rise from two years before. Last October, a Kaiser Family Foundation survey found that 28 percent of people who viewed a drug ad subsequently asked a physician about the medicine and that 12 percent walked out with a prescription.

While Canada's laws around pharmaceutical advertising differs than the U.S. (the U.S. and New Zealand are the only two "developed" countries that allow drug companies to advertise their products on TV), with the increase of media being consumed through live streams and other sources (rather than traditional TV channels regulated by the CRTC) an assumption could be made that this increase in advertising is also having an impact in Canada.  Further, as trade deals further entrench Big Pharma's"corporate rights" an ISDS challenge regarding TV advertising is within the realm of possibility as we sign more trade deals.

In the U.S., Big Pharma advertisers spent, "$5.4 billion in 2015, tying the previous industry record set in 2006...That's an increase of 19 per cent over the category's $4.53 billion tally for 2014."  This April alone, Pfizer spent $26 million in TV advertising on just one drug (Lyrica) while AbbVie spent $24 million on its drug (Humira). Together the top ten spenders combined for a totalled $138.6 million in TV advertising this April.

In another case, Vanda Pharmaceuticals has bought more than $29 million worth of air time in the past two years for one of its orphan drugs called Hetlioz that fewer than 1,000 patients take in the U.S. (it costs $148,000 a year, 76 per cent more than when it was first introduced in 2014). This drug is for a rare sleep disorder that affects completely blind people.

Yes, they ran a TV ad that targets blind people, and it worked.

The CEO stated on an earnings call with investors that contact with patients prompted by the ad campaign as "the main driver" of new demand for the drug. At the same time, a study the Journal of General Internal Medicine found that 57 percent of claims in drug ads were potentially misleading and another 10 per cent were outright false.

Image source: http://www.forbes.com/sites/liyanchen/2015/09/23/the-most-profitable-ind...


While advertizing is not a part of R&D, it is a part of a system that further solidifies high drugs costs and limited R&D; this is something the TPP (or CETA for that matter) will only increase. Concurrently, the line between R&D and marketing has become increasingly vague.

Advertising is not the same as marketing.

"Marketing is the work that aligns products and consumers. It is a feat of marketing when an old drug such as Prozac can be reshaped and repackaged as Sarafem, to align it with the desires of hitherto hidden potential consumers with premenstrual dysphoric disorder. We get a new drug, new consumers and a new illness to connect them. Advertising can contribute to alignment but it often merely alerts or reminds consumers about a product, in an attempt to jockey for position."

Clinical trials are increasingly established to increase market share and treat risk factors rather than cure diseases.  Further, clinical trials have gone global in the race to the bottom; there are huge ethical issues with the massive increase in the globalization of clinical trials to developing countries where big pharma looks for "treatment-naive" patients willing to be test subjects at the lowest costs.

It is clear that trade deals will not lead to more R&D, the TPP will only further feed the current system of profits before patients. In the next blog on trade deals and bad medicine the blurred line between big pharma, marketing and R&D will be investigated.

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