Drug Firms ‘Gouge’ Consumers After Taking Taxpayer Handouts

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by Catherine Komp

Thanks to huge government grants offered to pharma companies that turn around and make gigantic profits off the drugs they create, Americans are paying twice for many of the drugs on which they depend.

Apr. 14 – In response to a major pharmaceutical company’s announcement of skyrocketing profits and its plans to expand the market for an expensive cancer treatment, patient- and consumer-rights advocates are demanding that the government step in and stop corporate "price gouging".

Consumers, such critics say, are paying twice – first, through federal grants to pharmaceutical companies to develop the drugs and again at the drug store.

On Tuesday, the global biotechnology company Genentech reported that the company’s total product sales for the first quarter of 2006 increased 39 percent, to $1.64 billion, while sales of their colon-cancer drug Avastin increased 96 percent, raking in $398 million. The same day, Genentech also announced it was seeking approval from the Food and Drug Administration to expand use of Avastin to treat lung and breast cancer.

Currently, colorectal cancer patients pay about $46,640 to prolong their lives through a ten-month treatment regimen of Avastin. According to the company’s website, Genentech has not decided whether it will change Avastin's price if it receives the requested FDA approval, but the company says lung and breast cancer patients would need a dosage twice as high.

"It’s immoral," said Sharon Treat, executive director of the non-profit National Legislative Association on Prescription Drug Prices (NLARX), referring to the price tag of Avastin. "There’s no other source for this drug," Treat told The NewStandard. "It’s a monopoly market and you have very sick people who can’t afford to buy it now, and it just seems completely wrong." NLARX is a group funded and directed by lawmakers who seek to reduce prescription drug prices.

A 2005 study found that the pharmaceutical and health-product industries spent $87 million on campaign contributions to federal candidates between 1998 and 2005.Genentech spokesperson Kristina Becker told TNS that the company takes access to their drugs "very seriously." Beck said the company provides free drugs to some people who do not have insurance and meet eligibility requirements, including an annual income cap of $75,000.

Jerry Flanagan, healthcare policy director with The Foundation for Taxpayer and Consumer Rights (FTCR), a nonprofit consumer watchdog group, said the development of life-saving drugs like Avastin through federal dollars strengthens the case for government regulation of drug prices.

"It’s a basic issue of fairness," Flanagan said. "The federal government involvement in Avastin has been similar to the federal government’s involvement in all prescription drugs, in that taxpayer dollars have been used through the National Institute of Health to fund research and development of pharmaceuticals."

In its analysis of National Institute of Health information, the Foundation discovered that the federal government funded at least 100 clinical trials of Avastin. FTCR filed a request under the Freedom of Information Act for documents containing the exact cost and budget of each trial. The group estimates that about 44 percent of health research in the United States is funded by federal grants.

The federal government funded at least 100 clinical trials of Avastin.Under a federal intellectual-property-rights law known as the Bayh-Dole Act of 1980, federal agencies have the regulatory authority to enforce reasonable pricing of patented drugs developed with the aid of federal funding. However, Flanagan charged, the law is never enforced due to the political leverage of pharmaceutical companies in Washington.

A 2005 study by the Center for Public Integrity (CPI), a federal watchdog organization, found that the pharmaceutical and health-product industries spent $87 million on campaign contributions to federal candidates between 1998 and 2005. It also found that one-third of the industry’s federal lobbyists were former federal officials.

"It’s that kind of political power in Congress and at the regulatory level in the Bush administration that has kept the regulators away from enforcing these standards," Flanagan said. "There isn’t the political will in Congress to stand up to the drug companies and enforce rules that require the drugs to be priced fairly. And that’s not only a problem with Avastin; it’s a problem across the board."

Another obstacle to government enforcement of price caps could be weaknesses in the law itself. Michael Davis, a professor of law at Cleveland State University who has researched drug-price controls under Bayh-Dole, said that regulation is triggered only when federal funding has led to the actual invention of a product. In cases when federal funding covers only testing and clinical trials after a product is invented, he said, "it’s very unlikely that you could make an argument that the Bayh-Doyle Act applies."

At the state level, however, lawmakers are attempting to tackle the issue of excessively expensive prescription drugs. The National Conference of State Legislators reported that as of December 2005, at least 144 bills in 44 states were passed addressing prescription-drug access, affordability and regulation.

But like federal officials, state lawmakers are also not immune to campaign-finance pressures. A CPI report released last week found that the pharmaceutical industry spent more than $44 million on lobbying state governments in 2003 and 2004.

In Washington, DC, city council members unanimously approved the Prescription Drug Excessive Pricing Act of 2005, which would let consumers sue pharmaceutical companies if the price of a drug is more than 30 percent higher in the local market than in countries with comparable income levels, like Canada, Germany or the United Kingdom. Following lawsuits filed by drug-industry trade groups, a federal judge ruled last December that the law was unconstitutional because it violated laws governing interstate commerce and federal patents. The city is appealing that ruling.

In Wyoming and Wisconsin, lawmakers have passed bills establishing "drug repositories," which pool unused drugs donated by doctors, patients and families, and then reissue them to low-income patients.

Other states, including Washington, Ohio, and Montana, have passed laws authorizing bulk-purchasing programs, in which the state negotiates drug discounts for local governments, private entities, labor unions and uninsured individuals.

But James Love, director of the Consumer Project on Technology (CPT), an international intellectual-property and health policy organization, said that it is difficult for the government to negotiate prices after a drug proven to be beneficial establishes its value on the market.

"It’s a very awkward conversation," said Love. "Basically, you’re saying, ‘How much money is the government going to pony up to keep this person alive for a couple of months? What’s that person worth?’"

Love’s organization advocates more substantial changes in drug licensing, including eliminating exclusive patent rights and instead creating government-sponsored incentives for companies to develop beneficial drugs.

Last January, Representative Bernie Sanders (I-VT) proposed legislation to provide such incentives with the Medical Innovation Prize Fund Act.

The bill would have established a fund to reward drug developers based on the benefits of new treatments, while at the same time requiring that FDA-approved products automatically be open to generic production. But with no cosponsors, the bill died in committee in March 2005.

Flanagan of the FTCR said recent examples of "obscene" price-gouging by drug companies are strengthening public campaigns to stop the practice. In light of the failure of federal regulators to enforce provisions of the Bayh-Doyle Act, he added, lawsuits could be the most effective way to curb the ballooning prices of prescription drugs.

"When taxpayers contribute hundreds of millions of dollars to develop a drug," said Flanagan, "that investment should be reflected in fair pricing. [if] we’re going to socialize the cost of developing these drugs, we should also make sure there’s a social benefit in that taxpayer investment."

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