Highway to Health | Dave Landy | Summer 2010
Early in the sixteenth century, the aging Governor of Puerto Rico organized an expedition to uncharted territories to the North. King Ferdinand, of Spain, financed this mission with hopes to expand the Spanish empire and acquire gold. Three ships and more than 200 sailors took part in the expedition that would ultimately claim St. Augustine, Florida. More than 100 years before the Mayflower set sail, America had its first colonial settlement. Although the voyage was a spectacular success, the Governor considered himself a failure. Despite his newfound wealth and fame, his goals were far different than those of Ferdinand. While history would label him as one of the great Spanish Conquistadores, Ponce de Leon, more akin to the bumbling Don Quixote than the swashbuckling Cortes or Balboa, he was simply an old man looking to extend his life. His conquest of Florida resulted in a failed search for the Fountain of Youth and ended when he was killed by a poison arrow fired by a local Calusa Indian.
Five hundred years later, the concept of a Fountain of Youth seems ridiculous. Yet human nature still chides us to hold out for every last possible breath. In this respect, Ponce de Leon left his indelible mark on America. Even though we know there is no Fountain, it doesn’t stop most of us from looking for substitutes. We have constantly searched to find new ways to live forever. For the past century or so, at an ever-increasing rate, many Americans turn to prescription medications. Annually we fill about 4 billion prescriptions, or about 12 per person, and spend over $300 billion dollars.
My fascination with (legal) drugs began at an early age. I have severe allergies to just about everything that blooms in springtime (particularly lilacs, which are my Kryptonite). For two months a year, my life was a living hell. I would burn through two boxes of Kleenex a day. I kept cold compresses on my eyes. I had uncontrollable sneezing fits (one so bad that my family had to leave church). I stayed indoors and watched other kids play whiffle ball. One of my early memories is from my First Communion ceremony held back in the Seventies. It was a sunny and windy spring morning, and to make things worse the altar was decorated with lilacs - a perfect storm! My eyes swelled shut, forcing me to hold onto Karen Zinno’s white dress like she was my guide dog. “Eat this bread and you will live Forever,” the priest said that day, but his message was lost on me. Eight-year olds want to play wiffleball, not live forever. On one of holiest days of my life my faith wavered. I prayed for a real savior.
It would take ten more long springs before a pharmaceutical company answered my prayers. My long strange drug trip had begun. And as most come to discover, the path isn’t always what we expect it to be. Directions can be confusing. Our destination is not always clear. Yet when it comes to our health, we have many people who claim that they can guide us. This month, we are going to take a journey with these people and determine who are worthy passengers. And in the end, I’ll tell you why I love these scoundrels despite their massive shortcomings.
I understand there is plenty to dislike about the pharmaceuticals industry. The economics are particularly loathsome. This sector is always among Fortune Magazine’s most profitable, typically returning a 20% annual profit to their investors. In turn, their executives are paid among the most handsome bonuses, rivaling those of Wall Street (Johnson & Johnson CEO Bill Weldon, for example, was paid $25.6 million last year). What irks consumers is seeing this largess occur while watching the prices of their monthly prescriptions skyrocket at a rate many times faster than inflation. How can this happen? Well, drug prices are unregulated in America. And drugs fall into a special category known by economists as being price inelastic – meaning that your medication is a necessity item that usually has no substitutes due to patent protection. This scenario is a seller’s dream – the demand for the product does not diminish when prices are raised. Suffice to say that human nature often prevails and many greedy drug companies have been convicted of price gouging and price fixing. In fact, it is common practice to raise prices in the years preceding a patent expiration to milk every last drop. Claritin’s prices were raised 50% in the five years prior to the patent expiration. Not surprisingly, countries with regulated pricing don’t have these issues. Most drugs cost 30-50% more at your drug store than it does in Canada. By consuming about half the world’s drugs at the steepest prices, many have argued that the American consumer is ultimately subsidizing medication for the rest of the world.
The talking heads in the industry have a script that they often follow when confronted with these facts. It costs more than $1 billion to get a new drug designed, manufactured, tested, and approved. Only about 11% of drugs are actually approved for sale. With the high costs of innovation (and potentially enormous cost of failures), the industry needs to maintain healthy margins to fund more research and development so they can discover more drugs to make your life even better. Yet a closer inspection of their books reveals that these firms typically spend twice as much on marketing than they do on R&D. This is a relatively new phenomenon, spurred by looser regulations around drug advertising in 1997. Since then, we have been bombarded with TV ads for drugs (including an exorbitant amount of erectile dysfunction ads every time I watch the Red Sox with my 12-year old daughter). This is a novel sales approach – a pull model that allows drug manufacturers to market directly to consumers to increase demand. This was a seismic shift from working through doctors. Our demand for pills has since exploded.
This phenomenon has led many to charge the industry with misrepresenting potential uses and value of certain drugs, and downplaying side effects. Some even question whether they would conspire to invent ailments to sell more drugs (as medical studies have consistently shown, placebos do have medical value). Some leading medical minds have questioned the validity of recent “Fad Drugs” to treat Depression, Sleep Disorders and Fibromyalgia. Should we really be surprised? The economics of the industry not only suggest but dictate this course of action. If you were a CEO, would you risk $1 billion and your job to invent a new drug, or would you spend that same money pushing an approved drug with a clear revenue stream and collect an eight-figure bonus? While it might not seem to be in the best interest of consumers and potentially unethical, the decision is a no-brainer. You would do the same thing.
So how could I worship such a sinister industry? A transcendental event occurred in 1985. A company named Hoechst Marion Roussel (now Aventis) introduced a wonderdrug named Seldane, the first to treat chronic allergies. It cured my hayfever. My life has never been the same. The before and after photos are what drug commercials are made of, complete with lilacs. My first teenage love affair was with a drug company.
