Plunder drugs: why Americans believe they have to put up with pharmaceutical profiteering.

$800 Million Pill: The Truth Behind the Cost of New Drugs

By Merrill Goozner 

University of California Press, $24.95

I have only two regrets over the life I led in my twenties. I should have gone on that sailing trip to the South Pacific with a group of entomologists seeking to study the insects on the exotic Marquesas Islands, instead of rushing back to "college after my year off. My other regret is once back at school, I failed to heed the advice of the fellow graduate student who told all of us in the biology department at the University of California that we should serape together every penny we had and invest in a startup biotechnology company called Amgen. Had I listened to him, I might be cruising the South Pacific in my own yacht instead of writing book reviews, because anybody who plunked down $100 in the mid-1980s on Amgen would have shares worth more than $1.5 million today.

Today, Amgen is the world's most successful biotechnology company, hailed regularly by Wall Street and the media as a shining example of the marriage between scientific ingenuity and the American entrepreneurial spirit. It is still headquartered in Thousand Oaks, Calif., the bedroom community of ranch houses and shopping malls an hour west of Los Angeles, where it was founded by a small group of scientists from UCLA in 1980. Back then, the company had no products, no warehouses, no laboratories--merely a handful of investors willing to bet that the fledgling firm could turn ideas into real drugs using recombinant DNA technology. Nine years later, Amgen launched its first product, Epogen, a genetically-engineered form of erythropoietin, one of the proteins made by the body that stimulates the production of red blood cells. Today, the company makes more than $5 billion a yeas, a third of which is profit, selling just three products. Epogen alone brings in over $1 billion, most of it from about 300,000 Americans on kidney dialysis, who would suffer debilitating anemia without it.

Epogen is truly a wonder drug. It eases many of the miserable symptoms that dialysis brings. But you don't have to be an economist to figure out that it is also incredibly expensive--among the most costly drugs on the market. The federal government picks up the tab for Epogen through the Medicare program that pays for dialysis. The company doesn't try to justify its high price on the basis of manufacturing costs; the recombinant DNA technology used to make Epogen is commonplace. And it long ago earned back its development expenses. Rather, as Merrill Goozner writes, the high price tag placed on Amgen products can only be justified as paying "for the scientists and technicians squirreled away in Thousand Oaks, who are busily searching for the next generation of wonder drugs."

Indeed, that is the mantra that the entire biotechnology and pharmaceutical industry begins chanting whenever the high price Americans pay for their medicine comes up. According to a 2001 Tufts University study--funded by the industry--it costs an average of $800 million to get a single new drug to market. But what biotech and Big Pharma companies don't tell you is that the vast majority of the new drugs they bring to market are "me-too drugs," new formulations of existing pharmaceuticals. They also don't tell you that they did not invest a dime in the basic research that produces the majority of breakthrough drugs.

Americans pay twice for the medications they take. First, their taxes go toward the federally-funded basic research that lies behind most such discoveries. The majority of new drugs are based on findings made by dedicated, hard-working, federally funded scientists in universities and government laboratories, not the research arms of drug companies. A recent congressional report found that of the 21 most important drugs introduced between 1965 and 1992, 15 were developed using knowledge and techniques from federally-funded research. Then the public pays astronomically for the drugs once they hit the market.

Why do we put up with the highest drug prices in the world? Because everybody from doctors to legislators, policy-makers, and patients has been bamboozled into believing that the breakthrough drugs of tomorrow will never materialize unless the drug industry makes an ungodly profit.

The $800 Million Pill is required reading for anybody who wants to understand the role Big Pharma and biotech companies play in driving up healthcare costs in America. This book does for drugs what Fast Food Nation did for fast food, peeling back the layers of science, clever accounting, and hype to expose the dark side of the nation's most profitable industry. Goozner, former chief economics correspondent for The Chicago Tribune, tells a series of deft and engaging stories about the discovery and development of a half dozen drugs. Amgen's blockbuster blood booster Epogen, for instance, was the product of 20 years of slogging work by Eugene Goldwasser, a soft-spoken, unassuming biochemist at the University of Chicago who in 1977 isolated the protein that formed the basis for the drug.

Then there's Roscoe Brady, the cell biologist who spent his entire career at the National Institutes of Health, taking apart the cellular machinery that lies behind a half-dozen rare genetic disorders and producing the proteins that would later lead to therapies. Brady's first discovery led directly to Ceredase, a drug for treating the devastating symptoms of Gaucher's Disease, which afflicts fewer than 10,000 people worldwide, generally killing them before they reach adulthood. Brady and his NIH colleagues helped Genzyme Corporation, which markets Ceredase, "overcome every obstacle it encountered in the development of [the drug]," Goozner writes. The company then turned around and charged patients as much as $350,000 a year for a drug they would have to take for the rest of their lives. When Congress called Genzyme to task for profiteering, the company's CEO, Henri Termeer, fired back in the pages of The Wall Street Journal that the company had every right to charge what the market would bear, because it had risked everything to develop Ceredase. "If we hadn't taken the first step, there would be no market, and no additional research on the disease," Termeer wrote, conveniently forgetting that Roscoe Brady and federal funds had done the lion's share of the work.

In the final third of the book, Goozner uses his skills as an economics and business reporter to full advantage, deconstructing industry accounting methods that allow it to count development costs twice over. He suggests changes to patent law which would close off loopholes that now lead companies to waste time and money squabbling among themselves over patent rights. As one Wall Street analyst quipped about Amgen, some pharmaceutical companies look like great legal departments that happen to make drugs on the side.

My personal favorite among Goozner's suggestions for reform is a new federally-funded institute, dedicated to tracking and comparing medications. I like this idea in part because I suggest the same thing in another magazine. But Goozner and I aren't the only ones who think the National Institutes of Health--or some other agency--should step up to the plate and fund the independent, unbiased research that is desperately needed by doctors, patients, and lawmakers who have been misled for too long into believing that America's health depends upon the pharmaceutical industry staying at the top of Fortune 500.

Shannon Brownlee is a senior fellow at the New America Foundation.