How Me Too Drugs Undermine the Efficiency of the Pharmaceutical Industry

Executive Summary

  • The pharmaceutical industry hides its inefficiency from the public.
  • US Pharmaceuticals is a welfare industry living off of government funding while making duplicate drugs called me too drugs.


How efficient is the current pharmaceutical industry?

The industry has 6 different drugs that are copies of each other for “erectile dysfunction” (a medical term for being either too overweight, out of shape, or too old to maintain an erection). These are called “me too” drugs and me too drugs are marketed against one another, even though there is virtually no chemical difference between the drugs.

Some say it does not need to be analyzed and that the US pharmaceutical industry is so shockingly innovative that they deserve all the money they pull from the system. We disagree.

See our references for this article and related articles at this link.

How Pharmaceutical Research is Managed in the US

In order to understand how so much goes into pharmaceutical research, but so little comes out in terms of beneficial drugs, it’s important to understand how drug research is funded and who performs the research. Did that last sentence surprise you?  It’s true, the US pharmaceutical comes up with very few new drugs per year. Almost all the drugs you see, such as Crestor or Flowmax are really just old drugs that have seen just minor enough alterations to get a new patent. However, they are the same chemical compound, and they have the exact same effect in the body.

They do this partially because the period of pharmaceutical discovery has mostly passed and no program such as the Human Genome project (which was mostly a boondoggle and giveaway to elite interests such as the politically connected Genentech) is going to change that. So instead pharmaceutical companies are passing off the illusion of innovation for real innovation. This is really nothing new. Car companies have been creating design changes in order to create the illusion of progress since the mid-1920s, the difference here is that pharmaceuticals are in the area of public health.

The FDA is No Help in Policing Me Too Drugs

Big pharma has taken over the FDA that they willingly rubber stamp almost any new drug no matter how illusory the benefit. In fact, the FDA’s leadership is primarily pharmaceutical executives, who have every incentive to get drugs approved for the companies that they go back to after their FDA stint and for which they hold stock options in.

The National Institutes of Health vs. Pharmaceutical Companies

There are two research paths in the pharmaceutical industry. One is the NIH, which spends roughly $30 billion per year on basic research. The other is pharmaceutical companies that mostly perform clinical trials and perform research in assaying chemicals found by NIH supported university research.

This comes to roughly $25 billion per year. Pharmaceutical revenues are roughly $325 billion per year (according to Reuters).

Most of the costs that the pharmaceutical companies incur are “marketing” related costs (over-paying doctors for clinical trials in order to get them to prescribe drugs, buying off top university research professors, patenting and re-patenting drugs, paying for pharmaceutical reps for distributing company propaganda, lobbying in Congress, television advertising etc..).

As can be seen, some of these marketing costs are not really marketing costs as much as bribes.

The Current Corrupt Pharmaceutical System

Under a system where the NIH took over final drug development and clinical trials, patents could be removed from the drug business altogether.

Problem #1: The Lack of Innovative Drugs from the System

For the $325 billion in yearly expenditures (to which we must add the $30 billion of the NIH budget bringing it to $355 billion), US drug companies produce roughly 7 innovative drugs, and most of these are very narrow drugs that do not cure ailments but extend the life of late-stage terminal diseases.

Problem #2: Extending the Life of Old Drugs

78% of drugs are simply extending the life of old drugs, which could come off of patent or copying another drug that already exists. This is according to (Marcia Angell as well as Dr. Jerry Avorn – two of the top experts in the field). This is gaming the patent system, which is designed to provide compensation or monopoly/oligopolistic profits to those that innovate, but not endless compensation monopoly/oligopolistic profits, and certainly not to those that do not innovate, but just steal their IP from government-funded university research.

The Case Study of Vytorin

Vytorin is a statin drug like Lipitor and Crestor; they are some of the largest pharmaceuticals by revenues currently prescribed. The ads for Vytorin are very easy to spot, they discuss how this medication “fights two types of cholesterol.”

There are two active ingredients in Vytorin are Zetia and Zocor.

  1. Zocor is an old drug and Zetia is a new drug.
  2. Zetia blocks cholesterol from being absorbed through the intestinal wall and Zocor interferes with an enzyme that creates cholesterol in the body.
  3. Zocor is a statin and lost its patent in 2006, thus the necessity to bring out a new drug which could extend the Zocor patent and prevent it from competing with the OTC Zocor that would inevitably be produced in 1986.

Research that showed negligible benefit between Zocor by itself vs. Vytorin took two years to be released by Merck and Schering-Plough.

It’s not hard to understand why.

Vytorin alone is a $5 Billion a year drug. Vytorin sells for roughly $95 per month vs. OTC Zocor or another statin such as Generic lovastatin which is rated as the best buy by Consumer Reports Health. Thus not releasing this study for two years brought in at least an extra $7 Billion for Merck this does not include the benefits for Schering Plough.

Irresponsible and Complicity Oversight by the FDA

The FDA does not represent the interests of consumers. It represents the interests of drug companies. Clearly, the FDA was in the back pocket of Merck and Schering-Plough on the approval of Vytorin/Inegy. The question of why Merck and Schering-Plough held back the research studies for so long is a very large red flag.

How Vytorin/Inegy was approved in the first place brings up the issue of corruption of the drug approval process. Vytorin/Inegy did not have to show any benefit over generic statins to be approved, even though it was planned to be marketed at a cost of 3x generic statens.

As Stated by Consumer Reports Health

Savings of $8.2 billion could be achieved in the Medicare program in 2007 alone if Medicare beneficiaries were prescribed effective generic statins to lower cholesterol instead of higher-cost brand-name statins, an analysis by Consumers Union and Consumer Reports Best Buy Drugs shows.”

Problem #3: Copycat Drugs and The Lack of Innovative Drugs from the System

The cost of clinical trials is greatly increased by the fact that a good portion of the payment to doctors is, in fact, a payoff to prescribe drugs (for those that are already approved), and in 78% of the cases, the drugs they are performing a trial on are not new chemical compounds.

We estimate that pharmaceutical companies only do actually $2.5 billion in research on new drugs. (and a number of these drug tests are falsified) However, they claim $325 billion in drug revenues. Even if all of their research was beneficial and non-corrupt (which we estimate less than $2.5 billion of it is) it still would not entitle the industry to $325 billion off of it.

*This article is over ten years old, and we have not updated the figures to be the latest. However, the proportion should be noted.

The Case Study of AZT

One of the most discouraging episodes in the history of pharmaceutical research is the case of AZT. AZT was invented in 1963, however, in 1985, it was found to be effective in treating AIDS. This drug was re-patented by GlaxoSmithKlein, which is strange in itself as the research was first paid for by the US government, secondly because any patent would have already expired. Not only that, GSK was able to get somehow the patent extended to 2017. GSK’s only contribution was to perform some testing of an already existing drug and combine it with a drug called Lamuvidine, which they claim is necessary to make the drug effective. However, Lamuvidine’s patent expired in 2007, yet the combined drug continues in a patented form. GSK charged exorbitant prices for these drugs. Only marches caused GSK to reduce the price somewhat.

This and other examples point to the necessity to question the current patent system as it relates to drugs. The actual amount of research being performed in return for the patent system is small and could be easily funded through simply expanding the current government supported research. There is a severe degree of misunderstanding within the general public and within politicians as to how much research is being performed by the major pharmaceutical companies. The following excerpt from an interview with Dr. Yusuf Hamied explains this.

“What would you say to the idea that the Indian pharmaceutical industry’s strength is just in making small changes? What do you mean by small changes? There are two types of R&D [research and development] in the world. One is a concept, and the other is `me too.’ Now, conceptual research is done essentially by universities, NIH [National Institutes of Health], [and is] government funded. In America, $20 billion is spent in universities and NIH on conceptual research. The multinational pharmaceutical industry, even if it is Pfizer or Bayer, is essentially investing in `me too’ research. Diazepam, the first major tranquiliser [is a] concept drug. Then you have Alprazolam and Lorazepam and Midazapam and Temazepam, and so on, [of the same] family. Typically, the breakthrough drugs normally happen through government-supported venture capital or small companies, and then they get taken over by the big boys. Today, 70 per cent or more of all drugs marketed were not invented by the guys who are selling them. I develop something I can’t sell; I go to Pfizer and ask them to sell it for me. They’ll take it up. Lipitor, the world’s number one drug, was not invented by Pfizer. Ninety per cent of the drugs for HIV were not invented by the originator. In 1987, I came out with Deferiprone, marketed as Kelfer, a drug for thalassemia [an inherited disease of red blood cells]. I thought it would sell well in India; it was an iron chelator. It didn’t sell. So, I go to doctors in India and say here is a drug, why aren’t you using it? [Their response was:] “Dr Hamied, if the drug is as good as you say it is, how come other companies like Pfizer haven’t brought it out?” Even if I do the research, the acceptability is not there. How many countries have come out with a drug on their steam? None. So, how will I be successful on my own if I bring out a new product? It’s very difficult”

Problem #4: The Falsified Results From Pharmaceutical Run Clinical Trials

Pharmaceuticals are much more dangerous than most people imagine.

Some reasons for this include:

  1. Pharmaceuticals are by their definition toxic to the body, and as soon as they are ingested, the liver sets about removing them as quickly as possible. This is why every pharmaceutical ad mentions that “those with liver damage” should be careful when taking this drug. This is because every pharmaceutical damages the liver, this is just a covered way of saying this.
  2. The clinical trials have been perverted by pharmaceutical money. While 92% of pharmaceutical results shown to the FDA are positive, Drug side effects are drastically under-reported. Doctors report severe side effects to the drug companies, not to the FDA. The drug companies then have a “legal obligation” to report this to the FDA. However, this legal obligation only extends to situations where the side effect could lead to death or lead to hospitalization.
  3. Once side effects are found, pharmaceutical companies will fight the FDA and try to postpone the removal of the drug from circulation. The drug Baycol took four years to be removed from the shelves even though its manufacturer, Bayer, had adequate knowledge two years before the FDA pressured Bayer to remove Baycol from circulation. Phen-Fen was already tested in Europe and found to cause Pulmonary Hypertension with sufficient regularity to get it banned. However, it was approved by the FDA. Furthermore, the benefit of Phen-Fen was an average weight loss of 3% after one year. After approval, it began causing heart valve problems in patients in the US. Even after being alerted, it took a press conference on the part of the Mayo Clinic and a doctor from Fargo ND, to shame the FDA into pulling the drugs from the market.

However, the details provided to the FDA by the pharmaceutical company is poorly documented, meaning that the staff at the FDA has to contact the doctor who made the report. With 300,000 reports of serious side effects coming into the FDA every year and 3000 drugs on the market to monitor, the FDA does not provide the staff to investigate them. As a result of only 1 to 10% of the side effects of drugs ever get reported. – Frontline

How The FDA’s Incentives are All Wrong

“In the 1930s when the FDA was setup, scientists at the FDA were encouraged to be skeptical about manufacturer’s claims. The FDA was gradually captured by industry, and in 1983 the Prescription Drug User’s Fee Act was passed, and with it, companies were required to pay up to $500,000 fee with each new drug tested by the FDA.“ – Frontline

Now scientists at the FDA are pressured to approve almost any drug, including those like Phen-Fen drugs and Relenza, which show close to no benefit vs. placebo, and drugs like Nexium which show almost no benefit over far cheaper generics. The kangaroo court that has become the FDA review and approval meeting can be seen here:

Doctors and medical schools are on the pharmaceutical payroll. Secondly, pharmaceutical companies are paying for and analyzing and organizing the research. The FDA does not see it until the pharmaceutical company is finished and only shows the FDA what the pharmaceutical company wants it to see. It’s a system almost rigged to result in overly positive results.

You can not trust your doctor to prescribe the most appropriate medication for you.

Why We Should Hand Pharmaceutical Trials Over to the NIH

If the NIH took over clinical trials, it could do so at the cost of only 32.75 billion dollars (their current budget + the actual pharmaceutical company research). These unpatented discoveries could then be released to the generic manufacturers.

This new system would mean no advertising, no pharmaceutical reps (doctors can read journals for their medical information, or if they don’t have time (and most of them don’t) they can go to Consumer Reports which provides a quick rundown of the benefits of drugs in an easy to read and digest format). This would allow the doctor to begin working for the patient rather than the pharmaceutical industry when prescribing drugs. It would also allow the doctor to be looking for other factors related to health problems rather than taking a narrow-minded drug approach because that is where their bread is buttered. Generic drug companies have low-profit margins and low costs of doing business. It cost less than ½ again as much to provide generic companies with a good profit for manufacturing and distributing the drugs because it is a very simple operation with high economies of scale. This would mean the total drug cost to Americans would not be more than $32.75 billion x 1.4 = $45 billion. This would reduce US health care costs by roughly $280 billion per year.

In fact, there would be so much only leftover that we could even increase the NIH budget by another $10 to $20 billion creating somewhat of a renaissance in medical research and providing more employment in the industry. This would require that most of the old drugs, which should come off patent because they have been artificially extended through patent law abuse, need to fall into the public domain. It also means that the major pharmaceutical companies essentially go away and become small generic manufacturers with no ability to influence health care policy. For all the calculations see the image below.

How Easy Would It Be to Have Public Rather the Pharmaceutical Company Controlled Clinical Trials?

What is amazing is how easy this policy change would be (practically, not politically). The NIH can easily run clinical trials and do it far better than pharmaceutical companies. Pharmaceutical companies should not be running clinical trials, or even paying for clinical trials at all. Universities used to perform more clinical trials, but pharmaceutical companies have increasingly begun to use private practice doctors or trial mills that they completely control. They then receive the studies, and compile them and then send only the ones they like to the FDA, where they have already positioned executives from their company into the top roles through the political appointment.

Getting Far Better Quality Drugs

Another issue that could be changed with an NIH takeover is better drugs could be developed. We could even decide as a society to give another 5 to 10 billion to the NIH, there would be so much excess created by removing the pharmaceutical companies, which could lead to even more useful drugs and more money for the actual workers, medical researchers. Because of greed and narrow self-interest, pharmaceutical companies are pushing mostly the wrong drugs to clinical trials. Right now drugs that are not very socially beneficial are developed because they are the most profitable. The major category being lifestyle drugs. Pharmaceutical companies don’t develop drugs that support that overall objective of the health care system, but rather develop drugs that are very profitable. By having the NIH take over drug development, social goals in public health can begin to come to the forefront.

Indirect Cost Benefits

The indirect cost reductions would be enormous. Pharmaceuticals are a force that corrupts everything it touches. In addition to developing the wrong drugs, and re-patenting old drugs that are not improvements, they have a big place at the health care policy table that they do not deserve. They sit there for one reason, the corrupting influence of their money.

Because this plan would essentially break the pharmaceutical monopoly, relegating them to nothing more than generic drug manufacturers, it would actually change how health care is practiced in the US. The indirect cost savings fall into the following categories:

Cost Savings #1: Reduced Lobbyists Costs

The major pharmaceutical companies would wither away as lobbyists in Washington and would lose their ability to corrupt medical schools and motivate the profession to look for pharmaceutical solutions to every problem.

Cost Savings #2: Reduced Overprescribing

Over prescriptions, which is currently a huge problem would be greatly reduced because pharmaceuticals would tend to be prescribed only if they actually benefited the patient.

Cost Savings #3: Reduced Marketing Costs

Many people currently employed in non-value added activities (pharmaceutical marketing and influence peddling activities) could be redirected to beneficial pursuits.

Cost Savings #4: Reduced Clinical Trials (And Better Quality Clinical Trials)

Many clinical trials that are currently run need not be run. This would greatly reduce the load of pharmaceuticals on trial subjects. In most cases, they are being misled into thinking that they are doing something beneficial for themselves and society. (the very fact that clinical trial recipients are taking placebos when the exact drug was tested years ago is a loss for the system in terms of health efficiency.)

Overall, the indirect benefits are difficult if not impossible to quantify. However, indirect benefits being ½ of the direct benefits could be easily justified. This would bring the benefits to $280 billion x 1.5 or $480 billion, or ½ trillion. Health care costs are growing in an unsustainable fashion. This could be a critical change, which, in addition to reducing costs, would more likely than not lead to better health for the country’s population.

Other Sources: CEPR and Dr. Marcia Angell

In case anyone thinks these are just the musings of one source, it should be considered that we got this idea from Marcia Angell, the former editor of the New England Journal of Medicine and Harvard Professor of Medicine, and the CEPR, which is probably the best progressive think tank in the country. An interview with Marcia Angell is included below:

Both of these sources have proposed what we have proposed above. Our main contribution is the spreadsheet above. What is interesting is that without using the high-level math estimation of CEPR, we came to the same conclusion as to their estimates. That is drugs should cost no more than $50 billion in the US under an NIH plan. Furthermore, the quality of drugs developed would greatly increase.  However, it’s important to note that drug research is generating a declining number of new drugs, so the research area may be in a way subject to diminishing gains.

There are so many fantastic pieces of information from Marcia Angell’s book The Truth About Drug Companies, I thought it important to document a few here. If for no other reason than to simply not forget this information after I complete my read of the book.

See our references for this article and related articles at this link.

  • Research and development is a relatively small part of the budgets of the big drug companies.
  • For the top ten drug companies research only amounts to 11% of sales in 1990 and 14% in 2000. 36% of sales went to marketing and administration in 1990 on average.
  • Few new drugs are in the pipeline and few of the ones that are in the pipeline are innovative.
  • Of the 78 drugs approved by the FDA in 2002, only 17 contained new active ingredients. 7 of these. However as improvements over older drugs. Of those 7, not a single one came from a US drug company. This is an amazingly poor output for the 80,000 clinical trials that have to be paid for in any given year.
  • The FDA consists of 9000 people which oversees 95,000 different businesses.
  • Drug companies’ average cost per drug developed is not $800 million, but $100 million. Doctors averaged $7000 per patient in 2001 for every patient they signed up for clinical trials.
  • Drug companies are not innovative. Most of the drugs brought to market especially in recent years were mostly based on taxpayer-funded research at academic institutions, small biotech, and the NIH. The innovation in pharma is occurring in legal and marketing rather than research areas.
  • The great majority of new drugs are actually just old drugs with slight changes or approved for new uses, For instance, there are now 6 statins (Mevacor, Lipitor, Zocor, Pravachol, Lescol, Crestor) to lower cholesterol. These are all the same chemical compound.
  • The US is the major profit center, so 1/2 of the big pharma companies pass themselves off as American.
  • Big Pharma is not a private enterprise. They mostly feed off of the unparalleled research output of American universities and the NIH.
  • Big Pharma has strayed from its original purpose due to perverse incentives. They now are primarily marketing machines to sell drugs of dubious benefit.
  • Drug companies repeatedly tried to get faulty publications published by the New England Journal of Medicine, and when rejected went to lesser journals.
  • Around 1/2 of all drug sales are in the US. So 1/23rd of the global population is responsible for 1/2 of the drug revenues.
  • The Bayh-Dole Act allowed universities and small businesses to patent discoveries emanating from research sponsored by the NIH. Until then, taxpayer-financed discoveries were in the public domain, available to any company or person who wanted to use them. This meant that private companies no longer had to perform their research.
  • 1/3 of drugs marketed by drug companies are licensed from universities, small biotech companies, and those tend to be the innovative ones. This caused the corruption of medical schools and teaching hospitals. The effective patent life has been extended from 8 years to 14 years by industry lobbying.
  • The effective patent life has been extended from 8 years to 14 years by industry lobbying.
  • Pharmaceuticals average 18.5 percent net return on sales v. a net return of 3.3 percent. The next closest competitor – commercial banking has an average net return on sales of 13.5 percent.
  • Drug companies are not innovative. Most of the drugs brought to market especially in recent years were mostly based on taxpayer-funded research at academic institutions, small biotech, and the NIH. The innovation in pharma is occurring in legal and marketing rather than in research areas. The great majority of new drugs are actually just old drugs with slight changes or approved for new uses, For instance, there are now 6 statins (Mevacor, Lipitor, Zocor, Pravachol, Lescol, Crestor) to lower cholesterol. These are all the same chemical compounds.
  • The US is the major profit center, so 1/2 of the big pharma companies pass themselves off as American. Big Pharma is not a private enterprise. They mostly feed off of the unparalleled research output of American universities and the NIH.
  • Research and development is a relatively small part of the budgets of the big drug companies

How Many Me Too Drugs?

The estimate of the percentage of drugs spent on “me-too” drugs or re-patenting old drugs is from Marcia Angel.

Drug companies should no longer be permitted to control the clinical testing of their own drugs. There is too much evidence that this practice biases the research in favor of the sponsor’s drug. It also distorts the type of research done, since companies are more interested in increasing sales than in obtaining medical knowledge. We really don’t need one more study of whether a new drug is better than a placebo for some slightly different use, but drug companies sponsor them because they help to expand the market. O ensure that clinical trials serve a genuine medical need and to see that they are properly designed, conducted, and reported, I propose that an Institute for Prescription Trials Drug Trials be established within the National Institutes of Health (NIH) to administer clinical trials of prescription drugs. Drug companies would be required to contribute a percentage of revenues to this institute, but their contributions would not be e related to particular drugs (as is the case with the FDA user fees). The institute would then contract with independent researchers in academic medical centers to conduct drug trials. The researchers would design the trials, analyze the data, write the papers, and decide bout publication. The data would become the joint property of the NIH and the researchers, not be controlled by the sponsoring company. – Dr. Marcia Angell

CEPR on Drug Industry Deception and Waste

The distortions resulting from these huge gaps between price and marginal cost should cause an honest neo-classical economist great pain. At the onset, the lost consumer surplus from patent and copyright protected pricing is enormous. The basic rule on this issue is that the size of the deadweight loss is proportional to the square of the gap between price and marginal cost. The United States alone is projected to spend $210 billion this year on prescription drugs. In the absence of patent protection, the same drugs would probably cost no more than $50 billion.” “Drug patents also distort the direction of research by pushing it in the direction of patentable results. Research directed at finding cures or treatments based on diet, exercise, or environmental factors will not be pursued in a health care system that relies exclusively on patent monopolies to finance research. This neglect can be offset by government funding targeted specifically towards these areas, but the patent system will direct resources elsewhere.” “However, there are alternatives and they already exist. The most obvious alternative is direct government funding of drug research. This already occurs on a massive scale. In fact, the $30 billion that the United States federal government pays each year to support bio-medical research at its National Institutes of Health (NIH) is approximately 20 percent larger than the $25 billion that its pharmaceutical industry claims to spend on research. Simultaneously, this research is primarily directed towards more basic science (not to be confused with the drug industry’s efforts, there are many instances of new drugs being developed almost entirely through NIH support). It also requires some extraordinary claims about epistemology to argue that public funding of NIH is an efficient mechanism for supporting basic research (a contention strongly supported by the pharmaceutical industry), but somehow would prove to be a boondoggle if the agency took on the responsibility of developing new drugs and bringing them through the FDA approval process.” “Since half of this money may go to research copycat drugs of little social value, the savings from eliminating drug patents in the United States may be more than 10 times as large as the spending necessary to replace the useful research performed by the pharmaceutical industry”  – CEPR

The Reality of the New Drugs Brought to Market

“Even worse is the fact that there are very few drugs in the pipeline ready to take the place of blockbusters going off patent. A fact that is the biggest problem facing the industry today. And its darkest secret. All the public relations about innovation meant to obscure precisely this fact, the stream of new drugs has slowed to a trickle, and few of them are innovative in any sense of that word. Instead, the great majority are variations of oldies but goodies—”me-too” drugs. Companies are merging to combine their pipelines or co-marketing the same drug while scrambling to find drugs to license from the government, universities, and biotechnology companies. But these sources are themselves experiencing difficulties in coming up with new drugs. Of the seventy-eight drugs approved by the FDA in 2002, only seventeen contained new active ingredients and only seven if these were classified by the FDA as improvements over older drugs. The other seventy-one drugs approved that year were variations of old drugs or deemed no better than drugs already )n the market. In other words, they were me-too drugs. Seven of seventy-eight is not much of a yield. Furthermore, of those seven, not one came from a major U.S. drug company. – Dr. Marcia Angell

Videos on How the Pharmaceutical Industry Works

One of the best DVDs on how the pharmaceutical companies actually work. What is amazing is how few critical DVDs there are on pharmaceuticals. We are only aware of this DVD and Frontline’s investigation into the FDA.

Part 1

Part 2