Healthy Skepticism Library item: 7001

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.

Publication type: news

Pollock RL.
Of Politics and Pills
WALL STREET JOURNAL 2006 Dec 2

Abstract:

Is the future of your health riding on what happens in Washington? Sidney Taurel thinks it might be. The Eli Lilly CEO ticks off a list of former “death sentences” being cured or turned into chronic conditions — “AIDS, leukemia, Hodgkins, hopefully solid tumors within the next few years. The potential for medical research is unlimited. We just need to make sure we don’t interdict it by the wrong policies.”
And what might those “wrong policies” be? Anything, it would appear, that reduces the financial incentives for drug companies to invest in research and development. Mr. Taurel points without hesitation to the mere threat of HillaryCare in the early 1990s as an episode that reduced investment in R&D, as drug makers, including his own, redirected money toward the purchase of pharmacy benefit management companies. As another example, he offers the anti-drug industry crusade of Sen. Estes Kefauver in the late 1950s and early ’60s:
“At that point companies started to diversify. We bought Elizabeth Arden, we went into animal health and agricultural chemical products, later on in medical instruments and so forth. All other companies did similar things. And for a while after that we saw fewer new products. When this threat subsided the companies focused again on R&D and we saw a golden era in the ’80s and ’90s with a lot of new products and breakthroughs.”
The question now for Mr. Taurel — and, it would seem, for all of us who hope to benefit from medical innovation — is whether more political threats to drug research are on the horizon, and I couldn’t have spoken to him at a more critical time. We met for coffee at the Four Seasons in New York just days before the Republican wipeout in Congress.
Mr. Taurel was in town for a meeting at IBM, on whose board he also sits. But no one can accuse the Eli Lilly chief of disloyalty or spreading himself thin. In an age where executive talent too often exhibits all the team spirit of Terrell Owens, Mr. Taurel is the increasingly uncommon CEO who is also a company lifer. Born in Morocco, and educated later in France and the United States, he joined Lilly in 1971 and has been there ever since. He has also become one of the drug industry’s most thoughtful and outspoken proponents of market-oriented health-care polices — based, it seems, more on experience and observation than innate ideological conviction.
“I’ve seen the bad effects that government policies of price controls and overregulation can have,” Mr. Taurel tells me.
“When you look at Europe 30 years ago, that was where most of the innovation in pharmaceuticals used to take place. When I joined the industry the No. 1 was Roche and then it was Hoechst and Bayer and all these companies, which today are not as big. What 30 years of price controls have done is more and more of the research has come here. I think only about 25% of the total research in the whole industry is done in Europe.”
But this is no reason for complacency, Mr. Taurel stresses. We are at a “crossroads” in the U.S., he says, “between people who want a government-run system and those of who want a free market” in health care.
Indeed, apart from the Iraq war, no other issue saw more clear blue water between Republicans and Democrats during the recent campaign. None other than incoming House Speaker Nancy Pelosi called the GOP’s 2003 Medicare drug benefit “a bill born in corruption that is catering to the pharmaceutical industry, catering to HMOs, and putting seniors last.” Among the remedies she and other Democrats are proposing are having Medicare “negotiate” drug prices and allowing the “reimportation” of prescription drugs from countries like Canada.
Mr. Taurel seemed confident when we spoke that the Democrats would have to take the White House, too, before they could make much headway with such policies. But I’m not so sure. Some Republicans are attracted to “reimportation” in the mistaken belief that it is some kind of free-market policy. (As Mr. Taurel notes, “The only reason this is financially attractive for the importer is the price is artificially set low by a foreign government.”) What’s more, it so happens that the complicated Prescription Drug User Fee Act — which allows the industry to help fund the FDA in exchange for faster review times — is up for reauthorization next year. That means Congress will have opportunity to attach all kinds of potentially damaging measures to a bill the White House will find it very hard to veto.
Finally, there’s the undeniable fact that the industry has image problems. So I decide to get his responses to some of the most common complaints. What about the charge that research-based pharmaceutical companies like Eli Lilly exploit their patents for unreasonable profits?
“Look at the software industry,” Mr. Taurel replies. “They are every bit as profitable if not more. If you look at return on assets and equity, our industry does not distinguish itself that much. It’s only return on sales that’s typically on the high side, but again we’re not alone. This is a high-risk industry. We make very long-term investments.”
Mr. Taurel also notes that stock prices — Lilly’s is down substantially over the past five years and essentially flat over the last two — don’t exactly suggest an industry that’s successfully exploiting consumers. He cites a number of factors, including increased competition from generics and an uncertain legal environment, by way of explanation. “All of this has meant that the industry that was growing at double digits at the end of the last decade is now at 5% or 6% growth.”
And what about the common charge that the industry spends more on advertisement than it does on R&D? That’s based on a “misunderstanding,” he says. “People equate marketing expenditures with direct-to-consumer advertising and direct-to-consumer is a very small part of the total and much, much, much smaller than R&D expenditures.” He says the industry spends about $3 billion on consumer advertising and about 10 times as much on R&D. He adds that the marketing expenditures reflect a “very competitive marketplace.”
This is an issue, I’d add, where industry critics routinely contradict themselves. It is hardly uncommon to hear the same person complain one minute that there isn’t enough competition and the next that the industry wastes resources on redundant — or “me too” — drugs.
Lilly’s most famous drug, Prozac, is now off patent, but it has long had plenty of competition in the class of antidepressants known as SSRIs. Mr. Taurel tells me how his company responded to the Prozac patent loss by raising R&D expenditures to the highest level in the industry. One of its newer products is Xigris, the first-ever treatment for sepsis, a deadly blood infection that kills more than 200,000 Americans annually.
I ask if we could expect many such innovations if we tried to take out the profit motive and alleged redundancies and make all drug research a government endeavor. Mr. Taurel concedes the government can play a role in funding basic science. “But to assume that the whole R&D apparatus can be in the hands of the government is a total fallacy,” he says.
“Governments are not good at making risky bets and mustering all of the different disciplines and technology that we need to bring a product to the market.”
“If you took away all the profits of the pharmaceutical companies for one year,” he continues, “instead of having 10% of health-care costs spent on pharmaceuticals you would have 7%, and then you kill completely all medical research and progress.” He also stresses that drug expenditures often reduce overall treatment costs. He cites ulcer therapy — where an expensive operation has been replaced by a simple course of antibiotics and acid blockers — by way of example.
Our conversation covers many other topics. On the FDA, Mr. Taurel emphasizes the importance of the agency’s Critical Path initiative to bring modern science to the drug approval process and the necessity of accepting that all drugs have risks as well as benefits.
“One thing that frankly bugs me in the current discourse in Congress and the media is that there is no such thing as a totally risk-free drug,” he says. On the related issue of tort reform, he accuses trial lawyers of pursuing an “immoral”
business model with lawsuits targeting such products as Merck’s Vioxx and the Lilly antipsychotic Zyprexa. And on the broader issue of the uninsured, he weighs in strongly in favor of creating a national health-insurance market instead of the inefficient 50-state regulatory system we now have.
But clearly the point Mr. Taurel wants to drive home is the importance of preserving incentives for medical research.
“People think that if the profits were much lower we would still do the same amount of research,” he tells me as we wrap up. “But that ain’t true, as evidenced during the Clinton health-care reform proposals, during the Kefauver reform proposals, and outside of the U.S. with 30 years of price controls and what has happened to the research there.”
He also notes that there’s a crass economic reason for not turning the pharmaceutical companies into political piñatas.
“The U.S. is losing its competitiveness in so many industries and this is one where we are the best in the world, by far. It should be an industry that is totally supported.”