Pharma and Profit.

Lee sent us this and asked us to publish it.

Pharma and Profit

I was a bit surprised to see your blog included additions from associates on the drug industry and was inspired to share a bit of information about the real profit picture of the industry.

Whenever Americans start to complain about the price they pay at the counter, not many of the responsible parties take serious note. When their anger gets louder and they roll their complaints up to their representatives we will hear about ideas with a very silly concept that can be used to save money or something desperate that the courts will willingly rule against. Promises of how they will cut drug cost start to float on the air like rainbow stew, and the elderly will start to get their hopes up.

This of course never happens and the industry largely continues on unscathed with no change in direction. I have witnessed this occasional rise and fall of curbing cost efforts since the early 70s first hand and have a few bits of info I’d like to share with our readers.

The immediate response of the Big Pharma companies (Large Pharmaceutical Corporations with revenues in the Billions) is that drugs are expensive because of Research and Development and worst yet government regulation.

You will be told it takes years to get a drug researched and approved with no hope of clinical success. This and the draconian regulations of the FDA force them to charge such high prices. Profit is mentioned less than a liquor sale at a Baptist Social.

Yes drugs are difficult to research and yes the FDA does have regulations. For purpose of brevity let’s deal with the research claim. Then we can talk about profit.

One would reasonably think that Big Pharma has batteries of research people constantly testing thousands of potions late into the night in the Brazilian Rain forest. That they scratch at the door of science with the effort of Hercules over years with thousands of expensive scientist salaries to pay and that only 1 in 60,000 chemicals produces some hope of cure.

What is not mentioned by big Pharma is that the vast majority of new drugs do not come from their research facilities. In fact almost all the major breakthroughs come from small companies in Europe, small biotechs, university areas in the US and work discovered by government scientists working for places like the NIH (National Institutes of Health). So how can Big Pharma make this claim without breaking into a revealing smile? Simple…they buy their products from the latter and put in on their books as R&D cost. Then they spend enormous amounts of money promoting these new products. Later a marginal improvement copy will come out from a competitive Big Pharma and guess what? The price doesn’t go down it goes up. They discovered many years ago that a good oligopoly only increases the advertising overall and though they will act like competition is a threat, they actually benefit as the two similar drugs promote use of both and as they say in marketing, THE PIE EXPANDS.

So there is no force to bring prices down in fact it’s time for business as usual with annual or semi annual price increases to continue increased profit.

Okay but all this is still expensive and the cost of buying the new drugs is so prohibitive.

Reality check..These products recoup their cost to big Pharma in less than a year. The unregulated price they charge will be so high it is guaranteed. Check out the price pharmacies pay for these new drugs. It is usually over $150 and as high as $ 600 for a months supply.

Last let’s discuss profit. You will see in annual reports and quarterly reports to Wall Street that the company made anywhere from 6 to 15% profit. Another example of figures can lie and liars can….. The truth is that the COPS or Cost of Product Sold is around 5 to 25% after the first year of sales. In other words the $400 a month drug that your physician prescribed actually has $300 to $380 in profit after the cost of manufacturing, research and development and shipping is subtracted. So how do we get to 6-15% as reported in their annual report?


Well you have to subtract Executive Overhead, Marketing and the Board of Directors cost…So I ask you, where is the real profit picture. A small percentage is also allocated in the form of dividends to stock holders and guess what? Executives and Board of Directors also own an enormous share of those stocks. You will read that the CEO only made $ 4-6 million personally in income and bonus but how many shares does he/she own that soak up dividends. How many “stock options” does he or she own in addition to this? By the way this continues for years into their executive retirement pension system along with other perks.

Also hidden in these numbers is the cost of lobbying. There is an army of lobbyists called the PMA or Pharmaceutical Manufacturers Association that spreads this money around Washington and local State Capitols….

My point is that the profit picture is a spin that only FOX news would envy in its misleading intent. The powerful have profited enormously while the rest are holding the inflated bag. Hope the drug actually works for you. Hopefully you didn’t have a side effect because if you do and you actually sue them you and your attorney will be the scum of the earth that causes prices to be so high.