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Sky’s the limit on monopoly drug prices

Published Jan 23, 2010 7:42 AM

The U.S. Government Accountability Office released a December report highlighting the extraordinary price increases for many brand-name prescription drugs. According to the GAO, prices for many widely used drugs more than doubled between the years 2000 and 2008.

The report identified the growth of drug company monopolies and the drug repackaging process — buying drugs wholesale and repacking them in smaller packages — as the main culprits of the hyperinflation of pharmaceutical prices.

The GAO report identified more than 400 examples of extreme price hikes for brand-name drugs. Most price increases ranged from 100 percent to 499 percent, but increases in excess of 1,000 percent were common. Nine of the drugs evaluated actually experienced a price increase of more than 2,000 percent — that’s 21 times the original price. All these increases occurred from one day to the next.

More than half of the extreme increases were related to just three therapeutic classes of drugs — central nervous system, anti-infective and cardiovascular. These classes of drugs are used to treat ailments ranging from fungal and viral infections to heart disease.

Prescription drug cartels to blame

Pharmaceutical companies can seek 20-year patents on various aspects of new drugs. Once a patent is granted, other manufacturers are prohibited from making, using or selling the formula for the life of the patent.

The Food and Drug Administration can also protect the company’s exclusive access to the market, independent of the patents. Such exclusivity prevents FDA approval for a competing drug for up to seven years, depending on the type of drug. In addition to the market exclusivity and patents, drug companies already receive incentives to develop so-called orphan drugs used to treat rare diseases. These incentives include FDA research grants, tax credits for up to 50 percent of the cost of clinical research and a waiver of FDA fees.

Experts and drug industry representatives reported to the GAO that transfers of drug ownership rights and consolidations among drug companies have increased. According to the GAO the transfers and consolidations limit competition and contribute to extreme price rises. Fewer drug companies competing in a therapeutic class leads to fewer prescription drugs being developed within that class and allows the companies to use their patents and market exclusivity to further increase prices.

The consolidation of drug companies is typical of capitalism in its current stage of development. In his book, “Imperialism: The Highest Stage of Capitalism,” the Russian communist leader V. I. Lenin identified that “this transformation of competition into monopoly capitalism is one of the most important — if not the most important — phenomena of modern capitalist economy.” In this 1915 work that is still relevant today, Lenin referenced Karl Marx’s theoretical and historical analysis of capitalism, which showed that “free competition gives rise to the concentration of production, which, in turn, at a certain stage of development, leads to monopoly.”

This monopoly stage of capitalism was referred to by Lenin as imperialism. Internationally, imperialism is associated with wars of conquest and territorial division for the export of capital and goods. At home the monopoly stage of capitalism has a number of implications — not the least of which are price fixing and price gouging. These practices allow monopolies to drive potential competitors from the market and to fix hyperinflationary prices that provide superprofits for the monopolies at great cost to the workers.

The corporate media are constantly playing up stories about dangerous drug cartels that work to promote illicit trafficking of outlawed drugs such as heroin and cocaine. The officers of the Drug Enforcement Agency are portrayed as heroes in this epic battle between good cops and bad guys.

The media and the capitalist state rarely aim their fire at some of the biggest criminals on the scene — the prescription drug cartels that promote their legal wares to an unsuspecting public on television and in magazines, while simultaneously extorting sick patients with hyperinflationary prices for many lifesaving drugs.

Pharmaceutical monopolies rake in prime profits

A 2005 report from Families USA titled, “The Choice: Health Care for People or Drug Industry Profits,” highlights the obscene profits the drug monopolies have accumulated at the expense of patients.

The report found that combined revenues for the top seven U.S.-based pharmaceutical companies totaled more than $190 billion in 2004. These companies reaped over $34 billion in profits that same year. Families USA reports that all seven companies spent more than twice as much on marketing, advertising and administration (average 32 percent of revenues) as they did on research and development (average 14 percent of revenues).

The companies’ stock owners are the biggest winners. In addition, the average annual income, exclusive of unexercised stock options, of the chief executives of the seven companies was $13 million in 2004. The combined value of the unexercised stock options for these seven executives was another $135 million.

If the media and the DEA had really wanted to do the public a service in the war on drug cartels, they would investigate and expose the executives of the top U.S. pharmaceutical companies for profiting while those who cannot afford their extortionate prices die from a lack of access to lifesaving medicines.