Faced with accusations of price-gouging, Big Pharma’s refrain has been, We need to make huge profits because we spend so much on research and development. The industry tells us that were it not for its beneficent R&D, which they fund with those big profits, we might never have seen some of the drugs that have saved lives and improved our quality of life.

What they don’t say is what a report a couple of years ago by the Congressional Joint Economic Committee pointed out: that several of the most important drugs developed since the mid-’60s— including Tamoxifin (for breast cancer), AZT (for AIDS), Taxol (for cancer), Prozac (for clinical depression) and Capoten (for hypertension)—were created with the help of federally funded research.

They also don’t tell you what the healthcare advocacy group Families USA reported last week: that drug manufacturers spend twice as much on advertising, marketing and administration as they do on R&D.

A close look at the 2000 annual reports of the nine leading pharmaceutical companies revealed information quite embarrassing to Big Pharma. Families USA discovered that industry giant Merck & Co., which had $40.4 billion in net sales last year, allocated 15 percent of its total revenue to advertising, marketing and administration costs, and a mere 6 percent to R&D.

BristolMyers Squibb Co., meanwhile, set aside 30 percent of total revenue for marketing, advertising and administrative expenses, and 11 percent for developing new or improved medications. The two firms also racked up net profits that more than doubled their R&D budgets.

The Families USA report caused the drug industry to once again repeat the argument that record-breaking profits actually serve the greater good. “When the pharmaceutical industry does well, patients do even better,” one PR flack said.

No one can deny that Big Pharma is doing well these days. Pharmaceutical manufacturers represent the most profitable sector of U.S. industry, according to Families USA. Profit margins for drug makers were four times that of the average Fortune 500 company in 2000.

But those fat profits aren’t doing much to help older Americans at a time when the prices of the 50 drugs they are most commonly prescribed are rising at more than twice the rate of inflation.

Big Pharma’s profiteering also isn’t doing much for patients who come to places like the Moss Free Clinic in Fredericksburg, Va. The residents who visit the clinic as a last resort (they have no private health insurance and do not qualify for Medicaid or Medicare) almost always need at least one prescription.

The clinic pharmacy can dispense free drug samples that temporarily stave off calamity; and if patients are able to jump through all the bureaucratic hoops and can wait two or three months, they might even get medication through drug companies’ indigent patient programs (which are tax writeoffs for the firms).

But places like the Moss Clinic can’t help everyone get the prescription drugs he or she needs. Medicare patients (who number 40 million nationwide) are ineligible for the services offered at free clinics, yet their benefits do not cover prescription drugs. Consequently, many seniors and disabled people on Medicare go without medications necessary for their well-being.

While these people certainly aren’t doing “even better” as a result of Big Pharma’s business success—drug firms’ bigwigs apparently are. The average compensation for the highest-paid executive at each of the nine companies included in the Families USA study came to almost $19 million last year.

On top of this salary, these same nine executives also have unexercised stock options that total $890 million in value. C.M. Heimbold Jr., chairman of BristolMyers Squibb, is holding stock options worth $228 million. That’s $28 million more than the United States has offered to pony up for a new global fund to fight HIV/ AIDS and other infectious diseases that are ravaging poor countries.

But drug manufacturers don’t just throw money at their head honchos. They also see to it that buckets of cash wind up with the politicians who have the greatest ability to affect drug companies’ bottom line.

Rep. Bill Thomas, R-Calif., who heads the House Ways and Means Committee and as such may be the most important member of Congress when it comes to legislation concerning Medicare and prescription drugs, can count drug makers Eli Lilly and Allergan as his two top campaign contributors. And Sen. Bill Frist, R-Tenn., another major player in the Medicare reform debate, was one of Big Pharma’s top beneficiaries during the 1999-2000 election cycle, receiving more than $260,000.

In all, the pharmaceutical and health-products industry donated more than $26 million in PAC, soft-money and individual contributions to federal candidates and committees in 1999-2000, according to the Center for Responsive Politics.

What do the drug companies want for their money? They want to make certain that their servants in Washington don’t get any silly ideas—such as creating a Medicare drug benefit that would impose some form of price controls and thereby take a bite out of their profits.

Big Pharma is betting that the money it has invested in our politicians will enable it to continue bilking Americans. And until we fix some of the ills that afflict our political system, that might be a safe bet.

Rick Mercier is a columnist for The Free Lance Star (Fredericksburg, Va.), in which this column first appeared. He can be contacted at 616 Amelia St., Fredericksburg, Va. 22401; or by email at rmercier@freelancestar.com.

###