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Chapter 22

HLTB03 - Chapter 22.docx


Department
Health Studies
Course Code
HLTA02H3
Professor
Michelle Silver
Chapter
22

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Chapter 22- Profits First: The Pharmaceutical industry in Canada
Introduction
-pharmaceutical company no different from any other enterprise in capitalist economy
-primary motivation for making drugs is profit
-Code of Conduct of the Pharmaceutical Manufacturers Association of Canada (PMAC), now called
Canada’s Research-Based Pharmaceutical Companies (Axed) emphasizes the unique role it plays in
providing prescription drugs and other services to the public
-4 sections will analyze some of the most significant factors contributing to the profits of the industry
1) The relationship b/w the state and the industry
2) The research efforts of the drug companies,
3) Prices of drugs
4) How industry promotion influences prescribing
Private Profit versus Public Good
Eli Lilly and Benoxaprofen
-an example of how profit comes before public service involves Eli lily and benoxaprofen (anti-arthritis
drug)
-In 1980 was marketed in Britain under the name Opren
-the drug was popular, but shortly after it started being distributed, 8 deaths resulting from adverse
reactions to Opren was noted
-Nine months after first known British death, it was introduced to Canada and evaluated by the
Canadian Health Protection Branch (HPB)
-when drug was submitted to the branch, Lilly did not inform them of the deaths that occurred in Britain
until the day before it was going to be published in the British Medical Journal
Bristol-Myers Squibb and Pravastatin
-Canadian Coordinating Office for Health and Technology Assessment (CCOHTA) is a non-profit
organization that conducts evaluations of pharmaceuticals and medical technologies
-they said that all statins (group of drugs) were the same
-BMS (Bristol-Myers Squibb) were afraid this would result negatively for the business, so
they went to court to block the publication of CCOHTA’s report
- they were attempting to stop free flow of scientific information in defence of its profits
Merck Frosst and Vioxx
-vioxx (involved in arthritis pain)
- could lead to increase in cardiovascular events i.e. heart attacks or strokes
-tried to camouflage this by excluding those with heart problems
-Merck later withdrew drug from market, but while it was on the market, this drug lead
to thousands of heart attacks, stokes and deaths
Profits in the Pharmaceutical Industry
Profit as an Accounting Illusion?
-looking at table 22.1, it’s difficult to deny that there are huge profits to be derived from
manufacturing pharmaceuticals
-but Rx&D claims that the high profits are an accounting illusion created by standard accounting
practice of treating research and development (R&D) expenditures as expenses against current
income

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-explanation of high profitability is inadequate for several reasons
Firstly, accounting bias is not confined only to the pharmaceutical industry, but is
present in all discover-intensive industries like gas and oil and industries with high levels of
research and development expenditures
Second, by allowing pharmaceutical companies to treat research and development costs
as current accounting expense, the gov’t is granting them an indirect fiscal subsidy to encourage
their risk-taking efforts (this raises drug firm’s profitability)
-even after correcting profits by treating research and development expenditures as an
investment, the drug industry was still one of the most profitable industries around
The High Cost of Research as a Justification for High Profits
-industry uses high cost of research as justification for high profits
-claim that it costs 802 million to discover new drug and bring it to the market, and that only one third of
the money is returned in new products
-Light and Warburton disagreed, saying there were problems in sampling
-inflated estimate only considers R&D costs for new chemical entities (NCEs), which have been
researched and developed in house by American-owned companies which represent only about 22
percent of new drug approvals
-sample leaves out new drugs that were developed by government, non-profit organizations,
universities, drug licensed from other companies, and newly marketed drugs that are not NCEs etc.
-when tax credits were factored in, the R&D costs were reduced by 30%
Pharmaceutical Industry and the State
Compulsory Licensing and Patents
-during the 1960s, patent protection lead to Canada having some of the highest drug prices in the world
-the decision of the liberal government at the time was to extend compulsory licensing and allow
companies to receive a license t import a drug into Canada rather than have it manufactured here
Bill C-22
- industry lobbyed against the compulsory licensing
-Bill c-22 was the result of free trade with the United States
-Bill c-22 allowed for companies introducing new drugs a minimum of seven years protection from
compulsory licensing and the introduction of generic competition
Bill C-91
-Americans said the c-22 bill wasn’t enough and that it was barely acceptable,
-U.S. industry wanted to see a similar level of protection as in Western Europe and the U.S., and how
Canada’s out of sync
-the passage of bill c-91 lead to the final demise of compulsory licensing
-Canada signed the NAFTA and Trade Related Aspects of Intellectual Property Rights (TRIPS) which the
government used as the grounds for completely eliminating compulsory licensing
- there were complaints about a provision in the Canadian paten law that allowed generic drug
companies to begin testing, manufacturing and stockpiling drugs for sale before patents expired
-U.S. filed a case in which Canada lost. It was ruled that generic companies could not stockpile drugs for
sale before the patent expired
-prohibiting generic companies from stockpiling drugs until the patent expires will delay the marketing
of generic products for weeks and each day of delay was about $5500 per product
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