In a classic case of “your money or your life,” the pharmaceutical industry is desperately resisting progressive prescription drug legislation like that enacted in Maine. The industry supports federal subsidies for drug purchases by seniors, but it opposes any limits on the prices it charges citizens or governments. It defends its stance with an old form of blackmail: Tinkering with its prices will rob the industry of any incentive to discover new life saving drugs.

Since the Senate race in Maine features prescription drug legislation as a major issue, Maine citizens would do well to consider alternative perspectives on the industry’s performance. Chellie Pingree’s perceptive claim, recently attacked on these pages, that the industry is “starting to look like Big Tobacco” if anything only understates its history of deceptive and monopolistic practices:

Who controls prices? Should Maine or other states – or the federal government – have the right to negotiate volume discounts for selected subsets of its population? The industry claims that giving any level of government such authority interferes with the free market and amounts to price controls. Yet the market for prescription drugs is about as free as Cuban elections. Drug producers are granted 17- year patents on their drugs, providing them monopoly power. In any market where one or a few firms have sole production power, control information, and confront many buyers, consumers are easily exploited. Profits are far higher than are needed to insure socially optimal levels of investment. Allowing consumers to negotiate collectively merely starts to level the playing field. Prices would be established through a more equitable negotiation process, not by bureaucrats – or the industry – as is now the case.

Diminished profits? It is likely that such a regime would drive down drug prices, though hardly anywhere near as much as if patent protections were eliminated. Nonetheless, the effect on industry profits is hardly as clear. Margins on each prescription would be reduced, but demand for drugs would also expand in a society where many elderly now forego needed medication because of costs.

Industry profits drive research? Another insidious line in the industry’s standard litany is the claim that high profits fund research into new blockbuster drugs. Consider some industry statistics. In the year 2,000, prescription drugs were an approximately $100 billion industry. Based on evidence from other nations that do not protect patents, economist Dean Baker has calculated that production costs for these drugs was about 25 billion. Seventy five billion was thus available for research. By the industry’s own figures, only $22 billion was spent on research into new drugs.

Where did the rest of the money go? In any market, firms have an inordinate incentive to steer consumption toward those goods on which they enjoy monopoly pricing power. Baker points out that “The rest of the money went mainly to: Marketing – The industry spends tens of billions each year to convince us (or our doctors) that its new drugs are absolutely essential and completely harmless. Protecting patent monopolies – Pharmaceutical companies regularly stand near the top in contributing to political campaigns… Profits – The pharmaceutical industry consistently ranks at the top in return on investment. It pulled in more than $20 billion in profits for 1999.”

If – and this is a big if – new drug legislation does reduce industry profits, industry will still need to continue at least its current minimal commitment to drug research and thus monopoly patents. Without new patents, it loses any ability to command high prices and profits.

Big Pharma and the blockbusters? Perhaps the most deceptive of all industry lines is its repeated implication that major blockbusters depend solely on corporate initiatives. Many of the most celebrated current and past blockbusters were developed not primarily through corporate initiatives but through government grants to universities and other research centers for basic and applied research. The federal government currently spends $18 billion a year in biomedical research. In addition, our tax-deductible contributions to universities, private foundations, and charities provide another $10 billion worth of research funding. Such major advances as AZT and, historically, penicillin and the polio vaccine, were developed in this manner. Yet after funding the initial research, the public is now often fleeced again to pay high prices for drugs on which the industry has gained a patent.

Major pharmaceutical firms already benefit from patent protection and federal research. In the unlikely that merely asking for public accountability in return reduces their commitment to new drugs, there is an easy answer. The money consumers and governments save on prescriptions can go to support increased research by state and private colleges and universities. The bang for the buck is at least as great. More new and socially useful drugs would emerge and more jobs for genuine research, both here and nationally, would be created.

John Buell is a political economist who lives in Southwest Harbor. Readers wishing to contact him may e-mail messages to jbuell@acadia.net.