The Bayer Boondoggle

Anthrax Crisis Shines a Light on Pharmaceutical Company Thuggery

As anthrax infections continue to crop up—most recently and ominously without a known source—the mounting stockpile of the favored anti-anthrax drug, Cipro, has become our collective comfort. "In Cipro We Trust," anchorman Tom Brokaw told the nation a few weeks back. And since then, the government has put its faith—and money—in Cipro's maker, Bayer, in the form of a contract for 100 million doses of the drug with an option for 200 million more. Helge Wehmeier, Bayer's president and CEO, has been praised for having reduced Cipro from $1.77 to 95 cents a pill for the first batch, a price he's agreed to further slash to 85 cents for the next 100 million. "You can't have a bookkeeping approach" in a national emergency, Wehmeier said of his pricing policy.

Rather than simply thanking Wehmeier for the $82 million discount, though, Americans might well be asking why we're still paying a staggering $95 million for a drug that costs just cents to manufacture. Comparison shop and Cipro's 95-cent price tag hardly seems like a bargain. Bayer sells Cipro—the bestselling antibiotic in the world, which is also used to treat common ailments such as urinary tract infections and bad colds—to another government program for a mere 43 cents a pill. Generic versions of the drug are available in other countries for roughly 10 cents. And on October 27 the government contracted to buy 1.2 billion doses of doxycycline, a generic drug with fewer side effects, for an estimated 3 cents each. Indeed, with doxycycline now approved to treat anthrax exposure, it's unclear why we need Cipro at all.

In response to suggestions that Wehmeier should have lowered his price a wee bit further—or even waived the government fee entirely, since the company is making a mint on retail sales—some in the press have leaped to the company's defense. "Profits are the reason that drugs like Cipro exist in the first place," James Surowiecki wrote in The New Yorker. In its profile of the executive, the Times portrayed him as the victim of a PR crisis. But Wehmeier may have mounted his best, or at least most truthful, defense himself: About the fact that his company is making a profit on this potential health crisis, the CEO said, "That is the American way."

Indeed, the run on anthrax-fighting antibiotics has merely provided a window onto the choke-hold tactics that are business as usual for giant pharmaceutical companies. While the anthrax scare has boosted sales, pharmaceutical companies were already towering over others in the Fortune 500, with profits averaging more than 18 percent of revenues, as opposed to just over 4 percent for the rest. The Pharmaceutical Research and Manufacturers of America argues these whopping yields are necessary to propel the drug companies' creative research. But the industry may be most inventive when it comes to patents, the intellectual-property-right protections that, throughout the last decade, have been used to roughly double the amount of time companies can reap profits on brand-name drugs. (The average drug patent lasts just over 14 years.)

Consider, for instance, the unseemly deal to protect Cipro's patent that recently came to light: In 1997, Bayer paid three generic-drug companies $200 million to stop challenging its 14-year-old patent on the antibiotic, which has generated more than $1 billion in sales in the U.S. alone. Barr Laboratories, a generic-drug maker, had sued Bayer, claiming its patent was invalid. When a judge found the claims against Bayer worthy of a trial, the companies struck the deal: Bayer continued to market Cipro exclusively, and Barr and two other generics companies took the money and dropped the case. Meanwhile, the consumer can still pay nearly $5 a pill for Cipro in the drugstore.

In a suit filed October 25, the Boston-based Prescription Access Litigation (PAL) project charges that the Bayer settlement amounted to an illegal payoff that swiped money from American consumers. Indeed, one of the five generic companies pre-approved to make the antibiotic when Bayer's patent ends in 2003 has already said it would sell the non-brand-name drug for a mere 40 cents a pill. Had the generic companies been allowed to sell the cheaper version, taxpayers might have saved $55 million in just the first installment of our government's Cipro deal.

Even more outrageous, though, is the fact that this shady manipulation of patent rights is rampant within the pharmaceutical industry. While the Bayer boondoggle came to light because of the national attention now focused on anthrax and Cipro, "it's almost inevitable that [a manufacturer of] a high-selling drug will engage in some form of abuse of its monopoly," says Thomas Sobol, one of the lead lawyers for PAL, which has filed suits over the inflated prices of six other prescription drugs in the past year.

Patents are supposed to reward scientific innovation. But the system that's meant to spur corporate creativity has instead stifled it. Sixty percent of the "new" drugs approved by the Food and Drug Administration in the 1990s were actually just new formulations or combinations of already existing ones, according to a recent report by the National Institute for Health Care Management. These "me, too" drugs allow companies to extend patents for a decade or more, while consumers continue to fork over brand-name prices that average three times generic ones.

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