• U.S.

DRUGS: The Double Image

6 minute read
TIME

To the public, the U.S. drug industry would like to appear as a dedicated, white-coated scientist skillfully brewing one wonder drug after another. But Tennessee’s Estes Kefauver, chairman of the Senate Antitrust Subcommittee, long has had ambitions to paint a different picture —of an industry that fixes prices too high. Last week, opening an investigation of drugmakers, the Keef got in his broad strokes as soon as nervous industry witnesses settled uncomfortably in their hot seats.

Dramatically Kefauver’s staff presented a chart showing that the Schering Corp. sold bottles containing 100 tablets of prednisolone, an antiarthritic drug, to druggists for $17.90, although the cost of buying the drug from another drug manufacturer and bottling it came to only $1.57. Was this markup of 1,118% fair? Kefauver asked.

Hidden Costs. Upset by the fast attack, Schering’s President Francis C. Brown hotly protested that Keef’s chart —and the Keef himself—were all wrong. Prednisolone, said Brown, is a Schering improvement on Merck & Co.’s basic cortisone, is marketed by Schering under the trade name Meticortelone. Schering cross-licensed other companies to make it and bought a lot of it from Upjohn Co., at $1.19 per hundred tablets. But this price, argued Brown, did not take into account the costs for research, administration, taxes, selling and distribution. By Schering’s figuring, said Brown, the 100 tablets cost $12.30. It offered the tablets to druggists at $17.90 with a suggested consumer’s price of $29.83.

If people think that wonder drugs, such as prednisolone, which enables bedridden arthritics to walk, cost too much, said Brown haughtily, the problem is “inadequate income rather than excessive prices.” In reply, the subcommittee staff brought out that Schering bought some hormone tablets at 12¢ per 60 from a French manufacturer, wholesaled them as “Progynon” for $8.40 with a consumer price of $14—a 7,079% markup.

In choosing Schering as his initial target, Senator Kefauver picked a good example of the high-profit potential of the drug industry. Set up in Bloomfield, N.J., in 1935 by Germans to make sex hormones, Schering had only $3,000,000 in annual sales when the Government confiscated the company in 1942, and put Francis Brown, then a young Government attorney, in charge. The Government sold the company for $29 million in 1952, and within five years its yearly net exceeded that. But success was not guaranteed. A year after the stock went on the market at $17.50, it dropped to $11 before the company developed a cortisone-type drug. Then it found two, prednisolone and prednisone. Today, counting splits, the stock is selling at $153.

Three Prices. The subcommittee needled the industry again when it produced Seymour N. Blackman, executive secretary of Premo Pharmaceutical Laboratories of South Hackensack, NJ. Blackman estimated that the U.S. public could save $750 million a year if physicians would use scientific instead of brand names in prescriptions. This year Premo sold the Government prednisone tablets at $20.01 per thousand, while Merck & Co. offered to supply them to the Government at $63.70 per thousand and sold them to druggists at $179, for a retail price of $298.

When the subcommittee asked Merck & Co.’s President John T. Connor for an explanation, he was well prepared. The big companies, said he have different selling costs for individual sales and bulk sales to Government, could not stay in business if they sold to everybody at the same price. Connor turned out to be such an expert witness that Kefauver complained : “Every time I ask you a question you start reading.” Replied Connor, who had 22 assistants with him and had spent six months getting ready to testify: “I thought I would do you the honor of coming well prepared, sir.” Asked why Merck’s prednisone retailed in London at $7.53 per 100 tablets v. $17.90 in the U.S., Connor said that it was cheaper to manufacture and sell drugs abroad.

Three Classes. Drug firms, said Connor, fall into three classes: 1) “creators”; 2) “molecule manipulators” who change basic drugs around but seldom score “home runs”; and 3) “coattail riders.” who do no research, wait for a market to develop, then jump in.

Illustrating the job of the creators, Connor said that his company spent 15 years trying to develop a cure for the rare (800 new cases a year) Addison’s disease. In the search it found out, in 1949, how to mass-produce cortisone, today used by millions, and with its derivatives the most broadly prescribed chemical compound for disorders from arthritis to asthma and hay fever. Instead of profiteering, Connor said, Merck cut the price from $200 to $20 a gram before it had a competitor, then licensed so many other manufacturers that last year it had but 17% of the cortisone group market. Not for seven years did Merck recover its $21.8 million investment. Present to support Connor was Dr. E. C. Kendall, formerly at the Mayo Foundation, now at Princeton, one of three researchers who won Nobel Prizes for cortisone. Said Scientist Kendall: “Cortisone could still be just a laboratory curiosity if those who directed Merck & Co. had not had the foresight and courage to persist in trying to make it after everyone else had abandoned the attempt.”

Too Many Pitchmen? One of the biggest reasons for the high cost of medicines is the growing army of salesmen. The major drug firms employ an estimated 20,000, or one for every ten physicians, and they make 18 million calls a year to get doctors to prescribe and druggists to stock their products. Is this necessary? No, said Dr. Louis Lasagna, head of clinical pharmacology at Johns Hopkins. Too many new drugs, he said, often are “not as good as what they replace.”

Upjohn’s Dr. E. Gifford Upjohn conceded that the race of drug companies to keep up causes his firm, in line with others, to spend 28.6% of its budget on 1,000 salesmen (out of 5,700 employees), plus other promotional activity. Research costs: 9%. Despite the high overhead, the companies are immensely profitable. The Kefauver subcommittee presented tables showing that the drug companies averaged profits of 21.4% of their net worth, compared with 11% for all U.S. industry. Part of the answer, said the subcommittee, was the pricing policy.

To Senator Kefauver the most puzzling question of all was this: Why did Upjohn charge the same price for prednisone and prednisolone as Schering, Merck and Pfizer? Dr. Upjohn replied that Schering brought out the drugs first and set the price. “It isn’t our policy to try to get higher prices for the same drug, and had we priced lower Schering would have met it, and we would have gained nothing.” Shot back Kefauver: “How about the patient who has to pay for these drugs?”

At week’s end Kefauver said Congress probably would have to tighten up antitrust legislation in the drug field. He did not question that the U.S. drug industry had brought improved health and life itself to millions, but he did question whether the costs have not been excessive. Suggested Connor: Whatever Congress undertakes to do, it would be wise to do it in such a way as not to upset the delicate “partnership we have developed over the years between the quest for scientific knowledge, on the one hand, and the drive for financial success on the other.”

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