In response to my last Sent Items entry, I received email suggesting that I may not have read towards the end of the article citing Dr. Marcia Angell, former Editor-in-Chief of The New England Journal of Medicine, and that in a dispute between her views and mine, my emailer would have to side with her.
So, I reply:
Angell is a doctor, and now, a writer. She actually did good work when she wrote a book exposing what a complete and utter fraud the breast-implant fiasco was, from soup to nuts. It was about nothing other than putting a few billion into the pockets of trial lawyers, á la John Edwards. That book was: Science on Trial: The Clash of Medical Evidence and the Law in the Breast Implant Case. There, Dr. Angell was in her element, arguing about what she’s knowledgeable about–science and the immutable logical process we undergo to determine scientific truth (to which medicine pertains). Juries don’t decide scientific truth, and she was perfectly suited to make this claim.
Now she’s on my turf, business and economics, and it’s clear she’s out of her element.
You’re welcome to bank on anything you like, but if money or economic truth is at stake, I’d suggest going on more than what’s included in the article, which is:
The drug companies have an incredible racket going, as Marcia Angell, the former editor in chief of The New England Journal of Medicine, documents in her book "The Truth About the Drug Companies."
"Now primarily a marketing machine to sell drugs of dubious benefit," she wrote, "this industry uses its wealth and power to co-opt every institution that might stand in its way, including the U.S. Congress, the Food and Drug Administration, academic medical centers, and the medical profession itself. (Most of its marketing efforts are focused on influencing doctors, since they must write the prescriptions.)"
She was more explicative in her book, The Truth About the Drug
Companies: How They Deceive Us and What to Do About It. First off, I’m immediately skeptical of any book with "the truth about" in its title. It’s a cheap ploy, designed to engender prejudice and conclusions right off the bat. If she can make the case, then the appropriate venue is the last sentence of the book: "and now you know the truth about…"
Let’s get to the heart of the matter. Here’s an excerpt from an [supportive] editorial review of her book at Amazon:
In The Truth About the Drug Companies, Angell explains how a huge portion of the revenue generated by "Big Pharma" goes not into research and development but into aggressive marketing campaigns to sell their product. She describes how, even though the drug companies claim that it costs them an average of 802 million dollars per drug to develop new medicines, that figure is obscenely inflated since it factors in marketing as well as expected interest the company would have received had they invested the money in the open market. "Meanwhile," Angell says, "most of the R & D work is done by colleges and universities funded by the government."
Well, as any first-year economics or business student should be able to tell you, marketing costs are part of the costs, and so are opportunity costs (what you’re giving up by not doing something else with the money). You don’t even begin making a profit until all direct costs, including marketing, which is necessary to SELL the stuff you’ve developed, has been covered in full. And, you don’t have an optimal investment until your profits exceeded opportunity costs. And, if they don’t, then investment capital generally goes to whatever the optimal investment is, and lots of good drugs might not get developed. This is one reason the Soviet Union didn’t develop many worthwhile drugs, for instance. This is basic, basic stuff, yet Dr. Angell (not CEO or economist Angell), thinks otherwise. Big deal.
I could go on. However, here are two reviews from people who read the book and actually know what they’re talking about (in business and economics):
Overkill of the uninformed, January 11, 2005
Reviewer: John Wehrli "raptorduck" (San Jose, CA USA)
I generally applaud critical works that bring out questionable practices of particular industries and help keep them honest in the process. But while this book does some of that it falls far short of being credible. It is filled with economic ignorance often making the reader think that the pharmaceutical industry is supposed to be a non-profit organization. To suggest that most of the "research" happens in academia is an insult to the reader, who the author seems to presume has nothing more than a high school science education. Early basic research happens in our great universities, but the research necessary to take that discovery of a target or early stage molecule is but a fraction of that needed to bring a drug to market. I would like to see the research grant to a college professor giving him $100 million from the NIH to run a Phase III clinical trial. Or even taking things back to basic research, show me the university tech transfer office that will fit the bill for sufficient patent filings to go to market, support development research to commencement of clinical trials even.
What could have been an eyeopening view to clear suspect practices, such as "some" marketing activities, was written with such poor understanding of basic economics and understanding of "for profit" financial theory, and further misleading and uninformed diatribe regarding research, that the entire message is completely suspect and rings of an overkill Moore movie.
Failing Angell, December 30, 2004
Reviewer: L. D. Gasman (Charlottesville, VA United States)
Unlike some of the other critical reviewers I enjoyed the polemic. It made the book more fun to read.
But Ms. Angell is an economic illiterate.
Her basic argument is that (1) the drug companies are very profitable and (2) they would consequently not be hurt by a dose of government price controls, but such controls would benefit the consumer.
(1) is misleading. According to Fortune’s "Fortune 500" issue the pharmaceutical industry did well in 2003 in terms of some measures of profitablity, but its performance was less than spectacular when "total return to shareholders" (TRTS) is considered. In 2003 it ranked #43 out of 46 industries considered. Over a five year period it ranked #38 on a TRTS basis and over a 10-year period it ranked #12.
This suggests that over the last decade the pharmaceutical industry has become a less profitable investment (when capital gains and dividends are taken into consideration), compared to other economic sectors. One reason for this is that there seem to be fewer blockbuster drugs around, a trend that lots of people expect to continue.
Price controls á la Angell would mean even lower profits and less investment in pharma, unless the industry itself invested less in R&D (which would make new drug discovery even less likely) or in marketing/admin costs. This second option would make Ms. Angell a happy camper apparently because she believes that marketing is a waste of money. She never quite says why, although many of her opinions seem to of the knee-jerk anti-business variety. Her incipient (or do I mean insipid) socialism is all too apparent in her whining about how people just wanted to do good before President Reagan came into office.
I await Ms. Angell’s next book on how to sell drugs without marketing with baited breath. Actually, she writes nicely and could could have written a pleasant little introduction to the pharma industry, but it wouldn’t have sold as well as I’m sure this one is. (I’m sure all those good folks in blue states are lapping her words up.)
So on second thoughts maybe her next book should be "The Truth about Publishers."