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Partly because of extraordinarily generous tax breaks but mostly because of high prices guaranteed by Congress, the U.S. pharmaceutical industry, year in and year out, ranks as the country's richest. Pfizer, which for 2002 reported profits of $9.1 billion on revenue of $32.4 billion, earned a return on revenue of 28%, a rate more than twice that of General Electric, nine times that of Wal-Mart and 31 times that of General Motors. To be sure, the pharmaceutical industry insists it needs the higher prices to pay its hefty research and development tab. (The industry spends tens of millions on marketing and advertising as well but does not make an issue of that.) An academic study in 2001, partly funded by the drug industry, estimated that it costs an average of $802 million to bring a single new drug to market, though that number is disputed by consumer advocates. Says Alan F. Holmer, president of PhRMA: "Developing new medicines requires cutting-edge science, enormous investment of time and money, and willingness to commit those resources in the face of expensive failure after failure. None of this is compatible with price controls." But no one really knows how the money is spent. Indeed, the industry has refused to open its books to government auditors and once waged a nine-year legal battle with the General Accounting Office (GAO), Congress's investigative arm, to keep the information secret. Congress could subpoena the information but has refused to do so, in no small part because of the power of the pharmaceutical industry lobby.
While the industry is quick to claim how much it must spend to come up with new drugs, it is slow to acknowledge the contributions of the Federal Government and American taxpayers. Universities, foundations, researchers and congressional committees have concluded for years that many major drugs owe their origins to research funded by the National Institutes of Health (NIH), the National Cancer Institute and other public agencies. A report by the Joint Economic Committee of Congress in 2000, then headed by Republican Senator Connie Mack of Florida, summed it up: "The Federal Government, mainly through the NIH, funds about 36% of all U.S. medical research ... Of the 21 most important drugs introduced between 1965 and 1992, 15 were developed using knowledge and techniques from federally funded research." A GAO report last year on Taxol, which had worldwide sales of $6.2 billion from 1998 to 2002, noted, "Through a collaboration with NIH, [Bristol-Myers Squibb] benefitted from substantial investments in research conducted or funded by NIH." The collaboration "provided the company with research results that enabled [Taxol] to be quickly commercialized ..."
WASHINGTON AND THE STATES: GOING SEPARATE WAYS