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Home > Programs & Publications > What’s Wrong With The Pharmaceutical Industry?



From The Truth About the Drug Companies:  How They Deceive Us And What To Do About It, by Marcia Angell, M.D.

The pharmaceutical industry is staggeringly profitable.  In 2002, top ten American drug companies in the Fortune 500 list had an average profit margin of 17% of sales—far above the returns of any other industry.  In fact, drug companies made over 5 times as much in profits as all the other companies on the list! 

These profits are the result of the fact that Americans pay higher prices for prescription drugs than anyone else in the world.  The United States is the only developed nation that does not regulate drug prices in some way.  So where does the $200 billion that Americans spend on drugs each year go? 

  • R & D?:  The drug companies claim that the high prices we pay are vital for funding the high research and development costs required to bring new drugs to the market.  But in 2002, only 14% of sales was spent on R & D.  A large portion of the research behind any new drug is done at publicly-funded institutions such as universities and the National Institutes of Health—meaning we’re already paying for it through taxes.  Furthermore, most of the business of drug companies is “me-too” drugs—minor variations of drugs already available, designed to bring in money, not advance the treatment of disease.
  • Marketing & Administration:  The pharmaceutical industry spends more than twice as much on marketing as they do on R & D—a whopping 35% of sales in 2001.  So what is the 30% markup we pay for marketing being spent on?  Free samples to get consumers hooked on the most expensive drugs; “gifts” to doctors (who, as the ones who write the prescriptions, are vital to a drug’s success); and direct-to-consumer advertising to convince people of their need, not only for medication, but for the newest, priciest variety.  And the money spent on administration includes the legal costs of manipulating patent rights, to eliminate—or at least postpone—cheaper, generic brand competition.  In other words, we’re paying extra to keep prices high.
  • Influence:  The huge amount of sway that the pharmaceutical industry holds in Congress and throughout government is no coincidence.  The industry spends over $90 million a year on lobbying, and maintains many well-placed connections.  Additionally, during the 1999-2000 election cycle, drug companies gave some $85 million in direct campaign contributions and “soft” money.  Why is there so much protective legislation surrounding the most profitable industry in the country?  It’s a result of the “death grip” that the pharmaceutical industry holds on Congress.

High drug prices are bad for everyone.  Ironically, the people who can least afford them—those without insurance—pay the highest prices, since they have no bargaining power.  Already there is the beginning of a backlash, particularly at the state and local level, as drug costs for public-sector employees and Medicaid recipients eat ever-larger portions of budgets.  One Massachusetts city attempted to control costs by sanctioning the (currently illegal) re-importation of price-regulated drugs from Canada.  Another attempted solution is Maine’s “Maine Rx” law, which empowered the state to bargain with drug companies, and cap prices if they did not come down sufficiently.

Clearly, the pharmaceutical industry is in need of a radical makeover.  But there are several things you can do help ensure that these changes get made. 

  • Be an informed consumer.  When prescribed a new drug, find out whether it’s really an improvement over alternative courses of treatment, and make sure your information is not coming from the drug companies or anyone on their payroll.  Find out if your doctor has any financial ties with the drug companies; if so, consider finding a new doctor.  Ignore direct-to-consumer advertisements for prescription drugs.
  • Pressure Congress for change.  Ask your senators and representatives if they receive contributions from the pharmaceutical industry, and if so, how much.  It’s time to put a stop to the industry’s interests taking precedence over yours.


Source: Angell, Marcia, The Truth About Drug Companies:  How They Deceive Us and What To Do About It, Random House, 2004. Prepared by Meg Whedbee
DPE Research Department

     Contact:    Pamela Wilson,










Text Box: The Department for Professional Employees, AFL-CIO (DPE) comprises 22 AFL-CIO unions representing over four million people working in professional, technical and administrative support occupations.  DPE-affiliated unions represent:   teachers, college professors, librarians and school administrators; nurses, doctors and other health care professionals, engineers, scientists and IT workers; journalists and writers, broadcast technicians and communications specialists; performing and visual artists; professional athletes; professional firefighters; psychologists, social workers and many others.  DPE was chartered by the AFL-CIO in 1977 in recognition of the rapidly-growing professional and technical occupations.










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