There is really no precedent for the attacks on the pharmaceutical industry. Not the attacks on the industry's ethics and morality, which seem to be justified, but the attacks on profitability, which are unlike those applied to any other industry. It's hard to sympathize with a multibillion-dollar, multinational behemoth, but, the truth is, the drug companies are the Davids, and they're in a battle for survival.

Corporations have one essential goal: self-perpetuation. This goal applies whether the corporation is for profit or not-for-profit. A company that doesn't show a profit has to shut down. Pharmaceutical companies must, therefore, strive for profitability. At the same time, governments, recognizing the essential nature of drugs, want to assure that medicines are affordable. With this in mind, governments have tried a variety of techniques – but the techniques used to control drug prices are different from those used to manage other essential products.

First you have the government regulation. In a modern society, there are lots of services that are essential – electricity, running water, telephone service, transportation – and all are subject to some degree of price control. A common practice is the regulated monopoly, where the service is privately owned, but government regulators control rates so everyone can afford the service and the so company is assured a reasonable profit. Nationalization is a second method. Government simply buys the company at fair market value and then operates it as a public service, offering the service (e.g., public schools) at an affordable price. The third method is subsidies. The automobile industry is indirectly subsidized by government road-building programs, while air travel is subsidized by government-financed airports.

It's only when it comes to drugs, and the companies that make them, that governments assure affordability by a process of direct confrontation with the manufacturer. Meaning that only in drugs there's no guarantee of profitability. In each of the above examples, the investor is assured of a fair price – even if it's the price paid for the whole company. In most nations, healthcare is nationalized, so the market is controlled by a single buyer, a monopsony. There are many end-users, but they buy at government controlled prices. This situation gives the buyer tremendous leverage in setting prices, even in the poorest nations. Drug prices are set at what the buyer is prepared to pay, even if it falls below the actual cost of the drug, including the development costs. "Negotiated prices" becomes a euphemism for "take it or leave it." Drug companies will sell to underdeveloped nations as long as the offered price is above the direct costs of production and will attempt to make back development costs in richer markets.

In the same way that pharmaceutical companies must increase their profits in rich countries to compensate for losses in poorer nations, they must increase prices in countries with weak regulatory schemes to balance losses in countries with tighter price controls. Many developed nations work together to establish drug prices. According to the American Enterprise Institute for Public Policy Research, Canada's Patented Medicine Prices Review Board (PMPRB) links Canadian prices to those in Europe. "Each European nation has its own price control system, and there are lots of links among those systems. The Netherlands, for example, sets prices at the average price in Belgium, France, Germany, and the United Kingdom. Portugal demands the lowest price in France, Italy, or Spain. Greece wants the lowest price in Europe, period." Australia's Pharmaceutical Benefits Scheme (PBS) goes a step further, allowing prices to be set based on an evaluation of a drug's therapeutic value rather than its cost of development and production. The Australian Pharmaceutical Benefits Advisory Committee (PBAC) considers its efficacy, safety, and cost relative to other drugs already listed for the relevant clinical indication. If the new drug offers no clinical advantage, it may still be approved for sale but usually at the same or lower price than the recommended product.

To correct this imbalance, drug companies, like all businesses, practice cost shifting – raising the prices to one group to compensate for the discounts they're forced to give another. The most obvious example of cost shifting occurs in the United States, which is at once the richest market and the most fragmented. Although the United States has a large population, no buyer, not even the federal government, represents more than a small fraction of the total. The result is that even negotiated prices in the United States are higher than those in neighboring nations, and the prices charged to an individual purchaser represent an attempt to recoup money lost in discounting to every buying group, whether the buyer is a nation or hospital consortium. A 1998 report to the United States House of Representatives, requested by a Representative from Vermont, stated: "The study finds that the average prices that senior citizens in Vermont must pay are 81% higher than the average prices that Canadian consumers must pay and 112% higher than the average prices that Mexican consumers must pay."

But beyond price controls, the industry has been subject to other financial attacks as well. Generic substitution laws are designed to shorten the market life of products and have the paradoxical effect of driving prices up, at least for the short-term. These laws have been particularly popular in the United States because of the lack of countervailing power by the buyers. In nations that have national health systems, the NHS can negotiate lowered prices with the suppliers. In the United States, a common method of lowering prices is to insist that once a generic equivalent of a drug is available, it must be substituted for the branded product. In effect, the market life of a new drug is exactly equal to its patent life – the day the patent runs out, the business, by law, goes to another company. In Israel, generic manufacturers are allowed to develop generic equivalents even during the patent life of an innovative drug. Clearly, the originator of a drug has no choice but to try to wring out every cent of profit during the limited period of exclusivity. This means higher prices initially, which results in more consumer outrage.

Yet another complaint levied against the pharmaceutical manufacturers is that while they speak of the importance of research, they devote too much of their resources to quality-of-life drugs and too little to treatments that actually benefit health. This complaint is valid and still another example of how efforts to control costs have unintended effects. Quality-of-life drugs have cosmetic effects rather than health benefits and are frequently excluded from insurance or health-system reimbursement. Just as plastic surgeons can make more money on face lifts and tummy tucks than they can on burn reconstruction, drug companies find more profits in hair restoration products than they do in malaria treatments. In fact, one of the most important events in tropical medicine, an area of limited research because of the extreme poverty of many equatorial nations, was the discovery that eflornithine, a drug used to treat sleeping sickness, can reduce facial hair growth. Thus the sales of eflornithine cream (Vaniqua) will lower the costs of producing bulk eflornithine and make the drug form more affordable in extremely poor nations.

And according to a recent report in Drug Topics magazine, drug manufacturers are focusing their research efforts on me-too products, line extensions, or new indications for existing products. This too was predictable. Research into new areas is a high-risk investment, and while the companies boast of their research budgets, they have only limited inducement to do research in areas where their profits will be severely constrained.

Again, the multinational pharmaceutical manufacturers are not innocents – not good and deserving companies devoted to social advancement. Corporations, by their very nature, have no souls. The worst corporations are vampires, the best no better than robots. Many industries provide products and services that are essential to modern life in an interdependent society and none have a clear record of putting public responsibility before profits. But, generally, societies have managed to work with the industries through systems that assure reliable services alongside fair profits. Only the pharmaceutical industry has been placed in the position of direct confrontation through regulation, price controls, and diversion of established markets – and then been castigated for fighting back.