The Global Pharmaceutical Industry: The Demise and the Path to Recovery 9780367485511, 9781003053781

Table of contents :
Cover
Half Title
Series Page
Title Page
Copyright Page
Dedication
Contents
Acknowledgments
Preface
1 How Family Businesses Answering Public Needs Became a Master Servant to Wall Street
The Wolf at Pharma's Door
The Evolution of Pharma's Role and Public Image
Three Reasons Why the Public Despises Pharma, Aside From Exorbitant Prices
Factor 1: Protection From the Market
Factor 2: Consumer Sticker Shock Recurs Monthly and Is Growing
Factor 3: Pharma's Violations and Dirty Tricks
Chapter Summary
Notes
2 Pharma's Violations and Dirty Tricks
Off-label Marketing
Fraudulent Pricing Manipulation
Bribing Prescribers
Bribing Clinical Researchers and Key Opinion Leaders
Subverting Medical Journals
Buying the Favor of Specialty Society Committee Members That Write Prescribing Guidelines
Paying Patient Advocacy Groups to Act as Shills
Capturing Regulators
Pushing Opioids
Chapter Summary
Notes
3 The Economics of the Pharmaceutical Industry
Government Protection of the Pharmaceutical Industry
Market Protection Under Patent Laws
Importation Laws
Limited Medicare and Medicaid Coverage of Prescription Drugs
Medicare and Medicaid Pricing Formulas
Tax Benefits
Pharma's Extraordinary Profitability
Pharma—An Oligopoly That Defies Markets
Debunking the High Fixed-cost Model as an Excuse for High Prices
The Difficulties of Obtaining Reliable Costs of Pharma R&D
Exaggerated Development Risks
Inflated Times to Develop New Products
Pharma's Defense of its Protected Status
Loosening Government Regulation
. . . And Yet, Pharma Still Threatens That Affordable Prices Would End Innovation
Threats About Declining Profits Choking R&D Are Illogical and Contrary to Behavior in Other Research Sectors
Chapter Summary
Notes
4 A Somnolent Public Awakens
State and Local Pressures in the U.S.
Drug Price Control Actions in Europe
Price Control in Japan
Growing Resistance to Pharma Pricing in Emerging Nations
Chapter Summary
Notes
5 The Path Toward Reform
Use Public Money to Establish a Few Publicly Owned Pharma Companies
Start With Reference Pricing, but Recognize Its Serious Limitations
Use Health Technology Assessments (HTAs) to Calculate Incremental Value and Clinical Benefit as a Basis for Price Negotiations
Require Governments to Use Volume Purchasing Power
Have Regulatory Agencies Such as the FDA Prevent Evergreening When They Approve New Drugs
Institute and Enforce Criminal Penalties to Ensure the Transparency of Clinical Trials
Establish a Sarbanes-Oxley Analog to Prevent Off-label Marketing and Price Report Cheating
Ban Gifts and Payments to Practicing Physicians
Prevent Clinical Investigators From Publishing Their Results or Giving Presentations About Them for Five Years
The Role of Business Intelligence (BI)
To Adequately Address Public Perceptions of Pharma and Consequent Government Actions, the Industry Must Substantially Reconfigure the Fundamental Nature of Its Business Model and the Way It Defines Its Role in Society
How BI Can Help Pharma to Improve its Public Image and Mitigate Government Intrusion
Chapter Summary
Notes
Afterword
Glossary
Index

Citation preview

THE GLOBAL PHARMACEUTICAL INDUSTRY

Routledge Advances in Management and Business Studies

THE GLOBAL PHARMACEUTICAL INDUSTRY

Daniel Hoffman and Allan Bowditch

THE DEMISE AND THE PATH TO RECOVERY Daniel Hoffman and Allan Bowditch

www.routledge.com

Routledge titles are available as eBook editions in a range of digital formats

9780367485511_HPK_Full Cover.indd 1

06-06-2020 11:54:57

The Global Pharmaceutical Industry

The global pharmaceuticals market generated $934.8 billion revenue in 2017 and forecasters predict 5.8% annual growth for the sector through 2021. In the U.S. alone, national health expenditures on medications are forecast to reach $605 billion in 2026; the pharma audit and data analytics supplier IQVIA predicts global spending on drugs is set to grow at a 3–5% Compound Annual Growth Rate from 2018E-’22E. While the fnancial outlook for the pharmaceutical industry may appear rosy as the 21st century heads into its third decade, a number of ominous warning signs are close at hand. The existence of exorbitant drug costs causes major distortions in the entire U.S. economy and social structure. The Organization for Economic Cooperation and Development (OECD) found that the middle class in the U.S. is shrinking primarily because of the disproportionately increasing costs for health care, education and housing. The economic burdens associated with these three factors mean that middle-income households face a considerable risk of sliding down into the lower-income class. Medications, although a smaller portion of the total health care bill than provider costs, constitute the fastest-growing part of the U.S.’s health care budget. As a line item, drug costs represent almost 20% of employers’ health insurance beneft costs. The pharmaceutical industry plays a hugely important role in the health care system and economy, and this book offers greater understanding of the strategies used by drug makers to charge high prices and boost prescriptions to generate profts demanded by Wall Street. It will be of interest to researchers, academics, practitioners and students with an interest in the pharmaceutical industry, strategy, health care management, regulation and bioethics. Daniel Hoffman is the president of Pharmaceutical Business Research Associates (PBRA), USA. Allan Bowditch is the former CEO of Martin Hamblin Healthcare and a consultant to the pharmaceutical industry.

Routledge Advances in Management and Business Studies

Diversity and Entrepreneurship Edited by Vanessa Ratten and Leo-Paul Dana Improving Competitiveness through Human Resources Development in China The Role of Vocational Education Min Min and Ying Zhu Collaborative Research in the United States Policies and Institutions for Cooperation among Firms Albert N. Link Green Human Resource Management in Chinese Enterprises Jie Shen, Jenny Dumont and Xin Deng Developing the Workforce in an Emerging Economy The Case of Indonesia Edited by Kantha Dayaram, Linda Lambey, John Burgess and Tri Wulida Afrianty Cross-Cultural Leadership Being Effective in an Era of Globalization, Digital Transformation and Disruptive Innovation Ahmad Muhamad Salih The Global Pharmaceutical Industry The Demise and the Path to Recovery Daniel Hoffman and Allan Bowditch For more information about this series, please visit www.routledge.com/ Routledge-Advances-in-Management-and-Business-Studies/book-series/ SE0305

The Global Pharmaceutical Industry The Demise and the Path to Recovery Daniel Hoffman and Allan Bowditch

First published 2021 by Routledge 52 Vanderbilt Avenue, New York, NY 10017 and by Routledge 2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN Routledge is an imprint of the Taylor & Francis Group, an informa business © 2021 Taylor & Francis The right of Daniel Hoffman and Allan Bowditch to be identifed as authors of this work has been asserted by them in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identifcation and explanation without intent to infringe. Library of Congress Cataloging-in-Publication Data Names: Hoffman, Daniel R., author. | Bowditch, Allan, author. Title: The global pharmaceutical industry : the demise and the path to recovery / Daniel Hoffman and Allan Bowditch. Description: New York, NY : Routledge, 2021. | Series: Routledge advances in management and business studies | Includes bibliographical references and index. Identifers: LCCN 2020012903 (print) | LCCN 2020012904 (ebook) | ISBN 9780367485511 (hardback) | ISBN 9781003053781 (ebook) Subjects: LCSH: Pharmaceutical industry. | Drugs—Prices. | Medical care, Cost of. Classifcation: LCC HD9665.5 .H64 2021 (print) | LCC HD9665.5 (ebook) | DDC 338.4/76151—dc23 LC record available at https://lccn.loc.gov/2020012903 LC ebook record available at https://lccn.loc.gov/2020012904 ISBN: 978-0-367-48551-1 (hbk) ISBN: 978-1-003-05378-1 (ebk) Typeset in Sabon by Apex CoVantage, LLC

Dedications

Daniel Hoffman To Kathy, Lee, Bonnie, Charles and Samantha for their encouragement, love and all-around attaboys. To Joan Tlush, Don Light, Bill Albrecht, Les Hirsch, Ed Silverman and Whiton Paine whose key questions and suggestions helped me better understand the pharmaceutical industry, as well as the political, economic and historical contexts in which it operates. Allan Bowditch To my wife, Gillian, for her tolerance and love. To Stephen and Alison for their support. For Derek Martin, former Chairman of Martin Hamblin Research, your encouragement and guidance meant such a lot to me, and without ever a cross word between us in 30 years of working together. To my co-workers at Martin Hamblin Research, my clients and colleagues within the health care business, thank you for your long term support and trust.

Contents

1

Acknowledgments Preface

x xi

How Family Businesses Answering Public Needs Became a Master Servant to Wall Street

1

The Wolf at Pharma’s Door 1 The Evolution of Pharma’s Role and Public Image 4 Three Reasons Why the Public Despises Pharma, Aside From Exorbitant Prices 7 Factor 1: Protection From the Market 7 Factor 2: Consumer Sticker Shock Recurs Monthly and Is Growing 8 Factor 3: Pharma’s Violations and Dirty Tricks 9 Chapter Summary 13 Notes 14 2

Pharma’s Violations and Dirty Tricks Off-label Marketing 19 Fraudulent Pricing Manipulation 23 Bribing Prescribers 26 Bribing Clinical Researchers and Key Opinion Leaders 30 Subverting Medical Journals 33 Buying the Favor of Specialty Society Committee Members That Write Prescribing Guidelines 35 Paying Patient Advocacy Groups to Act as Shills 36 Capturing Regulators 38

18

viii

Contents Pushing Opioids 40 Chapter Summary 41 Notes 44

3

The Economics of the Pharmaceutical Industry

50

Government Protection of the Pharmaceutical Industry 51 Market Protection Under Patent Laws 51 Importation Laws 52 Limited Medicare and Medicaid Coverage of Prescription Drugs 52 Medicare and Medicaid Pricing Formulas 53 Tax Benefts 54 Pharma’s Extraordinary Proftability 54 Pharma—An Oligopoly That Defes Markets 55 Debunking the High Fixed-cost Model as an Excuse for High Prices 55 The Diffculties of Obtaining Reliable Costs of Pharma R&D 56 Exaggerated Development Risks 58 Infated Times to Develop New Products 58 Pharma’s Defense of its Protected Status 59 Loosening Government Regulation 59 . . . And Yet, Pharma Still Threatens That Affordable Prices Would End Innovation 60 Threats About Declining Profts Choking R&D Are Illogical and Contrary to Behavior in Other Research Sectors 60 Chapter Summary 62 Notes 63 4

A Somnolent Public Awakens State and Local Pressures in the U.S. 69 Drug Price Control Actions in Europe 71 Price Control in Japan 74 Growing Resistance to Pharma Pricing in Emerging Nations 76 Chapter Summary 78 Notes 79

67

Contents 5

The Path Toward Reform Use Public Money to Establish a Few Publicly Owned Pharma Companies 83 Start With Reference Pricing, but Recognize Its Serious Limitations 85 Use Health Technology Assessments (HTAs) to Calculate Incremental Value and Clinical Beneft as a Basis for Price Negotiations 85 Require Governments to Use Volume Purchasing Power 86 Have Regulatory Agencies Such as the FDA Prevent Evergreening When They Approve New Drugs 87 Institute and Enforce Criminal Penalties to Ensure the Transparency of Clinical Trials 88 Establish a Sarbanes-Oxley Analog to Prevent Off-label Marketing and Price Report Cheating 88 Ban Gifts and Payments to Practicing Physicians 89 Prevent Clinical Investigators From Publishing Their Results or Giving Presentations About Them for Five Years 90 The Role of Business Intelligence (BI) 91 To Adequately Address Public Perceptions of Pharma and Consequent Government Actions, the Industry Must Substantially Reconfgure the Fundamental Nature of Its Business Model and the Way It Defnes Its Role in Society 92 How BI Can Help Pharma to Improve its Public Image and Mitigate Government Intrusion 93 Chapter Summary 101 Notes 103 Afterword Glossary Index

ix 83

105 114 116

Acknowledgments

The authors are grateful to Public Citizen and the following authors, Almashat S, Preston C, Waterman T, Wolfe S and Public Citizen’s Health Research Group, for agreeing to the reprint of Table 2.1 in Chapter 2. This was featured in the report titled “Rapidly Increasing Criminal and Civil Monetary Penalties Against the Pharmaceutical Industry: 1991 to 2010,” December 16, 2010. The authors appreciate the permission from Prof. Michael Carrier and Prof. Genevieve Tung, Rutgers Law School, for their kindness in allowing publication of Table 3.1 in Chapter 3. This was compiled from the information in the article “The Industry That Cries Wolf: Pharma and Innovation,” Stat News, September 26, 2019.

Preface

Since the end of World War II, there have been scores of studies and reports written about the infractions that pharma companies commit as an ongoing part of their business. In preparing this monograph, the authors are indebted to the many individuals who have addressed these issues. The litany of pharma’s infractions and unethical behavior includes promoting over-prescribing, making gifts and payments to physicians that infuence their prescribing behavior, publishing less than objective clinical fndings, promoting drugs “off-label,” subverting the channels of scientifc and medical communication, providing fnancial inducements to patient advocacy groups that sway their policy positions, and, perhaps worst of all, defrauding Medicaid. Until now, little has been done to compile the breadth and depth of these fraudulent activities in a single document. Although each of the authors has worked within the pharmaceutical industry for more than 35 years, pharma’s disregard for patients and the law still shocks and dismays us. Its routine pattern of doing business involves “gouging” consumers, taxpayers and numerous levels of government. Overcharging for drugs discounted under the 340B Drug Pricing Program is against the law, as are some of the other infractions mentioned. This monograph combines a balanced review of these deviations and others, supported by factual proof of their prevalence. Importantly, the monograph provides a serious perspective on what actions need to be undertaken if pharma’s descent into a quasi-criminal enterprise is to be remedied. Can the industry be trusted to put its house in order or will it require the intervention of other governing bodies? We invite you to consider the perspective of the authors on this vitally important issue.

1

How Family Businesses Answering Public Needs Became a Master Servant to Wall Street

The Wolf at Pharma’s Door There is a specter haunting the pharmaceutical industry. No, it’s not the “old mole” of revolution, the bugbear of Victorian capitalism. Rather it is the dread that haunts today’s neoliberalism—more regulation and price controls, even in the U.S.—bringing in its wake depressed stock prices. One may object and point out that pharma’s fnancial outlook appears as rosy as ever. Indeed, the global pharmaceuticals market generated $934.8 billion revenue in 2017 and some forecasters predict 5.8% annual growth for the sector through 2021.1 In the U.S. alone, national health expenditures on medications are forecast to reach $605 billion in 2026; the pharma audit and data analytics supplier IQVIA predicts global spending on drugs is set to grow at a 3–5% Compound Annual Growth Rate from 2018E-’22E.2 Although the fnancial outlook for the pharmaceutical industry may appear rosy as the 21st century heads into its third decade, a number of ominous warning signs are close at hand. The industry’s global market growth has been trending down. Its current pace of growth is well below the historical fve-year average. Ongoing cost containment measures from both public and private payers, combined with increasing global competition for investment and improved R&D return, have and will continue to weigh heavily on pharma’s operations. Misgivings about pharma’s future are refected in the current price/ earnings ratios of its Big Cap companies. Currently they stand at a discount to both the Standard & Poor’s average and to pharma’s own tenyear average. The reason is that a forward P/E multiple is correlated with long-term, net income growth projections and a major storm cloud looms over pharma’s prospects for revenue growth. Starting anytime within the next fve years, pharma may embark upon a sustained period of minimal growth because approximately 70% of the industry’s operating margins derive

2

Family Businesses Answering Public Needs

from the U.S. and, in one form or another, the U.S. will likely adopt some type of price control that promises to precipitously curtail those margins. Reasons for the inevitability of U.S. control over drug prices are not diffcult to discern. A recent study by Johns Hopkins University3 found that U.S. prescription brand drugs are the most expensive in world. On average, branded prescriptions before rebates cost 4.3 times more in the U.S. than in the U.K., 3.8 times higher than in Japan and 3.4 times higher than in Canada. Even after rebates, people in the U.S. paid 3.6 times more than those in the U.K. and 3.2 times more than those in Japan. Moreover, the longer brands remain on the U.S. market, the more expensive they are in comparison to other countries. Except for the U.S., governments of the European nations, the BRIC (Brazil, Russia, India and China) countries and elsewhere have become involved in differing ways to constrain pharma’s pricing. The existence of exorbitant drug costs causes major distortions in the entire U.S. economy and social structure. The Organization for Economic Cooperation and Development (OECD) found that the middle class in the U.S. is shrinking primarily because of the disproportionately increasing costs for health care, education and housing.4 The economic burdens associated with these three factors mean that, “many middle-income households face a considerable risk of sliding down into the lower-income class,” according to the OECD. And medications, although a smaller portion of the total health care bill than provider costs, constitute the fastest-growing part of the U.S. health care budget.5 As a line item, drug costs represent almost 20% of employers’ health insurance beneft costs.6 Some U.S. citizens and their elected representatives have been complaining for decades about the high cost of medications in the U.S., and nothing substantial has occurred to restrain regular price increases at double or triple the rates of cost-of-living growth. One might reasonably ask, why things would be different now? The answer is that the situation in the U.S. is ripe for enacting some form of price control on medications because in an increasingly polarized political environment, the growing disdain for the pharmaceutical industry and a shared commitment to making drugs more affordable constitute one of the few areas of agreement between the major parties. As an example, the Big Cap pharma analyst for investment bank Morgan Stanley, David Risinger, recently made the following point in a report to clients.7 Historical Republican support of Pharma-Bio is waning and, in some cases, fipping! Republicans’ broad-based support of the industry appears to be diminishing, and some Republicans are issuing unexpected proposals. An example is that Senator Rick Scott (R-Fla.) proposed a bill which included having Americans pay no more for drugs than other industrialized nations including the UK, Canada, and Germany.

Family Businesses Answering Public Needs

3

In the U.S. Congress, lawmakers have submitted more than 40 bills to control drug prices and President Donald Trump also foated his own emergent plan to achieve the same goal. In 2018, 39 states passed 94 laws targeting pricing and costs. Both Democrats and Republicans, including the White House, have bills to peg American prices to those in Japan and Europe. Pharma’s public image in the U.S. goes beyond the perception that its products are increasingly unaffordable. The pharmaceutical industry today is reviled throughout the world by people who see it accumulating extraordinary profts at the expense of public well-being. In the U.S., for example, a September 2019 Gallup Poll8 found that only 27% of the public has a positive view of the industry, while 58% hold a negative view. That result showed the lowest public image of any business sector Gallup polled, lower than the federal government, the advertising industry, lawyers and airlines. As the political journal The Hill noted,9 “The public’s favorability toward the pharmaceutical industry is at its lowest point since Gallup began polling the question in 2001.” Gallup’s traditional rival in public polling, the Harris Poll,10 found that only 9% of U.S. consumers believe pharma and biotechnology put patients over profts. Even in the U.S., with its historical tradition of supporting private property, 80% of the public supports breaking patent monopolies11 to reduce drug prices. The U.S. public is so exasperated at the prospect of the proft-seeking pharmaceutical industry adequately addressing public health and well-being that two-thirds of them support socializing pharma12 by making prescription drugs public goods, paid for by the federal government. Public views of pharma in Europe and elsewhere in the world are no more favorable than those in the U.S. Europeans despise pharma as much as Americans, even though their drug prices are less than one-third of those in the U.S. That is because countries across the continent maintain nationalized drug purchasing systems, meaning that people pay for drugs through their taxes. Whenever taxes go up, politicians are quick to point out that higher drug prices play a role in the increases. In May 2019, the Corporate Europe Observatory published a report,13 “High Prices, Poor Access: What is Big Pharma Fighting for in Brussels?” which stated: In response to a crisis of high prices, lack of access, and too few new medicines that represent real therapeutic advances, the appetite for radical change remains high. We urge the incoming European Parliament and Commission to ensure that medicines policy is protected from the undue infuence of Big Pharma. Narrow commercial interests should not undermine public health priorities and the industry’s fear-mongering must not narrow the scope for transformative change.

4

Family Businesses Answering Public Needs

Public esteem of pharma is no higher in the developing world. In late 2018, the Access to Medicine Foundation, an independent nonproft organization, funded by the U.K. and Dutch governments and the Bill & Melinda Gates Foundation, found14 that the world’s biggest pharmaceutical frms have yet to develop two-thirds of the 139 treatments urgently needed in developing countries. The foundation monitors 20 major pharma companies and the availability of their medicines in low to middle income countries. It determined that 91 of 139 urgently needed drugs, vaccines, diagnostic tests or devices identifed by the WHO have not been developed, while efforts are not even underway on 16 top-priority diseases. Worldwide, two billion people cannot get needed medications, and, as the U.K.’s The Guardian summarized,15 “millions in low and middle income countries . . . [die] each year from diseases because the vaccines [and] medicines . . . they need are either ineffective or completely lacking.” The world did not always see the pharmaceutical industry the way some recent critics describe it: a greed-driven, amoral cabal, deriving unconscionable profts from the world’s most vulnerable populations of the sick, the aged and the poor.16 In the years shortly after World War II, a string of notable advances helped pharma acquire the public image of scientifc pioneers who were rapidly improving the quality and length of lives everywhere. The worldwide availability of penicillin and other antibiotics suggested the eventual eradication of infectious diseases, including the pervasive scourge of tuberculosis. By the mid-1950s, a vaccine was developed to prevent poliomyelitis, an illness that paralyzed hundreds of thousands of children every year. In the process the pharmaceutical industry piggybacked on the noble image of Dr. Jonas Salk, the vaccine’s inventor, when he responded17 in 1955 to a question from TV journalist Edward R. Murrow about who should own the polio vaccine. Salk said, “Well, the people, I would say. There is no patent, could you patent the sun?”

The Evolution of Pharma’s Role and Public Image The preceding discussion naturally raises the question of how pharma’s image devolved from one of public-minded researchers, not primarily motivated by money, into a version of predatory exploiters that reap exorbitant profts by devouring their customers? To answer that question, it would be instructive to consider how pharmaceutical companies got their start. For the most part, pharmaceutical companies began in the U.S. and Europe during the second half of the 19th century and the early years of the 20th. The founders were physicians, chemists and pharmacists. These early pharma companies were small, family businesses, similar in

Family Businesses Answering Public Needs

5

many respects to the hardware stores, beverage companies and automobile makers that began during the same era. The founders of such enterprises were all avid proft seekers who sought to grow their companies in a largely unregulated economy. Many such entrepreneurs regularly sought to kick the livers out of competitors and exert dictatorial control over their suppliers and distributors. The prototypes and exemplars of the breed were John D. Rockefeller and Henry Ford. Then how did pharma evolve from its early 20th-century situation, when it was an industry led by buccaneering founders, into something from the 1950s through the 1970s, which the public considered as an industry of socially responsible, scientifc innovators? The short description of what drove this change in the U.S. consists of two men: Teddy Roosevelt in the early 20th century and his distant cousin, Franklin Roosevelt, who was the U.S. president from 1933 to 1945. These two U.S. presidents changed the country’s political economy from a “damn the public” social Darwinism of the Victorian era that exploited workers and immiserated millions. The federal government came to assume, under their aegis, the role of providing a minimal social safety net and establishing guardrails against unfettered abuse by giant corporations. During its 30 golden years following the end of World War II, pharma made substantial advancements to increasing longevity and improving the quality of life. These contributions include the development of antibiotics that were considered “miracle drugs” during the 1940s and 1950s for beating back the ravages of infectious diseases. For 20 years, starting in the early 1980s, the industry made available an array of antihypertensives and cholesterol lowering medications that tremendously reduced the mortality and morbidity of heart disease. Similar contributions continue to this day, with medications that halt hepatitis-C and other therapies that open gateways to ending the scourges of various cancers. The bitter irony of this history is that instead of allowing these advancements to serve as pharma’s calling card, the industry has instead waged war on its customers by price-gouging consumers and taxpayers, over-medicating consumers in the advanced countries and making life-saving medications unaffordable to millions around the world. By the 1950s, the second and third generations of pharma’s founding families adopted the approach of what sociologist C. Wright Mills (The Power Elite, 1956) called “pragmatic conservatives,” meaning they accepted the major tenets of the New Deal and its European counterparts. While these descendants may have ferociously disputed the detail and degree of the regulatory environment and the social safety net, they nevertheless accepted the general proposition that sustainable wages and living conditions for their employees, together with a dollop of community responsibility, insured social peace and provided a growing middle

6

Family Businesses Answering Public Needs

class with the income to buy the products and services those workers created. Furthermore, wages from the 1950s through the 1970s kept pace with cost of living increases in the rapidly growing American and European economies. This meant that out-of-pocket costs for medications to consumers and taxpayers were not so onerous as to force choices between rent, food and prescription drugs. During the decades following the 1970s, however, the founding families sold their controlling interests in most of these major pharma companies to institutional buyers. As a result, those descendants of the founders who sought to balance the interests of shareholders, employees, customers and the broader public were replaced by professional managers reporting to directors. Those directors represent exclusively the interests of shareholders seeking short-term appreciation and dividends. This focus on the interests of shareholders as the exclusive concern of corporate managers and directors represents the implementation of the Chicago School of economics18. The increasing unaffordability of medications is only a small part of a movement among the advanced nations toward highly stratifed societies marked by growing disparities of income and wealth, a shrinking middle class and a de-industrialization that has desolated entire towns and regions. A trenchant description of this process was written by the French economist Thomas Piketty in his best-selling book, Capital in the Twenty-First Century (2013).19 He argues that the rate of capital return in developed countries will remain greater than the rate of economic growth and wages, leading to ever increasing wealth inequality. A major reason for this, according to Piketty, lies in the large tax cuts since the 1980s20 in the U.S. and in Europe during the late 1990s. These major tax cuts for the wealthy promoted a rebuilding of earlier large fortunes by a small class of rentier families. Piketty argues that this trend will lead to the rise of a “patrimonial capitalism,” in which a few families control most of the wealth and subvert the democratic process. The trend toward Chicago School “neoliberalism” was spearheaded by President Ronald Reagan in the U.S. and Prime Minister Margaret Thatcher in the U.K. Its advocates claimed that lowering tax rates on the rich, encouraging fnancial control over companies and the economy as a whole, and globalization would result in everyone sharing higher standards of living. Instead, the U.S. growth rate during the past 40 years fell21 to twothirds of its post-World War II average, when regulations were stricter and top marginal tax rates appreciably higher. The overwhelming proportion of wealth and income gains from this more modest growth went to the top 0.01%.

Family Businesses Answering Public Needs

7

The Nobel Prize-winning U.S. economist Joseph Stiglitz attributes22 this draconian trend to specifc policies that favored large corporations and the wealthy rather than irresistible or “natural” processes such as globalization and technology. These policies have included deregulation of the fnancial-sector which permitted abuses such as market manipulation, predatory lending and excessive credit-card fees.

Three Reasons Why the Public Despises Pharma, Aside From Exorbitant Prices If unaffordable drug prices and pharma’s exploitation of its customers is merely one part of a larger economic drift, three other factors have made pharma a more prominent villain in the Chicago School, greed-is-good, proft-is-all ideology than its relative size in the economy would otherwise suggest. Ironically, these three factors have made pharma’s contemporary role and reputation into a counterpart of the 19th-century robber barons, a category that many of the founders managed to avoid. Factor 1: Protection From the Market A frst reason pharma suffers extraordinary public derision is that it is not subject to the same sort of “moral hazards” producers in other sectors face in freely functioning markets. In plain terms, pharma benefts from a political generosity that insulates it from the kinds of ups and downs other industries face. It enjoys a heads-we-win, tails-you-lose privilege. There are three components to pharma’s exemption from the market. Patent Protection The most important element of this privilege is extensive patent protection and market exclusivity on newly created compounds. Securing patent protected compounds and market exclusivity for them serves as the keystone to the pharmaceutical industry’s business model. Although competitors do synthesize and market similar compounds, patents and market exclusivity serve to limit the scope of that competition. In cases where several competitors market their respective brands of related compounds that work with the same mode of action, they act as a cartel by pricing their products closely together, thereby removing price as a competitive factor. “Asymmetry of Information” A second component of pharma’s insulation from the market stems from what economists call an “asymmetry of information.” A cardinal principle of any truly functional market requires that buyers can obtain

8

Family Businesses Answering Public Needs

adequate information to judiciously weigh their options. In his 2010 book Pharmaplasia,23 the University of Minnesota pharmacist Mike Wokasch faulted pharma for a “lack of honesty and full disclosure about product information.” Wokasch cites the following ways in which pharma fails to honestly disclose information about its products. •

• •

Pharma’s downplaying or failure to report and sometimes even acknowledge potentially serious side effects and dangers. The decades are littered with examples including Fen-Phen, Vioxx, OxyContin and Ketek. Exaggerated product claims in marketing, especially comparative claims. Scientifc data manipulation to exaggerate effcacy while downplaying side effects and adverse reactions.

As end-users, exceedingly few patients/consumers possess suffcient scientifc expertise to evaluate the claims that pharma companies make for their products. Despite medical training and practice experience, only a small fraction of physicians can assess the clinical evidence that supports the various prescription medication brands. Even fewer of them are aware of the nuances of clinical study design that permit the half-truths pharma companies peddle to prescribers. Inability of Patients and Consumers to Defer Purchases Pharma is further shielded from the market by the fact that in more serious or painful conditions, consumers cannot defer purchasing medications. Unlike most durable goods purchases, prescription medications strongly affect life, well-being and the ability to function. In many cases, owners can extend the useful life of their cars, computers and houses for periods of months to years without seriously adverse consequences. They seldom feel comfortable postponing treatment for a similar period when a physician tells them a biopsied lump is malignant. Factor 2: Consumer Sticker Shock Recurs Monthly and Is Growing By itself, pharma’s insulation from the market and its resulting elevation into a realm of guaranteed proftability would not necessarily arouse public contempt. The fossil fuel and the defense industries also maintain a protected status. Consumers are furious toward pharma because this fagrant insulation from the market hits consumers in their pockets every month with onerous drug prices when they go to the pharmacy counter or take delivery of their medications. Unlike the slowly rising tide of costs

Family Businesses Answering Public Needs

9

that consumers pay, almost imperceptibly in other sectors of the economy, drug prices exert their shock effect with regularly recurring force.24 Moreover, high drug prices produce a cascade that hits consumers and taxpayers in other ways. In Europe, with nationalized health care systems, increasing drug prices raise everyone’s tax burden. In the U.S., which separates the provider and payer segments of health care, drug prices that rise at two or three times the increase in the cost of living contribute to higher insurance premiums, larger deductibles and steeper co-pays on consumers. At this point the discussion merits a parenthetical note relative to pharma’s meme that any critic making a serious charge against it is an anti-capitalist who believes every sector of private enterprise exploits consumers. Pharma’s refex here is a contemporary form of red baiting. By contrast, the authors believe that a well-regulated system of private enterprise is the most effective means for operating a research-driven sector such as pharmaceuticals. At the same time, it must be stated clearly that pharma is different from other economic sectors and has responsibilities beyond generating profts because governments insulate the drug industry from full-on market competition with patent exclusivity, extraordinary tax breaks (see Chapter 3) and fnancial subvention for the basic science research that sustains new product development. The irrefutable conclusion that emerges from Chapters 2 and 3 is that instead of responding to this government largesse by conducting itself in a manner that favors advancing the standards of care ahead of outsized profts, pharma regularly leads all sectors in the number of violations it commits and in the absolute amount of fnes it pays as a result. Factor 3: Pharma’s Violations and Dirty Tricks Pharma’s regular pattern of unethical and illegal conduct, what some observers call its “loss of a moral compass”25 has been such a potent factor in arousing public and political antagonism that the matter deserves amplifcation. This will be addressed in more detail in subsequent Chapters 2 and 3, which will address the economics underlying pharma’s privatizing of gains and socializing of losses. A subtext message to those two chapters is that pharma’s economic model, a result of public largesse and political fxes, guarantees substantial profts to the industry as a whole. Given that pharma is the benefciary of such structured proftability, its regular pattern of cheating, exploiting consumers and taxpayers and denying needed medication to millions of people strikes the public and its offce holders as not merely unnecessary but as an unforgiveable betrayal of trust. Some readers may point out that other industries enhance their proftability by cheating, lying and regularly performing dirty tricks, and they question why pharma should be any different. The recurring point here

10

Family Businesses Answering Public Needs

and in subsequent chapters is that pharma is unlike most other industries. It has received government exemptions from the restraints imposed by market competition on other sectors. These include market exclusivity granted by patents, extraordinary tax breaks and government subsidies for new product development. These forms of government largesse confer on pharma the responsibility to act with stricter ethical standards. Instead, pharma has established a pattern of regularly conducting its business by conducting more legal and ethical violations than any other sector of the economy. The following is a typology for pharma’s recurring pattern of violations and dirty tricks that the next chapter will spell out in greater detail. It bears mentioning that pharma’s refexive response to statements about its illegal and unethical conduct take some form of the line, “that may be the way it used to work, but we’ve cleaned up our act and become much more law abiding since then.” Companies in the industry state something to that effect after every multi-billion dollar fne because the cases for which those penalties were assessed are typically four years old or more by the time of fnal settlement. In Chapter 2, which extensively examines the topic of pharma’s violations and “dirty tricks,” some of the major sources consist of studies conducted by Public Citizen that were based on court records and other publicly available materials. Their frst study examined the drug industry’s transgressions from 1991–2010, and pharma immediately began its excuse of calling it old news that no longer applies. In response, Public Citizen did an update in 2012 and another one in 2017. They found that in the more recent years, pharma still scored more violations and paid more in fnes than any other industry. For the most part, pharma’s abuse pattern falls under the following major headings. “Off-label” Promotion Because pharmaceutical companies operate in a commercial market, they can promote their products to prescribers. (Only the U.S. and New Zealand permit them to also promote prescription products to consumers.) In the U.S. and Europe, however, companies may not advertise or otherwise promote their drugs any way they choose. All claims and other advocacy statements for prescription drugs must remain strictly within the limits of a product’s label or package insert that has been approved by the appropriate regulatory agency. Any promotional statements, whether written, made through a communication medium or in person, that suggest benefts beyond what has been authorized by the label constitute a violation, known as “off-label promotion.” Despite the prohibition, off-label promotion constitutes one of the most persistent ways pharma companies push their products, particularly during in-person promotions by sales reps.

Family Businesses Answering Public Needs

11

Pharma companies that have paid civil and criminal penalties for offlabel promotion include Pfzer, Eli Lilly, AstraZeneca, Johnson & Johnson, Novartis, Allergan, Amgen, GlaxoSmithKline and many others. These fnes at the lower end have run to tens of millions of dollars and, at higher amounts, up to $3 billion per company. Kickbacks and Shady Inducements to Physician Prescribers The professional responsibility of physicians requires that they prescribe medications based upon their professional judgment of the best available therapy for each individual patient. For that reason, monetary or other inducements from pharma companies to favor their products is fagrantly unethical and often illegal. Many of the same companies cited earlier, as well as others, have nonetheless paid substantial fnes, in amounts ranging from the tens of millions to the hundreds of millions of dollars per company, for payments, inducements and outright kickbacks to prescribers. Sometimes these inducements take the form of fees for talks to other physicians, during which the speaker endorses the sponsor’s product. Occasionally the sponsor doesn’t even require the benefciary to even deliver his talk, which the pharma company in any case has prepared. Oftentimes the inducements from pharma companies take the form of outright kickbacks. In some cases, pharma companies have paid physicians for suspect clinical studies or bogus consulting projects. A common inducement requiring even less effort from the recipient physician consists of paying prescribers to attend a continuing medical education session at a resort location. More common still are expensive meals, lunch for the offce staff and tickets for ball games or the theater.26 Subverting the Channels of Scientifc and Medical Communication •

•

Using Continuing Medical Education to Promote Brands. Physicians and practitioners in other professions must regularly complete certifed programs of continuing education as a requirement to maintain licensure. For decades it has been a shameful practice of medical specialty societies that they allowed pharma companies to develop and sponsor continuing medical education (CME) programs which essentially constitute promotional sessions for particular brands of medication. Controlling Medical Journals to Improperly Infuence Prescribers. Peer reviewed medical journals represent a major source of establishing, updating and regularly revising standards of medical care. The major journals are heavily infuenced to publish articles for which the

12

•

•

Family Businesses Answering Public Needs research was sponsored by a pharma company and the conclusions refect favorably on the sponsors’ products. This infuence is exerted by the fact that pharma companies are the biggest advertisers in medical journals. Additionally, pharma companies pay for a sizeable proportion of the subscriptions, which they use as inducement gifts.27 The publication of research articles in prestigious medical journals is often a bigger ruse because pharma companies sometimes conduct the research themselves, write the articles and then shop for an infuential specialist to attach his name so that he/she serves as a “ghost author.” Sponsorship of Major Medical Conventions. Pharma companies provide and subsidize the preponderant number of exhibits at the major medical meetings where new fndings are frst revealed. International gatherings such as the American Heart Association, American Diabetes Association, American Society of Clinical Oncologists and their European counterparts would likely shrink into backroom gatherings without lavish payments from pharmaceutical companies. Skewing the Design of Clinical Trials to Favor Test Drugs and Hiding the Results of One-third to One-half of Sponsored Studies. Pharma pays for more than 85% of the human clinical trials posted on the registry Clinicaltrials.gov. Most of the rest are funded by government agencies such as the National Institutes of Health (NIH) and various private foundations. A report from John Hopkins University showed that the number of clinical trials funded by the pharmaceutical industry has increased each year since 2006, while those funded by the NIH has decreased. In 2014, Big Pharma paid for 6,550 trials, while NIH funded 1,048, according to a study by Stephan Ehrhardt and colleagues published in JAMA.28 This preponderant role that pharma plays in funding clinical trials has two perverse effects. The frst is that sponsors design their studies not to disprove a hypothesis or theory, which is the standard approach in scientifc research, but rather to show their test drugs in the most favorable, possible light. According to Dr. Marcia Angell, former editor of the New England Journal of Medicine: Because drug companies insist as a condition of providing funding that they be intimately involved in all aspects of the research they sponsor, they can easily introduce bias in order to make their drugs look better and safer than they are. Before the 1980s, they generally gave faculty investigators total responsibility for the conduct of the work, but now company employees or their agents often design the studies, perform the analysis, write the papers, and decide whether and in what form to publish the results. Sometimes the medical faculty who serve as investigators are little more

Family Businesses Answering Public Needs

13

than hired hands, supplying patients and collecting data according to instructions from the company.29.

•

The second result of pharma’s heavy-handed control over clinical research is that the companies simply bury those studies that fail to produce favorable results for their test drugs. Systematic studies of the discrepancy between research that is formally undertaken and what is published have found that approximately one-third of clinical trials are not even registered (e.g., with Clinicaltrials.gov or another database) and approximately one-half are never published. According to Roberta Scherer, a researcher at Johns Hopkins Bloomberg School of Public Health in Baltimore, “Unpublished trials tend to be the ones that found treatments didn’t work or weren’t safe. . . . Published results, meanwhile, tend to highlight successful experiments.”30 Sponsorship and Control of Internet Medical Information Sites and Patient Advocacy Groups. Internet sites and patient groups serve as increasingly important sources of medical information for consumers. Pharma companies provide surreptitious sponsorship of both.31

Chapter Summary The pharmaceutical industry faces a period of slow or stagnant growth in the equity markets and a consequent diffculty in attracting capital because the prospect of price controls in the U.S., appears imminent, while the likelihood of more stringent controls in Europe and the developing world seems probable. Price controls loom over pharma due to the industry’s exorbitant and regular price hikes that greatly outpace cost-of-living increases. Especially in the U.S., such controls would crimp pharma’s proftability because that country accounts for approximately 70% of the industry’s worldwide net operating income. Driving the move to constrain pharma pricing is the U.S. public’s loathing for the drug industry, as evidenced by the fact that they hold a worse image of it than any other commercial sector. At the same time, knowledgeable observers in the media, academia and elsewhere describe pharma as a predatory industry that reaps unconscionable profts by exploiting society’s most vulnerable segments—the sick, the elderly and the poor. This vehement condemnation of the pharmaceutical industry by both the general public and the literate community has caused even its historic supporters in public offce to pursue policies for making medications more affordable, instead of defecting efforts to do so. Pharma’s image and the underlying reality of its activities have evolved from its 19th- and early 20th-century founders to one where their family descendants from the 1950s through the 1970s were considered scientifc

14

Family Businesses Answering Public Needs

innovators with public-spirited concerns beyond and above the craven pursuit of profts. After those decades, however, the founding families (e.g., the Mercks, Upjohns, Lillys and Searles) sold their controlling interests to institutional investors that pursue exclusively the short-term interests of stock appreciation and income for shareholders. In addition to outrageous prices, several other factors drive the public’s condemnation of pharma. Three of these principal factors are as follows. 1. The industry operates with an insulation from market hazards that virtually guarantee proftability to the sector as a whole. The elements of this insulation consist of patent protection/market exclusivity, possessing a favorable asymmetry of information and the frequent inability of patients to defer medication purchases. 2. Consumers using chronic medications face a monthly sticker shock from drug prices, unlike other sectors where price increases are either buried elsewhere or occur more slowly and, thereby, escape the disgruntlement that follows regularly recurring expenditures. 3. For approximately 20 years, pharma has routinely displayed a pattern of violations and dirty tricks that have aroused public and political antagonism. These activities include off-label promotion, kickbacks and other shady inducements to prescribers, and subverting the channels of medical communication.

Notes 1. The Business Research Company, “The Growing Pharmaceuticals Market: Expert Forecasts and Analysis by The Business Research Company,” May 16, 2018,https://blog.marketresearch.com/the-growing-pharmaceuticals-marketexpert-forecasts-and-analysis 2. Morgan Stanley, “Healthcare Teach-In,” May 9, 2019, pp. 159–160. 3. Johns Hopkins, “US Prescription Drugs Most Expensive in World, Analysis Shows,” Pharmafle, August 5, 2019, http://www.pharmafle.com/news/ 521963/us-prescription-drugs-most-expensive-world-analysis-shows 4. Organization for Economic Co-Operation and Development, “Under Pressure: The Squeezed Middle Class,” April 2019, https://read.oecd-ilibrary. org/social-issues-migration-health/under-pressure-the-squeezed-middleclass_689afed1-en#page100 5. Segal Group, “In 2016 Prescription Drugs Will be The Fastest Growing Component of Healthcare Costs,” HealthPopuli, September 29, 2015, https://www.healthpopuli.com/2015/09/29/in-2016-prescription-drugs-willbe-the-fastest-growing-component-of-healthcare-costs/ 6. Drew Altman, “Prescription Drugs Sizeable Share of Health Spending,” Wall Street Journal, December 13, 2015, https://blogs.wsj.com/ washwire/2015/12/13/prescription-drugs-sizable-share-of-health-spending/ 7. David Risinger, “Pharma-Bios Sectors Hurt By Washington Concerns,” Morgan Stanley-Report to Clients, April 17, 2019. 8. Justin McCarthy, “Big Pharma Sinks to the Bottom of U.S. Industry Rankings,” Gallup News, September 3, 2019, https://news.gallup.com/ poll/266060/big-pharma-sinks-bottom-industry-rankings.aspx

Family Businesses Answering Public Needs

15

9. Peter Sullivan, “Public’s View of Drug Companies Sinks to Record Low in Gallup Poll,” September 3, 2019, https://thehill.com/policy/healthcare/459696publics-view-of-drug-companies-sinks-to-record-low-in-gallup-poll 10. Harris Poll, “Only Nine Percent of U.S. Consumers Believe Pharma and Biotechnology Put Patients Over Profts,” https://theharrispoll.com/onlynine-percent-of-u-s-consumers-believe-pharmaceutical-and-biotechnologycompanies-put-patients-over-profts-while-only-16-percent-believe-healthinsurance-companies-do-according-to-a-harris-pol/ 11. North Star Opinion Research, Hart Research Associates, “Prescription Drug Prices: The Voters Speak,” March 2019. https://craftmediabucket. s3.amazonaws.com/uploads/AV-Summary-of-Polling-Project_052119_ FINAL.pdf 12. Lake Research Partners, Anat Shenker Osorio Communications, “Public Support for Prescription Drug Price Reform: Findings from a Survey of 1,503 American Adults,” September 2016, www.lakeresearch.com/images/ share/LRP.PublicOpiniononPrescriptionDrugPricing.pdf 13. Rachel Tansey, “High Prices, Poor Access: What Is Big Pharma Fighting for in Brussels?” Corporate Europe Observatory, May 2019, https://corporateeurope.org/sites/default/fles/2019-05/High%20Prices%2C%20Poor%20 Access_Full%20report.pdf 14. Access to Medicine Foundation, “Access to Medicine Index 2018,” November 2018, https://accesstomedicinefoundation.org/access-to-medicine-index/ 2018-ranking 15. Julia Kollewe, “Big Pharma ‘Failing to Develop Urgent Drugs for Poorest Countries,’”TheGuardian,November20,2018,www.theguardian.com/business/ 2018/nov/20/big-pharma-who-failing-to-develop-urgent-drugs-for-poorestcountries 16. See, for example, Noah Berlatsky, “A Law Professor’s Big Idea for Combatting Greedy Drug Company Titans Like Martin Shkreli,” Quartz, September 21, 2017, https://qz.com/1083758/why-do-prescription-drugs-inthe-us-cost-so-much/; and Physicians for a National Health Program, “Fact Sheet: Pharma Greed Kills,” April 22, 2019, https://www.pnhpnymetro.org/ pharma_greed_kills_fact_sheet Longtime public advocate Dr. Sidney Wolfe, et.al., in 2010 published a paper assessing civil and criminal prosecutions against the pharmaceutical industry that concluded pharma constitutes “the world’s largest organized crime entity.” www.citizen.org/wp-content/uploads/migration/rapidlyincreasing criminalandcivilpenalties.pdf A number of especially withering blasts were levelled against the pharmaceutical industry in reviews and comments concerning a 2017 book, a temperate but determined critique by Indiana University law professor Fran Quigley, Prescription for the People: An Activist’s Guide to Making Medicine Affordable for All (Ithaca, NY: Cornell University Press, 2017). See also Marcia Angell, “Drug Companies and Doctors: A Story of Corruption,” New York Review of Books, January 15, 2009, www.nybooks. com/articles/2009/01/15/drug-companies-doctorsa-story-of-corruption/ Dr. Ben Goldacre, Bad Pharma: How Drug Companies Mislead Doctors and Harm Patients (New York, NY: Farrar, Straus and Giroux, 2012). 17. Mae Rice, “Jonas Salk Didn’t Patent the Polio Vaccine,” Curiosity, March 29, 2019, https://curiosity.com/topics/jonas-salk-didnt-patent-the-polio-vaccinecuriosity/ 18. See background in David Gelles and David Yaffe-Bellany, “Shareholder Value Is No Longer Everything, Top C.E.O.s Say,” New York Times, August 19, 2019, www.nytimes.com/2019/08/19/business/business-roundtable-ceoscorporations.html. The reports on the Business Roundtable voting that its

16

19. 20. 21.

22.

23. 24.

25.

26.

27.

Family Businesses Answering Public Needs member corporations should no longer consider shareholder value as their exclusive concern. Thomas Piketty, Capital in the Twenty-First Century (Cambridge, MA: Harvard University Press, 2014). https://www.amazon.com/Capital-TwentyFirst-Century-Thomas-Piketty/dp/0674979850 Thomas Piketty and Emmanuel Saez, “Income Inequality in The United States, 1913–1998,” The Quarterly Journal of Economics, Vol. CXVIII, Issue 1 (February 2003), https://eml.berkeley.edu/~saez/pikettyqje.pdf Joseph E. Stiglitz, “Three Decades of Neoliberal Policies Have Decimated the Middle Class, Our Economy, and Our Democracy,” MarketWatch, May 13, 2019, www.marketwatch.com/story/three-decades-of-neoliberalpolicies-have-decimated-the-middle-class-our-economy-and-ourdemocracy-2019–05–13 Joseph E. Stiglitz, “Joseph Stiglitz Says Standard Economics Is Wrong: Inequality and Unearned Income Kills the Economy,” Economics: The Next Evolution of Economics, September 9, 2016, https://evonomics.com/ joseph-stiglitz-inequality-unearned-income/ Michael G. Wokash, Parmaplasia (Mineapolis, MN: Wokash Consulting, 2010). https://www.amazon.com/s?k=Pharmaplasia&i=audible&ref=nb_sb_ noss The many studies documenting the exorbitant increase of drug prices, especially in the U.S., are too numerous to list. The following three offer a rudimentary primer. See Altarum Institute Center for Sustainable Health Spending, Health Sector Economic Indicators: Insights from National Monthly Price Indices Through July 2015, http://altarum.org/sites/default/fles/uploaded-relatedfles/CSHS-Price-Brief_September_2015.pdf Murray Aitken, “Understanding the Dynamics of Drug Expenditure,” Quantiles IMS Institute 6 (2017), September 11, 2017, https://www.iqvia. com/institute/reports/understanding-the-dynamics-of-drug-expenditureshares-levels-compositions-and-drivers, which stated that net drug expenditure in the U.S. increased from $377 per person in 1995 to $974 per person in 2015. Aimee Picchi, “Martin Shkreli Style Drug Hikes are Everywhere,” CBS News, February 2, 2016, which stated that 20 of the top prescription drugs have at least quadrupled their prices from 2014 to 2016. https://www. cbsnews.com/news/martin-shkreli-style-drug-price-hikes-are-everywhere/ See Lissa Rankin, M.D., “Has the Health Care Industry Lost Its Moral Compass?” December 17, 2012, https://lissarankin.com/has-the-health-careindustry-lost-its-moral-compass; and “Pharma Companies Need Fewer Unethical Practices,” Strategic Finance, April 2, 2016, https://sfmagazine.com/ post-entry/april-2016-pharma-companies-need-fewer-unethical-practices/ A good starting resource for exploring pharma’s malevolent infuence over physicians through shady inducements is: Offce of the Minnesota AttorneyGeneral, Follow the Money: The Pharmaceutical Industry—The Other Drug Cartel, 2003. George Jelinek, “The Infuence of the Pharmaceutical Industry in Medicine,” Journal of Law and Medicine, Vol. 17, Issue 2 (October 2009): 216–223, www. researchgate.net/publication/40646831_The_infuence_of_the_pharmaceutical_industry_in_medicine; and Rijul Kshirsagar and Priscilla Vu, “The Pharmaceutical Industry’s Role in U.S. Medical Education,” in-Training: The Agora of the Medical Student Community, April 3, 2016, https://in-training.org/ drugged-greed-pharmaceutical-industrys-role-us-medical-education-10639

Family Businesses Answering Public Needs

17

28. MicheleLlamas,“BigPharma’sRoleinClinicalTrials,”Drugwatch,May14,2019, www.drugwatch.com/featured/clinical-trials-and-hidden-data/?PageSpeed= noscript Johns Hopkins University, “NIH Funding Fewer Clinical Trials, Study Suggests,” February 13, 2018, www.jhsph.edu/news/news-releases/2018/ nih-funding-fewer-cinical-trials-study-suggests.html Stephan Ehrhardt, et.al., “Trends in National Institutes of Health Funding for Clinical Trials Registered in ClinicalTrials.gov,” Journal of the American Medical Association, 2015, https://jamanetwork.com/journals/jama/fullarticle/ 2475454 29. Marcia Angell, “Drug Companies & Doctors: A Story of Corruption,” New York Review of Books, January 15, 2009, www.nybooks.com/articles/2009/ 01/15/drug-companies-doctorsa-story-of-corruption/ 30. Lisa Rapaport, “Discrepancy Between Trial Goals, Results May Mask Treatment Risks,” Reuters, September 13, 2017, www.reuters.com/article/ us-health-clinicaltrials-discrepancies...cy-between-trial-goals-results-may-masktreatment-risks-idUSKCN1BO2C7 31. U.S. Senate Homeland Security & Governmental Affairs Committee, Ranking Member’s Offce, “Fueling an Epidemic: Exposing the Financial Ties Between Opioid Manufacturers and Third-Party Advocacy Groups,” February 3, 2018, https://www.hsgac.senate.gov/imo/media/doc/REPORT-Fueling%20an% 20Epidemic-Exposing%20the%20Financial%20Ties%20Between%20 Opioid%20Manufacturers%20and%20Third%20Party%20Advocacy%20Groups.pdf

2

Pharma’s Violations and Dirty Tricks

Apple’s Steve Jobs once told Business Week that when a company is producing innovative products considered desirable and a good value by consumers, its leadership comes from product people in functional areas such as R&D and design. When those people lose their innovative edge, or the company no longer takes their lead, marketing and sales usually step forward to drive the company as it seeks to dress up old wine in new bottles.1,2 It is likely Jobs would have agreed that the past 35 years, where fnance has dominated business, have shown that when marketing and sales can no longer drive growth, companies follow the lead of their fnance departments. The preferred course of action among CFOs includes some combination of cost cutting that sacrifces the long-term outlook, together with mergers and acquisitions, stock buybacks, high dividend payments and similar maneuvers. That clearly applied to the pharmaceutical industry from approximately 2000 on. The recession that specifcally affected pharma between 2009 to 2012 was linked with a “patent cliff” where several top-selling brands went off patent, while pharma companies’ fat sales or earnings resulted in employee layoffs, R&D budget cuts and billions spent on stock buybacks. But fnancial manipulation only works for limited periods. Mergers and acquisitions cannot substitute for developing new products that advance care, provide value and are differentiated from competitors. Ultimately, M&A is self-defeating as it burdens companies with a larger equity base that makes EPS growth all the more diffcult. But pharma is nothing if not resourceful. If it cannot develop genuine breakthroughs, if marketing cannot convince people that its me-too’s are breakthroughs and if mergers have failed to deliver long-term value, pharma knows another way to prosper—cheat and bribe. Companies in practically every economic sector will occasionally endure scandals involving legal and/or ethical transgressions. The difference is that the volume, pervasiveness and the persistence with which such events occur in pharma indicate that wrongdoing is not merely an irregular occurrence but an established pattern of doing business.3,4 An assessment of pharma’s dysfunctional fundamentals must review its history of legal and ethical wrongdoing if it is to determine their root

Pharma’s Violations and Dirty Tricks

19

causes. Such a determination can help design a plan for the industry to proceed more responsibly, thereby reducing the public’s disdain and political intrusion. The following does not pretend to be a comprehensive list of pharma’s transgressions. As violations and dirty tricks constitute an ongoing pattern, any such list will be quickly outdated. In any case, Dr. Sidney Wolfe and his colleagues at Public Citizen published such a comprehensive list in late 2010 and again in 2012 and 2017, detailing civil and criminal monetary penalties against pharma from 1991 to 2017. Despite their meticulous undertakings, pharma’s transgressions have continued undiminished. The focus of this chapter addresses several of the main categories of pharma’s violations and explores what makes these a recurrent part of the industry’s strategy.

Off-label Marketing The marketing of prescription medications occupies a strange position in the legal milieu. Physicians in most countries are allowed to prescribe particular products for whatever purposes they deem benefcial, yet at the same time, pharmaceutical companies are permitted to promote those products only for purposes approved by the pertinent regulatory agencies. The pharma companies must limit advertisements, in-person sales pitches and promotions across the range of venues to those indications listed on each product’s package insert label. Promoting a product for uses outside such written approval constitutes off-label marketing and is against the law. Dr. Sidney Wolfe and his Public Citizen colleagues, Drs. Sammy Almashat and Charles Preston and Mr. Timothy Waterman,5 found that during the 20 years between 1991 and 2010, off-label marketing accounted for the largest amount of fnancial penalties imposed by the federal government against pharma companies. Under the federal False Claims Act in the U.S., a pharmaceutical company is liable if it promotes unapproved indications for prescription drugs to be used by Medicare patients. Such liability extends to providing physicians with misleading or false drug marketing literature. Among the 20 largest settlements paid by pharma companies between 1991 and 2010, 13 involved unlawful promotion. The pharmaceutical industry now tops “all other industries in the total amount of fraud payments . . . under the False Claims Act.” Unlawful promotion accounted for the biggest increase in total fnancial penalties during the 20-year period, of which “illegal off-label promotion was the main offense.” In the 15 years between 1991 through 2005, “unlawful promotion constituted only 16 percent of all violations,” but in the fve years of 2006–2010, it “came to comprise over half (53 percent) of all violations.”

$1.4 billion

$875 million

$750 million

$704 million

$650 million

$601 million $600 million

$520 million

TAP Pharmaceutical Products

GlaxoSmithKline

Serono

Merck

Purdue Allergan

AstraZeneca

Unlawful Promotion; Kickbacks

Unlawful Promotion; Kickbacks; Monopoly Practices Overcharging Govt Health Programs; Kickbacks Unlawful Promotion Unlawful Promotion

Overcharging Govt Health Programs; Kickbacks Poor Manufacturing Practices

2010

2007 2010

2008

2005

2010

2001

2009

2006 2009

Seroquel

OxyContin Botox

Zocor; Vioxx; Pepcid

Kytril; Bactroban; Paxil CR; Avandamet Serostim

Lupron

False Claims Act False Claims Act; Food, Drug, and Cosmetics Act False Claims Act

False Claims Act; Medicaid Rebate Statute

False Claims Act

False Claims Act; Food, Drug, and Cosmetics Act

False Claims Act; Food, Drug, and Cosmetics Act False Claims Act; Food, Drug, and Cosmetics Act False Claims Act; Prescription Drug Marketing Act

Eli Lilly

Financial Violation Unlawful Promotion; Kickbacks Unlawful Promotion Bextra; Geodon; Zyvox; Lyrica Zyprexa

$3.4 billion $2.3 billion

GlaxoSmithKline Pfzer

Laws Allegedly Violated (if applicable)

Total Penalty

Company

Major Drug Products Involved

Table 2.1 Top 20 Largest Pharmaceutical Company Settlements, 1991–2010 6 Year

Pharma’s Violations and Dirty Tricks

Violation(s)

20

$515 million

$500 million

$435 million

$430 million

$425 million

$423 million

$355 million

$345 million

$313 million

$258 million

Bristol-Myers Squibb

Schering-Plough

Schering-Plough

Pfzer

Cephalon

Novartis

AstraZeneca

Schering-Plough

Forest Laboratories

Johnson & Johnson (state settlement)

Unlawful Promotion; Kickbacks Overcharging Govt Health Programs Overcharging Govt Health Programs; Kickbacks Unlawful Promotion; Concealing Study Findings; Kickbacks; Illegal Distribution Unlawful Promotion

Unlawful Promotion

Unlawful Promotion; Kickbacks; Overcharging Govt Health Programs Poor Manufacturing Practices Unlawful Promotion; Kickbacks; Overcharging Govt Health Programs Unlawful Promotion

2010

2010

2004

2003

2010

2008

2004

2006

2002

2007

Risperdal

Levothyroid; Celexa; Lexapro

Claritin

Zoladex

Actiq; Gabatril; Provigil Trileptal

Neurontin

Temodar; Intron A; K- Dur; Claritin RediTabs

Claritin

Abilify; Serzone

Medical Assistance Program Integrity Law

False Claims Act; Food, Drugs, and Cosmetics Act

False Claims Act; Food, Drug, and Cosmetics Act False Claims Act; Food, Drug, and Cosmetics Act False Claims Act; Food, Drug, and Cosmetics Act Prescription Drug Marketing Act False Claims Act; AntiKickback Statute

FDA Current Good Manufacturing Practices False Claims Act; Food, Drug, and Cosmetics Act

False Claims Act; Food, Drug, and Cosmetics Act

Pharma’s Violations and Dirty Tricks 21

22

Pharma’s Violations and Dirty Tricks

The authors suggest why unlawful promotion, a “category [that] mainly consists of off-label promotion of drugs for indications not approved by the FDA,” has increased more than other types of transgressions. One reason why off-label promotion has become so widespread may involve the fact that a decreasing number of important new drugs have come onto the market over the past few years. Thus, companies are likely under pressure to maximize sales of their existing products by any means, including by illegally promoting off-label use. This has been evident in the systematic and widespread company practices designed to increase market share. While the supposition of the Public Citizen authors may seem plausible, it begs the question of why pharma’s violations should exceed those of other business sectors in both the number of infractions and their seriousness, as evidenced by the monetary level of fnes. After all, companies in other sectors experience downturns and fallow periods of new product development, both of which increase the pressures for growing sales on existing products. Why has pharma deployed violations and dirty tricks more than the others? Some students of management and economics lay blame on the fact that companies tie the compensation of senior executives to growth of fnancial metrics such as net income, EPS and stock price. Doubtlessly that plays a part, but many sectors use these and similar measures for executive compensation, so the approach seems inadequate for explaining pharma’s relatively greater turpitude. The answer may instead lie in the fact that while pharma experiences the same pressures as other sectors, it does so in an environment where the gestation period of new product development is substantially longer than in other industries.7 The next chapter on pharma’s economic fundamentals will discuss product development times and conclude that although the lead time for developing new medications is not nearly as long as pharma proponents claim in seeking to justify exorbitant prices, it still remains longer than in many other industries. In sectors such as information technology and consumer package goods, development cycles run between 18 months and two years. Once pharma companies commit to developing a new compound, the average period to regulatory approval and launch is approximately four years.8 This means that during stagnant periods, managers in other sectors can more quickly boost sales by spending more on R&D, buying nascent products or other companies. The payback periods for realizing investment returns are shorter and investors can more easily see that brighter days are likely to emerge. In pharma, by contrast, if a company experiencing fat sales spends $6 billion a year on R&D, it could double that amount and likely wouldn’t have any more to show for it after two years.

Pharma’s Violations and Dirty Tricks

23

This hypothesis gains corroboration from the fnding by the Public Citizen authors9 that before pharma committed more violations and paid more fnes than other sectors, the defense industry was the worst transgressor. Both sectors operate with long development lead times and remain relatively insulated from market forces. The remedy for pharma’s pattern of violations and dirty tricks does not consist of holding the budgets of regulatory agencies hostage so that they approve new submissions more quickly and with less thoroughness. Pharma’s intense lobbying has moved the U.S.’s FDA in that direction for at least two decades and the result was more than 27,000 unnecessary deaths during the four years Vioxx was on the market.10 The answer lies in lessening pharma’s dependence upon what some observers call “vulture capitalists,” meaning hedge funds, private equity groups and other institutional investors that take short-term positions and seek rapid appreciation. Pharma’s servility to such “usury” investors, and structuring executive compensation to meet those demands, make such violations inevitable. In 2012, the Cornell University law professor Lynn Stout11 published an invaluable study, showing that the great majority of small investors— individuals and group entities—acquire equities with the purpose of keeping them as long-term holdings. That is particularly true for sectors such as pharma, which most investors regard as defensive, relatively stable positions. Pharma can make its planning processes and its approach to product promotion comport with its development times and quit acting as a chronic transgressor by discouraging fast-in, fast-out investors and, instead, rewarding the loyalty of long-term holders.

Fraudulent Pricing Manipulation In their 2012 follow-up study, the Public Citizen authors found that while unlawful promotion remained the number one violation in terms of generating total penalties, overcharging government health insurance programs, “mainly drug pricing fraud against state Medicaid programs,” was the most common infraction.12 In the U.S., misreporting the “best price,” the “average Medicaid price” (AMP), the “federal ceiling price” or other benchmark prices that pharmaceutical companies report to Medicare and Medicaid programs constitutes illegal conduct. Pharma companies in the U.S. are required by law to make drugs available for Medicaid dispensers at the lowest or best prices of any U.S. commercial customers. Accordingly, the selling price to these dispensers subsidized by Medicaid is known as Best Price. If pharma companies sell drugs to other commercial customers at lower prices, they must rebate to Medicaid either 23.1% of their Average Manufacturers Price (known as AMP, the price they sell to wholesalers and retail pharmacies) or the difference between AMP and Best Price, whichever is greater.

24

Pharma’s Violations and Dirty Tricks

The problem often starts because many private entities properly act as more aggressive negotiators than the federal government’s Centers for Medicare and Medicaid Services, which manages both programs. That provides the pharma companies with a battery of tricks and deceptions, enabling sales to private entities at prices that are actually lower than what the drug makers report as their AMPs. By reporting artifcially lower AMPs, the pharma companies get away with paying the federal agency commensurately lower rebates than what they are legally obligated to do. As examples, a pharma company and a large provider group will consummate a formal deal at a particular price, but the two will have a side agreement in which the pharma company rebates a certain amount back to the purchaser. At other times, pharma companies simply fail to report discounts or other payments offered to private entities. Another form of pricing manipulation, bordering on fraud, involves selling drugs to federal government agencies at prices that distort the Medicaid best price. Pharma companies must sell drugs to agencies such as the Department of Defense, the Veterans Administration and the U.S. Public Health Service at prices which do not exceed the “federal ceiling price.” The pharma companies will either charge those agencies above ceiling prices and/or report infated prices for such sales in order to charge higher prices to Medicaid. A third type of pricing infraction involves the federal government’s 340B Drug Pricing Program. That program limits the prices of covered outpatient drugs to “federal grantee” providers. These include hospitals and medical centers that treat a disproportionate share of any of the following: migrants, the homeless, students from low income families, Native Americans, AIDS patients, miners suffering from black lung disease, hemophiliacs or other designated populations. Overcharging for drugs discounted under 340B Drug Pricing Program is against the law. Pharma companies must sell drugs to authorized grantees below a designated ceiling price, based on the Average Manufacturer’s Price and best price for their drugs. As a result of pharma lobbying, the law governing this process is quite lax and does not require accurate dissemination of 340B-ceiling prices to the federal government. That leaves 340B entities in the dark about current ceiling prices and allows pharma companies to overcharge those buyers and/or not provide the rebates those providers are entitled to receive. The nefarious techniques that pharma companies use to defraud Medicaid are often complicated and surreptitious. Some of them emerged in a 2011 whistleblower lawsuit that charged more than a dozen pharma companies with assorted schemes for underpaying state Medicaid programs during a seven-year period. The complaint was originally fled in federal court by the former head of a major trade group representing health care products distributors.

Pharma’s Violations and Dirty Tricks

25

More than 20 states and the District of Columbia joined the suit as plaintiffs. The defendants included (alphabetically): Allergan, Amgen, AstraZeneca, Biogen, Bradley, Cephalon, Eisai, Genzyme, Mallinckrodt, Novo Nordisk, Nycomed US, Reliant, Sepracor, Sunovion and Upsher-Smith. According to the whistleblower, the pharma companies made service agreements with drug wholesalers, agreeing to pay fees to the latter for certain services. Some of the pharma companies did not report the fees and, instead, treated them as discounts. This allowed them to artifcially report lower AMPs, defned as the average price paid by wholesalers for drugs distributed to the retail class of trade. By reporting improperly lower AMPs, the quarterly rebates that pharma companies are required to make to Medicaid as percentages of those amounts were fraudulently reduced. “Other drug makers,” according to journalist Ed Silverman,13 “properly categorized the service fees, excluding them from their AMP calculations, but then offset various price increases against the service fees.” This allowed them to exclude price increases in their AMP calculations and fraudulently lower those reported amounts, resulting in improperly smaller rebates to Medicaid. Pharma companies regularly pay penalties for cheating Medicaid. In 2016, Wyeth and Pfzer Inc. paid $784.6 million14 as a settlement to resolve federal and state claims that Wyeth (before it was acquired by Pfzer) underpaid drug rebates to Medicaid on two drugs used to treat acid refux: Protonix Oral and Protonix IV. GlaxoSmithKline in 2010 paid $163.6 million in recoveries for state Medicaid programs. In the same year, AstraZeneca paid $218 million for underpaying Medicaid. The government that year also reached settlements with Novartis and Forest Laboratories for the same infraction, the former paying $88.3 million and the latter $60 million. In 2013, Ranbaxy’s Medicaid cheating cost it $120.9 million in penalties.15 A casual observer can easily cite scores of other cases where pharma companies were prosecuted and obliged to pay tens of millions of dollars for cheating Medicaid. It is also likely that astute analysts can parse the numerous instances to discern pernicious patterns of industry scheming and conniving. Without plunging into such detail, however, it is fair to state that the general causes and corrections of this most common type of industry violation seem obvious. Medicaid price manipulation seems to be derived from the same “greed-driven” pursuit of proftability “at all costs” that produces offlabel marketing activity. As long as managements push and reward marketing, sales, managed markets and other involved groups for growing sales, while deliberately avoiding close oversight of their operations, unethical and illegal conduct will result.

26

Pharma’s Violations and Dirty Tricks

Given the fscal pressures that corporations have to take into account, in particular short-term shareholder value, self-correction seems unlikely because of the need to demonstrate quarterly growth and increasing proftability. Without new product entities and models for discovering, developing and distributing medications, reform must come from more stringent regulatory oversight. *** To remedy pharma’s pattern of defrauding Medicaid, Congress must enact legislation that requires audited oversight and full disclosure of pharma bids, deals, discounts, rebates and side payments to customer organizations. If pharma’s fnancial model discourages integrity, then the industry’s handling of its monetary affairs must be constrained and the penalties for transgressions increased to an extent that will halt proftability for specifed periods.

Bribing Prescribers For several decades pharmaceutical companies have “bribed” physicians to prescribe their products as opposed to those of competitors. The Hippocratic oath affrmed by new practitioners requires “physicians should treat the ill to the best of one’s ability.” According to medical ethicist Dana Katz,16 the practice of “bribing” physicians with money or gifts creates a sense of obligatory reciprocation to choose the giver’s product. That obligation is especially strong when the gift is one of higher value than the service or task the physician may have performed. As a result, any gift to a physician from a source that stands to monetarily gain from the physician’s selection compromises the fundamental principles physicians have sworn to uphold.17,18 Physicians routinely say they oppose the idea of altering their prescribing behavior to favor companies that give them money. Almost universally, physicians deny doing so. Their position is clearly contradicted by psychological studies that fnd physicians simply fail to recognize that they’ve been infuenced. Psychologists Don Moore of the University of California, Berkeley, and George Loewenstein of Carnegie Mellon University concluded in a 2004 paper that for physicians to act in accord with their professional responsibilities requires conscious deliberation, while self-interest is “automatic, viscerally compelling and often unconscious.”19 Physician and ethics professor Sunita Sah of Georgetown University reviewed several studies on the matter and concluded that even if physicians don’t understand how much they are infuenced by routinely accepting gifts from pharma companies, the drug makers are either familiar with those studies or, at the very least, they know from their own experience that gifts boost their sales.20 Just how pervasive is the practice of pharma companies paying and gifting physicians to infuence prescribing behavior? According to a 2007

Pharma’s Violations and Dirty Tricks

27

survey in the New England Journal of Medicine, 94% of physicians had some sort of industry ties21. As research by behavioral and social scientists has shown, payments and gifts to prescribers bias behavior, even as physicians insist that they are above it. Clearly, pharma’s routine way of doing business makes a confict of interest the norm in medical practice. In 2017, Genevieve Pham-Kanter and her colleagues at Drexel University found that two-thirds of Americans visited doctors during the previous year who had been paid or given gifts by pharmaceutical or medical device companies, but only 5% of those surveyed knew that their doctor had received such payments. Patients that visited certain types of specialists were even more likely to have seen bought-and-paid-for physicians. For example, the Drexel study showed that 85% of patients who visited an orthopedic surgeon and more than 75% of those who visited an obstetrician or gynecologist saw a physician whose palm had been greased.22 Pham-Kanter told Science Daily, “Patients should be aware of the incentives that their physicians face that may lead them to not always act in their patients’ best interest.”23 Currently, no law in the U.S. prohibits physicians from receiving gifts and payments from pharma companies, but the practice alters their prescribing behavior, leading them to write more prescriptions and more expensive prescriptions. Dr. Adriane Fugh-Berman, a professor in the department of pharmacology and physiology at Georgetown University Medical Center Health, together with her colleagues, found that care providers who received even small gifts, worth less than $500 a year, wrote more prescriptions, each averaging 34% more expensive, when compared to those who received no gifts. Prescribers who received gifts worth more than $500 a year wrote the highest percentage of brand-name prescriptions, with an average cost nearly 40% more expensive than others who did not receive gifts.24 Fugh-Berman told HealthDay, “This study clearly shows that even small gifts change the practice of medicine. . . . Gifts, no matter their size, have a powerful effect on human relationships, and pharmaceutical companies are well aware of that.”25 Researchers analyzed 2013 data from nearly 2,900 health care providers who wrote Medicare Part D prescriptions in the Washington, D.C. area. They found almost 40% of those prescribers accepted money, meals, trips and other gifts from drug companies. Some pharma defenders say that although gifts may infuence prescribing, physicians only let it affect their selection in cases where any of the competing products are appropriate for affected patients. Dr. Aaron Mitchell of the University of North Carolina found that is not necessarily so. In cases of metastatic renal cell cancer and chronic myeloid

28

Pharma’s Violations and Dirty Tricks

leukemia, where multiple treatment options require custom analysis for each patient, physicians that received payment from pharmaceutical companies for meals, talks and travel were more likely to prescribe products from the benefactor companies.26 According to Mitchell, “The main takeaway is that oncologists who received money from a pharmaceutical company were more likely to choose that company’s drug the following year.”27 For metastatic renal cell cancer, physicians who received any payment showed twice the likelihood of prescribing the benefactor company’s drug, and for chronic myeloid leukemia, physicians who received any payment were, in aggregate, 29% more likely to prescribe a benefactor’s drug. A close analysis by Mitchell and his co-authors showed that the same pharma company made two eligible treatments for leukemia, imatinib and nilotinib. The former product was about to lose its patent protection during the period the authors collected the data. As the company gifted prescribers in connection with nilotinib, Mitchell and his colleagues interpreted the payments as efforts to infuence physicians to switch from the older imatinib to the newer nilotinib that would remain under patent protection and, therefore, more expensive. Matthew Grennan, Kyle Myers and their colleagues at the National Bureau of Economic Research also conducted research that found even comparatively small gifts, such as meals, can have enormous effects upon prescribing behavior. They examined the prescribing behavior of cardiologists who were taken out for a meal during 2011 and 2012 by sales reps from two pharma companies that were marketing two, patent-protected statins. During this time, there were several, lower-cost, generic statins available with comparable clinical profles. Despite such availability, prescribing of the patent-protected statins by those physicians treated to meals increased 73%. The authors noted that this large percentage increase likely resulted from the fact that company sales departments, after tracking physicians’ brand-specifc prescribing volumes, directed their reps to target lowvolume prescribers for the gratuitous meals. As a result, cardiologists that received free meals were prescribing at a low rate, and the meals induced them to write more statins and more of the expensive ones. Grennan, Myers and their colleagues28 found that most of the meals examined cost less than $150 each, but the mere fact of treating prescribers to a free meal mattered more than its cost. The effect of altering prescribing behavior, they wrote, “is driven by the receipt of any meal, regardless of its value.” Furthermore, the number of free meals to which cardiologists were treated also mattered less than the fact that they received this complementary indulgence. The marginal effect of meal costs and the number of such meals led the authors to suggest that legislation to limit the cost and/or number of complementary meals would not deter cardiologists from writing more or higher-priced prescriptions.

Pharma’s Violations and Dirty Tricks

29

Finally, the authors noted that any gains from the meals in terms of continuing medical education were likely negligible, since both statin products had been available for many years—15 years for one and eight years for the other. For that reason, it was highly doubtful that any new information conveyed by sales representatives to the cardiologists during the meals would have affected prescribing. Pharma payments and gifts to physicians are sometimes even more pernicious than infuencing them to select products within a commodity class of competing brands. Occasionally these inducements constitute a major tactical approach that is illegally deployed for a product or even a company’s entire product line. That occurs when companies pay and/or gift physicians to prescribe products for off-label use. In 2010, ProPublica described a series of lawsuits brought by former employees of pharma companies, alleging they were instructed to fnancially reward physicians for prescribing brand-name medications for purposes not approved by the FDA, a practice banned by federal law. In the three years prior to the article’s publication, pharmaceutical companies paid more than $7 billion in penalties to settle whistleblower suits in which former employees won judgments for being instructed to pay and otherwise incentivize physicians to prescribe products off-label.29 In some cases, pharma companies have appeared indifferent to the fact that the prescribing inducements they give to physicians go to practitioners with disciplinary records in their respective states. A more recent ProPublica study in 2016 detailed how pharma (and device) companies make substantial payments to thousands of physicians with serious disciplinary histories.30 As a form of social activity, bribery is similar to ballroom dancing, prostitution and tennis in that all those activities require the participation of at least two parties. The pharma companies know quite well the benefts they are gaining from giving bribes. They maintain no self-delusions or sense that they are advancing some nobler cause beyond profts as a result of bribing prescribers. But what about the physicians? The journalist Faye Flam reviewed some of the literature on physicians who accept payments and gifts from manufacturers, and she spoke with academic researchers of the subject. The articles and the experts led her to conclude that a “sense of entitlement is a big factor in physicians’ acceptance of industry money.”31 For example, physicians appear more likely to accept industry payments when they were reminded of the arduous process they completed to practice medicine. This includes the years of medical school and residency, fnancial debt and sleep deprivation when on call. In addition to feeling entitled to gratuities, the bribery process serves a psychological need of physicians by bolstering their egos. A bribery researcher told Flam about one informant, a psychiatrist, who was positively beaming after red carpet treatment by a pharma company convinced him he had entered the ranks of “Key Opinion Leaders.”

30

Pharma’s Violations and Dirty Tricks

“It strokes your narcissism,” the psychiatrist divulged. “The frst thing they do is take you to a really nice hotel. And sometimes they pick you up in a limo, and you feel very important, and they have really, really good food.” *** Pharma infuences the prescribing behavior of a large percentage of practicing physicians to an extent that for some practitioners, payments from drug makers account for substantial portions of their income. One effect of this infuence is that consumers and taxpayers pay more for medications than they otherwise would. Another consequence is that a considerable percentage of patients are over-medicated. This undue infuence of pharma payments is so widespread and ingrained in medical practice that a major reform would require substantial changes to the way medicine is practiced and to the profession’s economics. The only practical approach to dealing with interactions between drug companies and physicians, in the view of the academics who studied the phenomenon, lies in making it illegal for physicians to accept anything of fnancial value, no matter how trivial, from drug companies. Unfortunately, at present the only professional group to support this viewpoint is the American Medical Student Association, which has called on physicians to sever their relationships with the pharmaceutical industry.32 For the vast majority of the public, however, the current situation presents numerous “buyer-beware” hazards.

Bribing Clinical Researchers and Key Opinion Leaders Purchasing the loyalty of clinical researchers who serve as opinion leaders to other physicians within their respective specialties serves several purposes for pharma companies. At a minimum, these infuential researchers act as more effective persuaders of prescribing physicians than even sales reps employed by the industry precisely to affect prescribing. Dr. Marcia Angell, the former editor of the New England Journal of Medicine and currently a professor at the Harvard Medical School, told a reviewer for The American Scholar, Drug Companies appear to have switched their gift-giving from drug reps to hiring “thought leaders”—the best drug reps of all. They send experienced physicians out to give talks and ensconce them on wellpaid speakers’ bureaus, then it seems, [they] claim this is education, not marketing!33 But the effects of bought and paid-for researchers and opinion leaders go far beyond the talks they give to other physicians at medical meetings and dinners.

Pharma’s Violations and Dirty Tricks

31

A second reason pharma companies pay clinical researchers is that, at the outset of starting a clinical study program, paid investigators take a direct hand in helping their clients design and feld clinical trials that bias the results to favor positive outcomes for test compounds. Physician and health policy analyst Dr. Joel Lexchin34 explained some of their typical techniques for creating biased results. Biases are introduced through a variety of measures including the choice of comparator agents, multiple publication of positive trials and non-publication of negative trials, reinterpreting data submitted to regulatory agencies, discordance between results and conclusions, confict-of-interest leading to more positive conclusions, ghostwriting and the use of “seeding” trials. In her review of the subject, Harriet Washington35 also concluded that the expertise of paid researchers often introduces intentional bias to attain desired results. “For the determined adept, there exist many ways to subvert the clinical-trial process for marketing purposes, and the pharmaceutical industry seems to have found them all.” She listed some of the preferred techniques that sponsored clinical researchers use in conjunction with their pharma clients. These include the following: • • • • • • •

Comparing the test drug to a placebo instead of standard of care treatments already available Assessing the test drug in comparison to a wrong dose of a competitor’s medication Teaming the test drug with an approved medication that is known to work well Prematurely ending a trial if the sponsor suspects it is about to reveal widespread side effects or ineffectiveness Testing a compound among an extremely small number of patients, thereby masking differences between the test drug and a comparator Using multiple endpoints, then selectively publishing only those that give favorable results “Data mining” involving the search for small subgroups that show a beneft in an otherwise failed trial

A third and, perhaps, the major beneft that pharma companies derive from using fnancial control over investigators is that the overwhelming percentage of clinical studies published by pharma-sponsored clinicians reach favorable outcomes for the test drugs. For example, trials of rheumatoid arthritis drugs are far more likely to report positive results when authors are paid by pharma companies. A report presented to the 2011 annual meeting of the European League Against Rheumatism in London found that 91% of trials where

32

Pharma’s Violations and Dirty Tricks

investigators had received support from pharma companies achieved positive outcomes. That contrasted to 66.7% of trials reaching favorable results when authored by independent clinicians.36 A similar bias exists in all other therapeutic classes—studies under the direction of physician-researchers paid by pharma companies appear far more likely to show results favoring their sponsors’ compounds. Drs. Paul M. Ridker and Jose Torres from the Harvard Medical School found that 67% of studies on cardiovascular pipeline drugs published by pharma-sponsored investigators in the three most infuential medical journals achieved results favoring the sponsors’ products. That contrasted with trials funded by nonprofts, where the number of favorable versus unfavorable results were roughly equal.37,38 A fourth beneft for pharma in buying the favor of medical researchers is that the same leading researchers in the respective therapeutic areas also serve as supposedly independent reviewers for the medical journals. Reviewers have a major hand in deciding whether those outlets will publish the various studies submitted to them. The existence of putatively independent reviewers advising the medical journals about publishing studies is actually a myth. Editors of leading medical journals estimate that 95% of specialists in academic medicine who are candidates for reviewing journal submissions maintain fnancial relationships with pharma companies. The New England Journal of Medicine abandoned its effort to fnd disinterested reviewers as far back as June 1992 because they were unable to identify enough reviewers that did not accept industry funds. Physician researchers, especially those in academic medicine that derive a substantial portion of either their incomes and/or research support from studying drug therapies, are dependent upon those pharmaceutical companies seeking to develop products within the sub-disciplines of the researchers’ interests. In cases where clinicians are not involved in a particular study and, for that reason, might qualify as independent reviewers, they are unwilling to antagonize potential sponsors by advising journals to reject a paper. They know that within a short time they may want to submit a proposal to the same sponsor, seeking a grant for their own study. The publication of study results in a prestigious, peer-reviewed medical journal provides a major infuence on the prescribing behavior of physicians in all the pertinent specialties. The editor of the Journal of the National Medical Association, Dr. Eddie L. Hoover, dismissed as extremely unlikely the prospect that offce-based physicians not closely involved in the specifcs of investigating new compounds would be able to detect the common biases in journal articles. He told Harriet Washington that practitioners lack the time to carefully assess studies, and instead, they depend upon the journal editors to make sure that published studies are valid.

Pharma’s Violations and Dirty Tricks

33

Dr. Lexchin reinforced Hoover’s view when he told Ms. Washington that most physicians believe, “If it’s in The New England Journal of Medicine it’s got to be good. This mentality diminishes the critical reading of the study.”39 Even if independent-minded physicians possessed the expertise, and could devote suffcient time to reviewing studies, they would be unlikely to detect many inaccuracies because neither the journals nor the readers are able to see all the trial data. *** It was noted earlier in connection with pharma companies unduly infuencing prescribers, that removing the industry’s malefcent role would require changing both the way medical practice is organized as well as the profession’s economics. The same holds true with the organization and economics of medical research.

Subverting Medical Journals It should not surprise anyone that several astute critics of medical research processes disparage the truthfulness of most studies that appear in the medical journals. Richard Smith, former editor of the British Medical Journal (now known as BMJ), once claimed that “All journals are bought—or at least cleverly used—by the pharmaceutical industry.”40 Pharma companies exert their infuence on the medical journals because these publications depend upon the industry for more than 95% of their advertising revenue. They use this extraordinary fnancial lever to pierce any presumptive wall between the journals’ editorial control and commercial operations. For example, some editors claim that pharma companies make advertising dependent upon editorial commentaries favoring their products in issues where studies on those products appear. Companies also exert infuence on editorial decision making through the mass purchase of issues and reprints. If a journal accepts for publication an article whose results favor a pharma product, the sponsoring company often decides to purchase thousands of article reprints and, sometimes, as many issues of the journal, both of which they send to prescribers as promotional gifts. Beyond using the power of the purse, pharma companies emasculate medical journals by hiding a large percentage of completed studies and submitting for publication only the ones that show favorable results for the test drugs. A 2017 study that appeared in the Journal of the American Medical Association (JAMA) found that among a sample of studies they examined, one-third were never registered in any listing of clinical trials and only 57% were eventually published. Further examination showed that the unpublished trials tend to be those where the test compounds either didn’t work or demonstrated safety problems.41

34

Pharma’s Violations and Dirty Tricks

Beyond diminishing the reliability of medical journals, several medical researchers consider this tendency of pharma companies to only publish favorable studies and bury the rest as “a threat to the integrity of evidence-based medicine.”42,43,44,45 Corroboration for their concern appeared in a 2019 study of cancer medications approved in Europe. The article published in the BMJ stated that pharma studies raise “serious concerns about low standards of evidence supporting new cancer drugs.” In 2017, the authors found that more than one-quarter of the new drugs approved by the European Medicines Agency (EMA) were cancer therapies. Of those, 49% were considered to present serious risks as a result of faws with study design, conduct or analysis.46 Earlier in 2019, Germany’s health technology assessment agency, the Institute for Quality and Effciency on Healthcare, evaluated 82 new cancer drugs and indications approved between 2011 and 2017. They found that 39% contained no proof of added beneft.47 Although it can safely be presumed that pharma companies sponsor and secure publication for a large percentage of the studies supporting approvals of cancer and other medications, the precise extent of pharma sponsorship remains uncertain because medical researchers often fail to fully disclose their sponsorship.48 Other tactics pharma companies use for evading the gatekeeper function of medical journals consist of “ghostwriting,” “author shopping” and “multiple publication.” With the two former tactics, pharma company employees or their closely supervised contractors conduct a study or studies and then use their own medical writers to write up the results. As they rightly judge such direct involvement to be less credible or persuasive than the work of independently supervised and authored studies, the companies will then seek out well-regarded research physicians to attach their names as investigators and authors. Multiple publication is a process in which pharma companies essentially replicate the same process, then pay off several different medical researchers or groups of researchers. The companies assign the numerous researchers or groups to attach their names to different articles based on the same piece of research. With several articles in hand, the pharma company’s surrogates then submit each writeup to a different journal under their own names. This results in different sets of researchers appearing to author separate articles in numerous journals, all reaching the same conclusion and, thereby, giving the appearance that different researchers independently studied a particular product and all of them obtained similarly favorable results. In 2010, physician and medical ethicist Adriane Fugh-Berman exposed a ghostwriting program conducted by Wyeth Pharmaceuticals, which was acquired by Pfzer the previous year.

Pharma’s Violations and Dirty Tricks

35

Wyeth grew alarmed when results started appearing from the Women’s Health Initiative (WHI), a massive study sponsored by the U.S. National Institutes of Health that enrolled more than 160,000 women over 15 years. Two of Wyeth’s top-selling brands during the 1990s and early 2000s were Premarin and Prempro, products for hormone replacement therapy. Findings from the WHI showed that perimenopausal women who took such drugs suffered higher incidences of cancer and heart disease. In an effort to discredit the WHI’s results, Wyeth hired a ghostwriting agency whose medical writers composed more than 50 articles for peerreviewed medical journals, as well as numerous medical abstracts and reports. Fugh-Berman showed that between 1997 and 2003, the agency’s ghost publication campaign sought to discount the increased risks of breast cancer, “promote unproven, off-label uses” and plug cardiovascular benefts.49 During the years its ghostwriting campaign operated, Wyeth succeeded in getting articles that deceptively sought to discredit the WHI published in 18 medical journals. The corruption and emasculation of medical journals as important channels of medical communication are so deeply rooted in the practice of medicine that, as noted earlier with respect to the bribing of prescribers and researchers, removing pharma’s clinical trial reporting bias would require wholesale changes in the ways medicine is practiced and in its organization for conducting clinical research. The mere disclosure of conficts of interest appear unlikely to change matters appreciably.

Buying the Favor of Specialty Society Committee Members That Write Prescribing Guidelines The professional societies of medicine’s several specialties exert substantial infuence over the prescribing behavior of practitioners within those respective felds. Each specialty society maintains a guideline committee charged with issuing formal recommendations on therapeutics to member specialists. As Dr. John Ioannidis, a professor at the Stanford University School of Medicine, told reporter Ronnie Cohen, “Writing guidelines is like prescribing something to millions of people.”50 In addition to believing that the recommendations of guideline committees represent a way of staying up to date with the latest standards of care, most specialists feel obliged to follow the guidelines because if they don’t, and a patient fails to do well, physicians can expose themselves to malpractice suits. Ioannidis’s assertion was corroborated by two recent studies published in JAMA Internal Medicine. One study, led by Dr. Samir Grover51 from the University of Toronto, examined the fnancial conficts of interest among the authors of 18 clinical practice guidelines involving recommendations

36

Pharma’s Violations and Dirty Tricks

for the ten top-selling medications of 2016. The other study reviewed industry payments to the authors of 15 gastroenterology guidelines published between 2014 and 2016.52 Grover and his colleagues found almost one-third of the guideline authors received payments from the companies marketing one or more of the top-selling brands. The study of gastroenterology guidelines determined that more than half of the clinicians writing those recommendations received money from industry. In both studies, the inducements involved payments for clinical trials, travel, honoraria or speaking fees. The authors found many cases where the specialists who wrote the guidelines received payments from the same companies whose brands they recommended. They also found that many guideline authors failed to disclose they had received such payments. Solid database research has shown that physicians who receive pharma company payments prescribe more patent-protected brands. Moreover, those who received even a single meal worth less than $20 from a pharma company were more likely to prescribe the brand promoted at that meal.53,54 The studies showing the infuence of pharma company payments and gifts examined the prescribing behavior of a large segment of physicians. The study examining free meal recipients, for example, assessed the prescribing of 280,000 physicians. This breadth of analysis makes it highly likely that payments and gifts bias the votes of prescription guideline authors and even prompt some recipients to infuence the votes of other committee members. Self-policing by physicians and their societies has completely failed to curb conficts of interest among the authors of prescribing guidelines. In 2011, the Institute of Medicine (now the National Academy of Medicine) issued standards in an attempt to curb such conficts. The Institute called for guideline committee chairmen to avoid all payments and gifts from pharma companies and one-half of all committee members to be similarly free of such conficts. Their effort did not result in any appreciable changes.55 Cohen56 claimed that this is because “doctors and professional associations refuse to consider industry-funded research a confict.” Research physicians claim that foregoing all funding from pharma would prevent them from conducting the research and developing the expertise necessary for serving on their specialty society’s guidelines committee. Pharma’s pernicious infuence over guideline committee members merely represents an extension of the industry’s sway over practicing physicians and medical researchers. Here too, reforming the particular problem must await changes to the wider health care system.

Paying Patient Advocacy Groups to Act as Shills Patient-advocacy organizations purport to promote disease research for the beneft of afficted patients. As interest groups that ostensibly represent

Pharma’s Violations and Dirty Tricks

37

a sympathetic constituency, they are infuential in affecting regulatory agency decisions and health insurer policies. A study published in 2017 by researchers from several colleges at the University of Pennsylvania showed that most of these organizations receive funding and maintain other connections with pharma companies and they fail to adequately disclose the details of those conficting interests.57 Despite claiming to represent the interests of patients, the groups that receive industry funding often take pharma’s side on policy issues, for example by opposing measures to curtail drug prices and by lobbying insurers to cover expensive drugs with questionable benefts.58,59 The University of Pennsylvania authors examined more than 100 patient advocacy groups based in the U.S., each with annual revenue in excess of $7.5 million. They found that more than 80% reported receiving industry support, while the rest refused to provide information. Only a single organization stated that it didn’t accept industry funding. Besides fnancial support, “one-third of the reviewed organizations reported having one or more board members that were also executives at pharmaceutical, biotech or medical device companies.” According to the study’s senior author, “institutional conficts of interest are the norm among larger patient-advocacy organizations,” and “disclosure and management of these conficts is limited.” Similarly, a 2019 study of patient advocacy groups in the U.K. contributing to health technology assessments conducted by the National Institute for Health and Care Excellence found that 72% of them “had accepted funding from the manufacturer(s) of a technology or a competitor product in the same year that they had contributed to the appraisal of that technology or the previous year,” even as “NICE’s decision making committees were aware of less than a quarter of specifc interests.”60 Philanthropic foundations that fund medical research also maintain conficts of interest as a result of fnancial and management ties with pharma companies. A study published in PLoS Medicine in 2011 found that large foundations, including the Gates Foundation, the Ford Foundation, W.K. Kellogg Foundation, the Rockefeller Foundation and the Robert Wood Johnson Foundation (a philanthropic outgrowth of Johnson & Johnson) maintain interlocking directorates with pharma companies. The result of these “incestuous” tie-ups is that foundations often make grants to groups or countries that smooth the adoption of pharma company products. In assessing how close connections between philanthropic foundations and private companies may pose a confict of interest, the study authors61 made the following statement: [Although] a private foundation clearly has the legal right to spend money however it wishes within the limits of the law . . . yet, in an environment where private foundations infuence the future direction of, for example, what programs will be introduced into a foreign community, in a manner that does not necessarily involve

38

Pharma’s Violations and Dirty Tricks directorship or voting from the community members themselves, it is reasonable to subject the decision-making processes of these entities to public debate, especially if these funds were to have otherwise been collected for public redistribution through federal taxation.

Other conficts of interest among medical charities and foundations are even less theoretical and involve more direct pecuniary gain. In late 2019, The Assistance Fund, a charity based in Florida, agreed to pay $4 million to resolve claims by the U.S. Justice Department that the Fund acted as a conduit for pharma companies such as Biogen and Novartis by making co-payments for Medicare patients using those companies’ high-priced multiple sclerosis drugs. U.S. federal law prohibits pharma companies from using co-pay cards or other methods to make the out-of-pocket co-payments required of Medicare patients. Such methods are permissible for patients covered by private insurance plans, but Medicare prohibits it because the effect of subsidizing co-payment requirements is to induce the choice of expensive, branded products instead of less costly generics. The settlement with The Assistance Fund marked the third one, up to that time, where pharma companies used charities as co-payment conduits.62 *** Analogous to the points made earlier concerning pharma payments and gifts infuencing the therapeutic decision making of prescribers, the sponsorship of advocacy organizations by pharma companies perverts the mission of those groups relative to supporting patient interests. In both cases, genuine reform would require radical changes to the nature of professional and organizational practice. The vast majority of physicians hold the mistakenly naïve and self-aggrandizing view that taking money and gifts from pharma companies does not compromise their integrity. Likewise, nonproft interest groups that are supposedly intended to advance patients’ welfare see no confict in accepting pharma donations and then promoting company views that confer dubious benefts or adversely impact patients’ purchasing decisions. As changing the disposition of both medical practice and nonproft organizations constitutes an impractically large-scale effort for health care reformers, it seems wiser to limit the imposition of prohibitions and appropriate penalties to pharma companies. Some specifc recommendations in this regard will follow at the end of this chapter.

Capturing Regulators In their 2019 study of this phenomenon, analysts Julie Margetta Morgan and Devin Duffy of the Roosevelt Institute defned corporate capture as “a form of corruption in which industry exerts undue infuence over

Pharma’s Violations and Dirty Tricks

39

policymakers in regulatory and legislative bodies, often at the expense of the public interest or in contravention of democratic will.”63 They went on to show that the pharmaceutical industry’s headlock on regulatory agencies and legislators is so strong as to constitute the operative example of government capture. Morgan and Duffy took their lead from a 2018 study by Charles Piller and Jia You, who had reviewed 107 physicians that served on FDA advisory committees in the U.S. Among that group, 40 had received more than $10,000 each from pharma companies that made drugs on which the advisors voted.64 An important tactic pharma uses for capturing regulatory and legislative personnel consists of creating a revolving door through which government personnel can earn substantially higher incomes by accepting industry jobs. After rising to senior company positions, these same people sometimes become what was once known as “dollar-a-year people,” accepting lower salaries to assume more important government jobs which they can use to beneft their companies. A study conducted by Jeffrey Bien and Vinay Prasad published in The British Medical Journal found that over a ten-year period, one-half of all FDA drug reviewers in hematology-oncology who left the agency took jobs with pharma companies.65 It doesn’t require a leap of imagination to believe that knowledge of the opportunities awaiting a move to a lucrative industry job predisposes a government staff employee to avoid antagonizing potential employers. The results of a study by the Sunlight Foundation should come as no surprise in this matter. They found the average Congressional chief of staff obtained a 40% salary increase after moving to a job in the private sector.66 Pharma uses its revolving door for legislative staffers as well as those in regulatory agencies. A study published by Kaiser Health News in 2018 found approximately 340 former U.S. Congressional staffers went to work for pharma companies or lobbying frms retained by those companies. At the same time, scores of former pharma company employees work as senior Congressional staffers, many for legislative committees with jurisdictions directly affecting the interests of their former companies.67 The consequences of pharma’s regulatory and legislative capture involve the approval and lack of restrictions on dangerous drugs, as well as permitting the industry to consistently get away with defrauding Medicaid. As far as compromised regulators permitting drug safety problems, a study published in the Journal of the American Medical Association found that almost one of every three compounds approved by the FDA between 2001 and 2010 presented safety issues across a spectrum of severity.68 Although almost all drugs have side effects and can pose safety issues to certain populations, the authors noted that one-third of approved drugs raise safety concerns that make their authorization highly debatable.

40

Pharma’s Violations and Dirty Tricks

In addition to facilitating the approval of compounds with questionable safety properties, pharma’s regulatory capture aggravates lax oversight and enforcement of price reporting requirements, thereby further encouraging the industry’s regular Medicaid fraud. The shortfall of rebates to Medicaid programs has caused state and local governments in the U.S. to increase their health care spending and fnd the money by cutting areas such as social services and education.69 Higher Medicaid costs have also forced several U.S. states and localities to impose tighter restrictions on the number of eligible benefciaries.70 Morgan and Duffy, as well as other analysts, make the point that pharma’s regulatory capture creates the additionally detrimental effect of stifing innovation. While larger pharma companies can afford the costs associated with the activities described earlier, smaller companies that may have comparable or better compounds cannot “play the game,” even if they chose to, and are thus at an immediate disadvantage. One must, therefore, question whether regulators, either by accident or design, impede the availability of competing products, some of which may offer more benefts than those companies that may have indirectly infuenced their approval.

Pushing Opioids During recent years in the U.S., more people died of overdoses, the majority of which involve opioid drugs, than “in the entirety of the Vietnam War, the Korean War, or any armed confict since the end of World War II. Each day 90 Americans die prematurely from an overdose that involves an opioid.”71 Overdoses related to the use of opioids are now the leading cause of unintentional injury death in the U.S., where almost 400,000 people died from this cause between 1999 and 2017.72 Pharma’s involvement in this epidemic of opioid overdoses and deaths does not constitute a separate category of violations and dirty tricks but merely a case where the industry’s customary practices produced especially grievous consequences. For example, a study published in JAMA Open Network in early 2019 found that opioid prescribing and overdoses in U.S. counties increased in relation to the amount of money pharma companies spent on marketing to physicians in those districts.73,74 Another factor in aggravating the opioid epidemic was pharma’s undue infuence over specialty society committees that write prescribing guidelines. In 1995, sponsored committee members of the American Pain Society overstressed the importance of pain management, referring to it as “the ffth vital sign.” In 2001 the Joint Commission (which certifes hospitals to receive Medicare payments) vastly overstated the degree to

Pharma’s Violations and Dirty Tricks

41

which pain is a quantifable phenomenon, claiming that this property aids physicians’ efforts to manage it. That assertion was later found to be false.75 The Joint Committee even published a guide on pain management for physicians that was sponsored by Purdue Pharma. It stated, “Some clinicians have inaccurate and exaggerated concerns about addiction, tolerance and risk of death. This attitude prevails despite the fact there is no evidence that addiction is a signifcant issue when persons are given opioids for pain control.”76 Purdue also knowingly propagated false information to physicians by way of its sales reps. They claimed, without any scientifc data, that only one in 10,000 patients treated with opioids would become addicted if treated by a physician. That led to Purdue paying a fne of $634,500,000 in 2007.77,78 In typical fashion, pharma sought to grow the opioid market beyond cancer and short-term recovery by marketing it for less severe conditions such as osteoarthritis. One study that gained some notoriety recommended oxycodone as round-the-clock therapy for osteoarthritis.79 By 2014, the mortality consequences of opioid addiction in the U.S. were serious enough to reduce life expectancy during the following three years. The decline affected numerous age and racial groups but was most severe among adults aged 25 to 64 years.80 At the time of this writing, scores of legal trials are underway against several pharma companies and distributors for knowingly contributing to the scourge of opioid addiction. Many states, cities, counties and other jurisdictions are suing pharma companies because the epidemic ballooned their health care costs. When the full story of pharma’s malfeasance emerges, it will likely show other fagrant abuses involving the industry’s routine patterns of doing business and, probably, additional categories of misconduct.

Chapter Summary Pharma’s routine pattern of doing business involves several categories of illegal and/or unethical conduct. All produce the result of “gouging” consumers, taxpayers and numerous levels of government, even as the pharmaceutical industry subjects the public to the exploitive misuse and overdosing of dubiously helpful medications. Off-label Marketing According to a published study of the matter, pharma commits more violations and has paid more fnes than any other sector of the economy. In this respect it has replaced the defense industry as the world’s leading transgressor.

42

Pharma’s Violations and Dirty Tricks

Fraudulent Pricing Manipulation Pharma companies must provide Medicaid the best price they offer to commercial customers for their brand-named drugs. Based on these reported best prices, the pharma companies pay rebates to the state Medicaid programs so that they receive the same discount benefts offered to other large commercial customers. However, pharma companies have manipulated and disguised the discounts they provide to commercial companies fraudulently denying appropriate rebates to Medicaid. Bribing Prescribers A 2007 survey published in the New England Journal of Medicine showed that 94% of U.S. physicians have some form of relationship with the pharmaceutical industry involving their receipt of money or items of value. This routine pattern of payola leads to physicians writing more prescriptions and more expensive prescriptions. As a result, a sizeable proportion of patients are overmedicated. Bribing Clinical Researchers and Key Opinion Leaders The overwhelming percentage of physician researchers that conduct clinical studies do so under sponsorship of pharma companies. 1. Sponsored researchers act as effective persuaders of garden variety, prescribing physicians. 2. Paid investigators take a direct hand in helping their pharma company sponsors design and feld trials that bias the results to favor positive results for test compounds. 3. Several studies have shown that fnancial leverage over investigators through the sponsorship of studies greatly increases the likelihood for reaching favorable results. 4. Buying the favors of medical researchers assures pharma companies that they will receive positive reviews from supposedly independent experts that advise medical journals about publishing study results. Subverting Medical Journals Medical journals and the studies they publish strongly infuence the prescribing behavior of practicing physicians. The pharma companies emasculate the journals as a result of the fact that they usually allow the publication of only those studies which produce favorable results for their products. This means that prescribing physicians whose therapeutic decision making is affected by journals get to see only a distorted picture of the products they use for treating patients. Other tactics that pharma

Pharma’s Violations and Dirty Tricks

43

companies use to degrade the content of medical journals include “ghostwriting” and “author shopping.” Buying the Favor of Specialty Society Committee Members That Write Prescribing Guidelines The professional societies of medicine’s several specialties exert substantial infuence over the prescribing behavior of practitioners within those respective felds. Each specialty society maintains a guideline committee charged with issuing formal recommendations on therapeutics to member specialists. Several studies have shown that between one-third and one-half of committee members writing the prescribing guidelines for specialty societies received payments from the companies marketing one or more of the top-selling brands. Paying Patient Advocacy Groups to Act as Shills Patient-advocacy organizations purport to promote disease research for the beneft of afficted patients. As interest groups that ostensibly represent a sympathetic constituency, they are infuential in affecting regulatory agency decisions and health insurer policies. Studies have shown that most of these organizations receive funding and maintain other connections with pharma companies and they fail to adequately disclose the details about those conficts of interest. Despite claiming to represent the interests of patients, the groups that receive industry funding often take pharma’s side on policy issues. Capturing Regulators Corporate capture is defned as, “a form of corruption in which industry exerts undue infuence over policymakers in regulatory and legislative bodies, often at the expense of the public interest or in contravention of democratic will.” The pharmaceutical industry’s headlock on regulatory agencies and legislators constitutes the operative example of government capture. Pharma captures regulatory agencies as a result of creating a revolving door through which government personnel can earn substantially higher incomes by accepting industry jobs and then, after rising to senior company positions, these same people sometimes go back to assume more important government jobs which they can use to beneft their companies. Pushing Opioids Overdoses related to the use of opioids are now the leading cause of unintentional injury death in the U.S. Pharma’s involvement in this epidemic

44

Pharma’s Violations and Dirty Tricks

of opioid overdoses and deaths does not constitute a separate category of violations and dirty tricks, but merely a case where the industry’s customary practices produced especially grievous consequences. Examples where the pharma industry’s routine patterns of conducting business aggravated ravages from the opioid epidemic include the following: • • • •

Using inducements and deceptive marketing messages to infuence prescribers Paying committee members that write prescribing guidelines for specialty societies to recommend aggressive use of opioids Propagating false information that seriously under-represented the addiction potential of opioids Disease mongering to urge opioid use for conditions not requiring such highly potent analgesia

Notes 1. Peter Burrows, “The Seed of Apple’s Innovation,” Business Week, October 12, 2004, www.bloomberg.com/news/articles/2004-10-11/the-seedof-apples-innovation 2. Katherine Johnson, Yang Li, Hang Phan, Jason Singer, and Hoang Trinh, “The Innovative Success That Is Apple, Inc.,” Marshall Digital Scholar, January 1, 2012, p. 3, http://mds.marshall.edu/cgi/viewcontent.cgi?article=142 0&context=etd/> 3. Sammy Almashat, M.D., M.P.H., Charles Preston, M.D., M.P.H., Timothy Waterman, B.S., and Sidney Wolfe, M.D., “Rapidly Increasing Criminal and Civil Monetary Penalties Against the Pharmaceutical Industry: 1991 to 2010, ‘Passim,’” Public Citizen’s Health Research Group, December 16, 2010, www.citizen.org/ wpcontent/uploads/migration/rapidlyincreasingcriminalandcivilpenalties.pdf 4. Also, Sammy Almashat, M.D., M.P.H., and Sidney Wolfe, M.D., “Pharmaceutical Industry Criminal and Civil Penalties: An Update,” Public Citizen, September 27, 2012. The authors also published a third study that updated their fndings through 2017. See Sammy Almashat, Ryan Lang, Sidney M. Wolfe, and Michael Carome, “Twenty-Seven Years of Pharmaceutical Industry Criminal and Civil Penalties: 1991 Through 2017,” Public Citizen, March 14, 2018, passim, www.citizen.org/wp-content/uploads/2408.pdf 5. Almashat, Preston, Waterman, and Wolfe, op.cit., p. 18. 6. Ibid, p. 16. 7. Salomeh Keyhani, et.al., “Are Development Times for Pharmaceuticals Increasing or Decreasing?” Health Affairs, Vol. 25, Issue 2 (2006): 461–468, www.ncbi.nlm.nih.gov/pubmed/16522587 8. John Sculley and John A. Byrne, Odyssey: Pepsi to Apple: A Journey of Adventure, Ideas, and the Future (New York, NY: HarperCollins, 1987). 9. Almashat, Preston, Waterman, and Wolfe, op.cit., p. 2. 10. Consumer Affairs, “FDA Estimates Vioxx Caused 27,785 Deaths,” November 4, 2014, www.consumeraffairs.com/news04/vioxx_estimates.html 11. Lynn Stout, The Myth of Shareholder Value (San Francisco, CA: BerretKoehler, 2012). 12. Almashat and Wolfe, op.cit., www.citizen.org/wp-content/uploads/2073.pdf

Pharma’s Violations and Dirty Tricks

45

13. Ed Silverman, “Drugmakers Charged With Defrauding Medicaid,” Pharmalot, October 5, 2011, www.pharmalot.com/2011/10/drugmakers-chargedwith-defrauding-medicaid/ 14. U.S. Department of Justice, “Wyeth and Pfzer Agree to Pay $784.6 Million to Resolve Lawsuit Alleging That Wyeth Underpaid Drug Rebates to Medicaid,” April 27, 2016, www.justice.gov/opa/pr/wyeth-and-pfzer-agreepay-7846-million-resolve-lawsuit-alleging-wyeth-underpaid-drug-rebates 15. U.S. Department of Justice, “Fact Sheet: Signifcant False Claims Act Settlements & Judgments, Fiscal Years 2009–2016,” www.justice.gov/opa/ press-release/fle/918366/download 16. Dana Katz, Arthur L. Caplan, and Jon F. Merz, “All Gifts Large and Small: Toward an Understanding of the Ethics of Pharmaceutical Industry Gift-Giving,” American Journal of Bioethics, Vol. 3 (2003): 39–46, www.researchgate. net/publication/47416070_All_Gifts_Large_and_Small_Toward_an_ Understanding_of_the_Ethics_of_Pharmaceutical_Industry_Gift-Giving 17. On the sense of obligation induced by gifts, see Marcel Mauss, The Gift: Forms and Functions of Exchange in Archaic Societies Paperback (New York, NY: W.W. Norton, 1954 ed.). 18. For feld studies showing that physicians change their practices to reciprocate gifts and favors, see C. Mather, “The Pipeline and the Porcupine: Alternate Metaphors of the Physician-Industry Relationship,” Society of Scientifc Medicine, Vol. 60, Issue 6 (March 2005): 1323–1334, www.ncbi.nlm.nih. gov/pubmed/15626527 19. Don Moore and George Lowenstein, “Self-Interest, Automaticity, and the Psychology of Confict of Interest,” Social Justice Research, Vol. 17, Issue 2 (June 2004): 189–202, www.researchgate.net/publication/journal/08857466_Social_Justice_Research 20. Sunita Sah, “Conficts of Interest and Your Physician: Psychological Processes That Cause Unexpected Changes in Behavior,” The Journal of Law, Medicine & Ethics, Vol. 40, Issue 3 (October 12, 2012), https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1748-720X.2012.00680.x 21. Eric G. Campbell, Russell L. Gruen, James Mountford, Lawrence G. Miller, Paul D. Cleary, and David Blumenthal, “A National Survey of Physician-Industry Relationships,” New England Journal of Medicine, Vol. 356 (April 26, 2007): 1742–1750, www.nejm.org/doi/full/10.1056/NEJMsa064508 22. Genevieve Pham-Kanter, Michelle M. Mello, Lisa Soleymani Lehmann, Eric G. Campbell, and Daniel Carpenter, “Public Awareness of and Contact With Physicians Who Receive Industry Payments: A National Survey,” Journal of General Internal Medicine, Vol. 32, Issue 7 (July 2017): 767–774, www. ncbi.nlm.nih.gov/pmc/articles/PMC5481229/ 23. Drexel University, “Two-Thirds of Americans See Docs Who Got Paid by Drug Companies,” Science Daily, March 6, 2017, https://www.sciencedaily. com/releases/2017/03/170306114211.htm 24. Susan F. Wood, et.al., “Infuence of Pharmaceutical Marketing on Medicare Prescriptions in the District of Columbia,” PlosOne, October 25, 2017, https://journals.plos.org/plosone/article?id=10.1371/journal.pone.018 6060 25. Robert Preidt, “Drug Co. Gifts Might Change How Docs Prescribe,” HealthDay, October 25, 2017, www.webmd.com/drug-medication/news/20171025/ drug-co-gifts-might-change-how-docs-prescribe 26. Dr. Aaron Mitchell, et.al., “Payments to Doctors Linked to Prescription Practices for Two Cancer Types,” JAMA Internal Medicine, April 8, 2018, https:// jamanetwork.com/journals/jamainternalmedicine/fullarticle/2677058# full-text-tab

46

Pharma’s Violations and Dirty Tricks

27. Lineberger Comprehensive Cancer Center, University of North Carolina, “Payments to Doctors Linked to Prescription Practices for Two Cancer Types,” April 9, 2018, https://unclineberger.org/news-archives/pharma-payments-todoctors/ 28. Matthew Grennan, et.al., “Physician-Industry Interactions: Persuasion and Welfare,”National Bureau of Economic Research, Working Paper #24864, July2018, www.nber.org/papers/w24864?utm_campaign=ntw&utm_medium= email&utm_source=ntw 29. Tracy Weber and Charles Ornstein, “Lawsuits Say Pharma Illegally Paid Doctors to Push Their Drugs,” ProPublica, October 18, 2010, www.propublica. org/article/lawsuits-say-pharma-illegally-paid-doctors-to-push-their-drugs 30. Jessica Huseman, “Drug and Device Makers Pay Thousands of Docs With Disciplinary Records,” ProPublica, August 23, 2016, www.propublica.org/article/ drug-and-device-makers-pay-thousands-of-docs-with-disciplinary-records 31. Faye Flam, “Doctors Like to Think Big Pharma Doesn’t Sway Them: It Does,” Bloomberg, October 4, 2018, www.bloomberg.com/opinion/ articles/2018-10-04/doctors-often-don-t-see-conflict-of-interest-in-drugcompany-cash 32. Wendy A. Rogers, Peter R. Mansfeld, Annette J. Braunack-Mayer, and Jon N. Jureidini, “The Ethics of Pharmaceutical Industry Relationships With Medical Students,” Medical Journal of Australia, April 19, 2004, www.mja.com.au/journal/2004/180/8/ethics-pharmaceutical-industryrelationships-medical-students 33. Harriet A. Washington, “Flacking for Big Pharma,” The American Scholar, June 3, 2011, https://theamericanscholar.org/facking-for-big-pharma/ 34. Joel Lexchin, “Those Who Have the Gold Make the Evidence: How the Pharmaceutical Industry Biases the Outcomes of Clinical Trials of Medications,” Science and Engineering Ethics, February 15, 2011, www.ncbi.nlm. nih.gov/pubmed/21327723 35. Washington, op.cit. 36. Sten Stovall, “Positive Drug Trial Results Higher When Author Paid FeesStudy,” May27, 2011, www.foxbusiness.com/industries/2011/05/27/positivedrug-trial-results-higher-author-paid-fees-study/? 37. Paul M. Ridker and Jose Torres, “Reported Outcomes in Major Cardiovascular Clinical Trials Funded by for-Proft and Not-for-Proft Organizations: 2000–2005,” Journal of the American Medical Association, Vol. 295, Issue 19 (May 17, 2006): 2270–2274, www.ncbi.nlm.nih.gov/pubmed/ 16705108 38. More comprehensive studies have shown that almost all clinical researchers, spanning the spectrum of therapeutic classes, receive funding from pharma companies that represents conficts of interest. See Drs. Joel Lexchin, Lisa A. Bero, Benjamin Djulbegovic, and Otavio Clark, “Pharmaceutical Industry Sponsorship and Research Outcome and Quality: Systematic Review,” British Medical Journal, Vol. 326, Issue 7400 (May 31, 2003): 1167–1170, www.bmj.com/content/326/7400/1167 39. Washington, op.cit. 40. Ibid. 41. An-Wen Chan, et.al., “Association of Trial Registration With Reporting of Primary Outcomes in Protocols and Publications,” Journal of the American Medical Association, Vol. 318, Issue 17 (November 7, 2017): 1709–1711, www.ncbi.nlm.nih.gov/pmc/articles/PMC5818784/ 42. Richard Lehman and Elizabeth Loder, Oxford University, “Missing Clinical Trial Data, a Threat to the Integrity of Evidence-Based Medicine,” British Medical Journal, January 3, 2012, www.bmj.com/content/344/bmj.d8158

Pharma’s Violations and Dirty Tricks

47

43. Harlan Krumholz, “Medicine’s Biggest Threat,” Forbes, January4, 2012,www. forbes.com/sites/harlankrumholz/2012/01/04/medicines-biggest-threat/ 44. Lisa Rapaport, “Discrepancy Between Trial Goals, Results May Mask Treatment Risks,” Reuters, September 12, 2017, www.reuters.com/article/ us-health-clinicaltrials-discrepancies...cy-between-trial-goals-results-may-masktreatment-risks-idUSKCN1BO2C7 45. Hedyeh Ziai, Rujun Zhang, An-Wen Chan, and Nav Persaud, “Search for Unpublished Data by Systematic Reviewers: An Audit,” British Medical Journal, Vol. 7 (October 2017): 10, https://bmjopen.bmj.com/content/bmjopen/7/10/e017737.full.pdf. See also a report showing that nearly 60% of studies failed to publish results within a year, as mandated by rules promulgated in the U.S. by the Department of Health and Human Services and the National Institutes of Health. Nicholas J. DeVito and Ben Goldacre, “Compliance With Legal Requirement to Report Clinical Trial Results on ClinicalTrials.gov: A Cohort Study,” The Lancet, Vol. 395, Issue 10221 (February 1–7, 2020): 361–369, www.sciencedirect.com/science/article/pii/S0140673619332209 46. Huseyin Naci, et.al., “Design Characteristics, Risk of Bias, and Reporting of Randomised Controlled Trials Supporting Approvals of Cancer Drugs by European Medicines Agency, 2014–16: Cross Sectional Analysis,” British Medical Journal, Vol. 366 (September 18, 2019): l5221, www.bmj.com/ content/366/bmj.l5221 47. Beate Wieseler, Natalie McGauran, and Thomas Kaiser, “New Drugs: Where Did We Go Wrong and What Can We Do Better?” British Medical Journal, Vol. 366 (July 11, 2019): l4340, www.bmj.com/content/366/bmj.l4340 48. James Ives, “Almost Half of Total Funding for Publication of Clinical Trials Is Not Disclosed, Finds Research,” News, Medical Life Sciences, August 31, 2018, www.news-medical.net/news/20180831/Almost-half-of-total-funding-for-publication-of-clinical-trials-is-not-disclosed-fnds-research.aspx# 49. Adriane J. Fugh-Berman, “The Haunting of Medical Journals: How Ghostwriting Sold ‘HRT,’ ” PLoS Medicine, Vol. 7, Issue 9 (September 7, 2010): e1000335, https://doi.org/10.1371/journal.pmed.1000335 50. Ronnie Cohen, “Policing Big Pharma’s Infuence Over Doctors’ Treatment Guidelines,”Undark, February4, 2019, https://undark.org/article/big-pharmainfuences-clinical-practice-guidelines/ 51. Samir Grover, M.D., “Prevalence of Financial Conficts of Interest Among Authors of Clinical Guidelines Related to High-Revenue Medications,” JAMA Internal Medicine, Vol. 178, Issue 12 (December 2018): 1712–1715, https:// jamanetwork.com/journals/jamainternalmedicine/article-abstract/2708193 52. Tyler R. Combs, et.al., “Evaluation of Industry Relationships Among Authors of Clinical Practice Guidelines in Gastroenterology,” JAMA Internal Medicine, Vol. 178, Issue 12 (December 2018): 1711–1712, https:// jamanetwork.com/journals/jamainternalmedicine/article-abstract/2708192 53. Charles Ornstein, Mike Tigas, and Ryann Grochowski Jones, “Now There’s Proof: Docs Who Get Company Cash Tend to Prescribe More BrandName Meds,” ProPublica, March 7, 2016, www.propublica.org/article/ doctors-who-take-company-cash-tend-to-prescribe-more-brand-name-drugs 54. Colette DeJong, et.al., “Pharmaceutical Industry-Sponsored Meals and Physician Prescribing Patterns for Medicare Benefciaries,” JAMA Internal Medicine, Vol. 176, Issue 8 (August 2016): 1114–1122, https://jamanetwork.com/ journals/jamainternalmedicine/fullarticle/2528290, cited in, Maggie Fox, “Doctors Fall for Free Lunches from Drug Companies, Study Shows,” NBC News, June 20, 2016, www.nbcnews.com/health/health-news/free-lunches-pay-drug-companiesstudy-shows-n595906

48

Pharma’s Violations and Dirty Tricks

55. Robin Graham, Michelle Mancher, Dianne Miller Wolman, Sheldon Greenfeld, and Earl Steinberg, “Clinical Practice Guidelines We Can Trust,” in Institute of Medicine of The National Academies (Washington, D.C.: The National Academies Press, 2011), www.nap.edu/read/13058/chapter/1 56. Cohen, op.cit. 57. Matthew McCoy, Michael Carniol, Katherine Chockley, John W. Urwin, and Ezekiel J. Emanuel, “Conficts of Interest for Patient-Advocacy Organizations,” New England Journal of Medicine, Vol. 376, Issue 9 (March 2, 2017): 880–885, www.ncbi.nlm.nih.gov/pubmed/28249131 58. Emily Kopp, Sydney Lupkin, and Elizabeth Lucas, “Patient Advocacy Groups Take in Millions from Drugmakers: Is There a Payback?” Kaiser Health News, April 6, 2018, https://khn.org/news/patient-advocacy-groupstake-in-millions-from-drugmakers-is-there-a-payback/ 59. Lee Fang, “Big Pharma Funds ‘Independent’ Advocacy Groups Attacking Drug-Price Reduction,” The Intercept, April 10, 2017, https://theintercept. com/2017/04/10/drug-price-astroturf/ 60. “Widespread Conficts of Interest Among Patient-Advocacy Organizations Uncovered in Study,” Eureka Alert, March 3, 2017, www.eurekalert.org/ pub_releases/2017-03/uops-Wco030317.php. For the study of conficted advocacy groups infuencing assessments by the U.K.’s NICE, see Kate L. Mandeville, Rosie Barker, Alice Packham, Charlotte Sowerby, Kielan Yarrow, and Hannah Patrick, “Financial Interests of Patient Organisations Contributing to Technology Assessment at England’s National Institute for Health and Care Excellence: Policy Review,” British Medical Journal, Vol. 364 (2019): k5300, www.bmj.com/content/364/bmj.k5300 61. David Stuckler, Sanjay Basu, and Martin McKee, “Global Health Philanthropy and Institutional Relationships: How Should Conficts of Interest Be Addressed?” PLoS Medicine, April 12, 2011, https://journals.plos.org/plosmedicine/article?id=10.1371/journal.pmed.1001020 62. Nate Raymond, “Charity to Pay $4 Million to Resolve U.S. Pharma Kickback Probe,” Reuters, November 20, 2019, https://uk.reuters.com/ article/us-usa-healthcare-charities-settlement/charity-to-pay-4-million-toresolve-u-s-pharma-kickback-probe-idUKKBN1XU2MY 63. Julie Margetta Morgan and Devin Duffy, “The Cost of Capture: How the Pharmaceutical Industry Has Corrupted Policymakers and Harmed Patients,” The Roosevelt Institute, May 22, 2019, https://rooseveltinstitute. org/the-cost-of-capture/ 64. Charles Piller and Jia You, “Hidden Conficts? Pharma Payments to FDA Advisers After Drug Approvals Spark Ethical Concerns,” Science Magazine, July 5, 2018, www.sciencemag.org/news/2018/07/hidden-conficts-pharmapayments-fda-advisers-after-drug-approvals-spark-ethical 65. Jeffrey Bien and Vinay Prasad, “Future Jobs of FDA’s Haematology-Oncology Reviewers,” The British Medical Journal: Letters, September 27, 2016, https://drive.google.com/file/d/1QMEqHaeeflj2nQLcl7tDuqzd-1yFFvPT/ view 66. “Keeping Congress Competent: Staff Pay, Turnover, and What It Means for Democracy,” Sunlight Foundation, December 21, 2010, https://sunlightfoundation.com/wp-content/uploads/2016/11/Staff-Pay-Blogpost.pdf 67. Sydney Lupkin, “Big Pharma Greets Hundreds of Ex-Federal Workers at the ‘Revolving Door,’ ” Kaiser Health News, January 25, 2018, https://khn.org/ news/big-pharma-greets-hundreds-of-ex-federal-workers-at-the- revolvingdoor/ 68. Downing, Nicholas, Nilay Shah, Jenerius Aminawung, Alison Pease, JeanDavid Zeitoun, Harlan Krumholz, and Joseph Ross, “Postmarket Safety Events Among Novel Therapeutics Approved by the US Food and Drug

Pharma’s Violations and Dirty Tricks

69. 70.

71. 72. 73.

74.

75.

76. 77. 78.

79.

80.

49

Administration Between 2001 and 2010,” Journal of the American Medical Association, Vol. 317, Issue 18 (May 9, 2017): 1854–1863, https://jamanetwork.com/journals/jama/fullarticle/2625319 Morgan and Duffy, op.cit. Liz Essley Whyte, Joe Yerardi, and Alison Fitzgerald Kodjak, “How Drugmakers Sway States to Proft Off of Medicaid,” Center for Public Integrity, July 18, 2018, https://publicintegrity.org/state-politics/medicaid-under-the- infuence/ how-drugmakers-sway-states-to-proft-off-of-medicaid/ Jonathan K. Phillips, Morgan A. Ford, and Richard J. Bonnie, editors, Pain Management and the Opioid Epidemic (Washington, D.C.: National Academies Press, 2017), www.ncbi.nlm.nih.gov/books/NBK458660/ Centers for Disease Control and Prevention, “Opioid Overdose,” 2018, www.cdc.gov/drugoverdose/index.html Tom Jacobs, “Opioid Deaths Follow Where Big Pharma Spends Money on Marketing to Doctors: A New Study Suggests Drug-Company Practices Helped Create the Current Epidemic,” PSMag, The Social Justice Foundation, January 18, 2019, https://psmag.com/social-justice/opioid-deaths-followwhere-big-pharma-spends-money-on-marketing-to-doctors Scott E. Hadland, Magdalena Cerdá, and Brandon D. L. Marshall, “Association of Pharmaceutical Industry Marketing of Opioid Products With Mortality from Opioid-Related Overdoses,” JAMA Open Network, Vol. 2, Issue 1 (January 18, 2019): e186007, https://jamanetwork.com/journals/ jamanetworkopen/fullarticle/2720914 Richard A. Mularski, Foy White-Chu, Devorah Overbay, Lois Miller, Steven M. Asch, and Linda Ganzini, “Measuring Pain as the 5th Vital Sign Does Not Improve Quality of Pain Management,” Journal of General Internal Medicine, Vol. 21 (2006): 607–612, www.ncbi.nlm.nih.gov/pubmed/16808744 Quoted in Ronald Hirsch, M.D., “It’s Time to Place Blame Where It Belongs,” Missouri Medicine, Vol. 114, Issue 2 (March-April 2017): 82–83, 90, www.ncbi.nlm.nih.gov/pmc/articles/PMC6140023/ Ibid. Also see Mark R. Jones, Omar Viswanath, Jacquelyn Peck, Alan D. Kaye, Jatinder S. Gill, and Thomas T. Simopoulos, “A Brief History of the Opioid Epidemic and Strategies for Pain Medicine,” Pain and Therapy, Vol. 7 (2018): 13–21, www.ncbi.nlm.nih.gov/pubmed/29691801 Sanford H. Roth, et.al., “Around-the-Clock, Controlled-Release Oxycodone Therapy for Osteoarthritis-Related Pain: Placebo-Controlled Trial and Long-Term Evaluation,” Archives of Internal Medicine, Vol. 160 (2000): 853–860, www.ncbi.nlm.nih.gov/pubmed/10737286 Steven H. Woolf and Heidi Schoomaker, “Life Expectancy and Mortality Rates in the United States, 1959–2017,” Journal of the American Medical Association, Vol. 322, Issue 20 (November 26, 2019): 1996–2016, https:// jamanetwork.com/journals/jama/article-abstract/2756187

3

The Economics of the Pharmaceutical Industry

Some observers characterize pharma’s economic situation as a legally rigged game that generates unconscionable profts, some of which it uses to procure the support of offce holders for the purpose of extorting money from consumers and taxpayers. The extent to which this description may or may not be correct is less important than understanding pharma’s economic underpinning more precisely. There are at least three reasons for gaining a better understanding of this economic basis. First, all health systems—whether private, nationalized or some mix—need a productive pharmaceutical industry to develop new therapies for advancing standards of care that improve the quality and length of life. The idea of foregoing an economic model for the industry and leaving drug research to a wide array of uncoordinated, academic and government-funded entities would almost certainly delay focused efforts into needed issues. Although such helter-skelter approaches, particularly those involving new markets in certain sectors, may create some ingenious products and services, the costs of developing new medications are too high and the consequences of inordinate delay are too serious to proceed by chance. A second problem, with the idea of simply funding medical research without an economic plan is the implicit notion that scientists, left to their own devices, can best guide the process. While the researchers certainly merit an important voice in any system for drug development, managers must counterbalance scientifc and career agendas with public need and economics. Research scientists maintain their own agendas that often diverge from the public’s better interests. Many researchers seek to pursue projects based on the fact that they fnd the underlying scientifc mechanisms interesting or challenging, regardless of the urgency, breadth of application or importance to public health. In other cases, scientists are animated mainly by a desire to prove or disprove a particular hypothesis or theory whose bit they hold between their teeth. Matters of public well-being can take a back seat in those cases as well. Finally, the advanced countries of the world maintain mixed-capitalist economies, underpinned by varying levels of social safety nets. Instances

Economics of the Pharmaceutical Industry

51

where major economic sectors are owned and managed entirely as government entities are exceedingly few. If some version of a capitalist model for pharma is envisioned, then creating a public-minded, non-exploitive form requires understanding how the industry of today has captured and perverted the capitalist system.

Government Protection of the Pharmaceutical Industry The pharmaceutical industry maintains that it incurs inordinate risk and spends enormous sums on research over many years to develop each new drug. The following discussion will attempt to show that this image created by pharma for public consumption is largely a myth. The ancillary myth of pharma as an industry led by bold entrepreneurs, competing tooth and nail in a rigorous market, is likewise a fantasy. The fact remains that pharma is one of the most protected industries in the contemporary world, insulated in numerous ways from competitive aspects of the market by government giveaways. Unlike most other industrialized countries which have laws to regulate the price of prescription drugs, the U.S. implements laws to protect the industry from competition. Some of these protections that government provides to the pharmaceutical industry are as follows. Market Protection Under Patent Laws The discovery and development of new compounds is the heart and soul of the branded pharmaceutical industry. The protection from competition provided to pharma companies by government patents creates the oligopoly that gives the industry the power to price its products as a cartel with only a limited, denatured form of competition. Accordingly, patent protection and market exclusivity are pharma’s keystone and ratelimiting factors. For branded pharma companies, “new products” refer to advancing those compounds on which a developer can acquire a patent and gain marketing exclusivity. Drug companies will conduct almost no research or spend any money unless doing so advances the launch and/or commercial prospects of a patented compound with exclusive marketing privileges. Pharma and its supporters claim that the high costs, extreme risk and long period required to develop new drugs require patent protection and exclusivity, lest other companies piggyback on the original developer by selling identical, competing products without the need for risky investment.1 Economists claim that pharma operates as a high-fxed, low marginal cost industry. The term basically means that the cost of bringing a new drug to market is high and the process contains a large element of risk, even as the cost of producing an extra unit of a drug already on the

52

Economics of the Pharmaceutical Industry

market is miniscule. Airlines operate in a similar fashion, where the cost of acquiring a new plane and equipping it to fy are high, while the cost of fying an additional passenger on a fight is almost infnitesimal. The centrality of patent protection as pharma’s proft basis was revealed in a candid remark by one of the industry’s CEOs. On rare occasions those top executives step away from the fatuous, misleading commentary spoon-fed to them by their PR departments and make candid statements about their business efforts. Such was the case in late 2013 when Bayer CEO Marijn Dekkers railed against the Indian government for suspending his company’s patent on its cancer drug, Nexavar, through a process known as “compulsory licensing.” Price negotiations between Bayer and the national health system in India had broken down when the company refused to sell the drug at a price that India’s ministers felt they could afford. At a gathering hosted by the Financial Times on December 3 of that year, Dekkers2 told attendees, “We didn’t make this medicine for Indians . . . we made it for western patients who can afford it.” Apparently, Dekkers felt comfortable in asserting that India’s low-income level did not entitle their population to receive a new cancer remedy. Pharma considers patent protection so essential to its proftability that the industry devotes substantial effort to extending the times of its patent exclusivity because the longer a company can operate with such government largesse, the more money it can collect from its monopoly power. According to the Canadian physician and health policy researcher Dr. Joel Lexchin, pharma maintains a history of more than 30 years where it has connived for longer patent protection.3,4,5 The Hatch-Waxman Act is one such law that provides pharma with patent protection. It allows pharmaceutical companies to extend the life of a drug patent and delay competition from generic drug manufacturers, simply by claiming that the drug has been modifed or is being used for different treatments. Importation Laws Many countries outside the U.S. regulate the price of drugs. As a result, Americans can purchase medications in other countries, such as Canada, at approximately one-half the U.S. price.6 That means while individual Americans may drive or take public transportation to Canada to fll prescriptions with only minimal risk of law enforcement sanctions, the U.S. government has enacted laws to prohibit drug wholesalers and retail pharmacy chains from importing lower cost medications into the U.S. Limited Medicare and Medicaid Coverage of Prescription Drugs Most of the world’s governments help their citizens and residents afford prescription medications by acting as volume purchasers that negotiate

Economics of the Pharmaceutical Industry

53

prices with pharma companies. In their negotiations, these countries hold the threat of compulsory licensing over the heads of the pharma companies. Although seldom used, compulsory licensing permits a government to suspend a drug’s patent and manufacture it as a generic if it deems the medication unaffordable and essential to public health. The U.S. either specifcally prohibits its various government levels from using their volume purchasing power or limits the extent to which they can do so. As an example of the latter, various agencies such as the Veterans Administration and Medicaid, which do act as volume purchasers, are obliged to pay for coverage of all FDA-approved medications. This means the agencies are not allowed to use restrictive formularies that would enable them to demand competitive price bidding from pharma companies with similarly acting medications. Given the rejection by U.S. government agencies of volume purchasing power, Americans must rely on private insurers to pay 42% of prescription drug costs. while consumers themselves pay for another 14%. Medicare Part D, the government plan for people over age 65, pays for 30% of prescription drug costs. Medicaid, the state-administered plans for lower-wage workers and the impecunious, pays for 10%.7 This means that even the U.S. government’s subsidy in the form of Medicare accords a limited beneft to its senior citizens. According to a recent study by the Harvard School of Public Health, the comparatively higher prices that Americans receiving Medicare pay for their medications cause more than half of those with serious illnesses to live under “fnancial distress.”8 Medicare and Medicaid Pricing Formulas The pharma companies collect enormous profts in the U.S. through the use of Medicare and Medicaid pricing formulas that reimburse providers—hospitals and physicians—according to various formulas that encourage the use of newer and costlier medications that are administered in physicians’ offces, clinics and hospitals.9 The hospitals and physician offces buy the medications from pharma companies at negotiated deal prices that are less than the amounts these agencies reimburse the providers. The formulas reimburse providers in the range of cost plus +/- 5–6%. The +/- 5–6% premium on more expensive medications brings the providers larger absolute profts than the same percentage on less expensive ones. When the Medicaid or Medicare programs attempted to negotiate the price or utilize a more realistic pricing formula, Congress intervened and forced the agencies to pay a minimum price at the level reported by the drug manufacturers. This system, known as “buy-and-bill,”10 leads oncologists to charge 9–15%11 more for physician-administered drugs than other specialists. Buy-and-bill is highly lucrative for oncology practices. More than 50% of the gross revenues12 of oncology practices come from the margin

54

Economics of the Pharmaceutical Industry

between drugs acquired at deal prices and reimbursement payments by the government. Tax Benefts Federal tax credits include measures such as the Research and Experimentation Tax Credit, the Orphan Drug Tax Credit and the Possessions Tax Credit. Under U.S. tax laws, companies need not separately report research-related tax credits apart from other general business tax credits. As a result, there is no publicly available data showing precisely how much tax relief the pharma industry receives for its R&D. But in 1999, the Congressional Research Service studied industry taxation in the U.S. for the seven years between 1990 through 1996. They found that researchrelated tax credits lowered pharma’s effective tax rate from 35.2% to 17.1%, which is lower than the tax rate of average wage earners.13 It is important here to understand the concept of tax credits and the extent to which they represent a giveaway to the pharmaceutical industry. Tax credits consist of a dollar-for-dollar reduction on taxes that amounts to a substantially larger beneft than a tax deduction. Pharma companies can claim a tax credit amounting to at least 50% of the money they spend on R&D during a given year. By itself, this Research and Experimentation Tax Credit publicly subsidizes 50% of all pharma R&D, making pharma the least taxed industry in the U.S.14

Pharma’s Extraordinary Proftability Operating from a basis of government protection and subvention, the pharmaceutical industry has been extraordinarily proftable, although various studies differ on the exact measure of that proftability. According to a January 2018 study by New York University’s Stern School of Business, the average net operating margins of 185 pharmaceutical companies is 14.05%,15 although some companies, such as Amgen and Gilead Sciences, operate with margins of 35% and 45%, respectively.16 On the other hand, the BBC News found that in 2013 the average net margins for pharma companies exceeded those of all commercial sectors except banks. In that year, the net margins for Pfzer, Hoffman-LaRoche, AbbVie, GlaxoSmithKline and Eli Lilly exceeded 20%. According to one observer, Pfzer’s “42% proft margin blew every other company out of the water.” An earlier 2002 study by Families USA also found the net operating margin for pharma companies hovers in the +/-20% range.17 Despite the exact margin, the range of government protections makes pharma extraordinarily proftable. A report by the Minnesota AttorneyGeneral concluded that its net operating margin is approximately 5½ times that of the average Fortune 500 company.18

Economics of the Pharmaceutical Industry

55

Pharma—An Oligopoly That Defes Markets There is a point worth emphasizing in this discussion about government making pharma a protected industry. The result of patents, import restrictions, the government abandoning its volume purchasing power and using infated pricing formulas to reimburse providers for drug purchases is not just that pharma is extraordinarily proftable but that it extracts such outsized proft by completely defying the economic principles of markets.19 It was highly ironic and somewhat amusing in 2015 when the Wall Street Journal, the media’s Vatican of oligopoly, neoliberal capitalism, ran a front page article describing what it considered the astonishing nature of pharma’s proftability. In complete defance of market principles, the Journal breathlessly reported, pharma constitutes a major economic sector that derives its proft growth by regularly increasing prices at double and triple the rate of cost-of-living increases, and it does so even as its unit sales volume declines. The Journal, which regularly seeks to justify its corporate cheerleading on the basis of market principles established by Adam Smith in the 18th century, showed disingenuous surprise that in the middle of the 21st century’s second decade, an industry could defy market principles by steadily raising its prices as demand for its branded (i.e., patent protected) products keeps falling. This has continued for more than a decade as the percentage of all prescriptions flled in the U.S. by generics rose from 72% to 90% between 2008 and 2017.20 From 2010 through 2014, pharma’s top line revenue grew 61%, three times the increase in prescriptions. Wholesale-price increases for the 30 top-selling drugs analyzed by the Journal averaged 76% during that fveyear period, more than eight times general infation. Their article cites a May 2015 report by investment banker Credit Suisse, which found the 20 largest branded pharmas realized 80% of their growth in net profts from price increases in the U.S.

Debunking the High Fixed-cost Model as an Excuse for High Prices Exploring pharma’s fundamentals requires examining the validity of this high fxed-cost, economic model. For at least 60 years, every time pharma perceives an effort to curb its exorbitant prices, it has raised a fright mask by claiming the large development costs and inherent risk make high prices necessary, lest innovations screech to a halt. In assessing pharma’s R&D costs,21 it frst bears noting that the industry spends 15–17% of revenue there, even as it spends 35–37% of revenue on marketing and sales.22

56

Economics of the Pharmaceutical Industry

That in itself is ironic because whenever the industry is berated for its drug prices, its lobby or various spokespeople point out that since providers account for twice the proportion of total health care spending compared to drugs, cost cutters should look there rather than at pharma to save larger absolute expenditures. Yet when it comes to pharma’s own budgeting allocations, they justify onerous product prices by pointing to an expense area that is less than half of what they spend for promotion. The Diffculties of Obtaining Reliable Costs of Pharma R&D As a prefatory note, the topic of pharma’s real R&D spending is fraught with many diffculties and much contention. Part of the problem is that the industry has always been obstinately non-transparent on the matter. As Donald Light and Patricia Warburton23 note in their study published in BMJ, “Pharmaceutical companies have a strong vested interest in maximizing fgures for R&D and supporting centers or researchers . . . help them do so.” This is because ever since the Kefauver hearings in 1959–1962, “the industry’s principal justifcation for its high prices on patented drugs has been the high cost of R&D.” As one might expect, authors funded by pharma derive R&D cost estimates that are vastly higher than those without such support. The other part of the diffculty determining pharma’s true R&D costs is due to the fairly arbitrary process of dividing the long research process into distinct categories and assigning cost fgures to each. For example, the discovery and bench testing of a compound may start and run much of its duration as an effort to develop a therapy for a particular condition or disease. The results obtained midway, however, may point to greater effcacy or proftability elsewhere and the research effort will turn to this second area. It remains problematic whether and how out-of-pocket and allocated expenses that were undertaken for the initial purpose will be applied to the second one. In many cases, the laboratory work on new compounds simultaneously explores the potential for several therapeutic classes. The cost fgures provided by the industry are notorious for their lack of credibility. For example, they include the opportunity costs of capital that are based on an internal rate of return more than three times what the U.S. government and actuaries consider reasonable for the appropriate economic periods. Light and Warburton24 conclude that approximately half the R&D costs made public by the pharma industry are these opportunity costs or “foregone profts.” Moreover, pharma’s fgures fail to take into account the generous tax credits they receive for R&D. A fnal factor making the industry’s costs unreliable is that they often include line items that more properly belong to marketing. For example, pharma companies include under clinical development the expenses related to paying for the loyalty and endorsements of infuential specialists (“key opinion leaders”). These include services such as advisory

Economics of the Pharmaceutical Industry

57

board meetings, speaking at major medical meetings and training other physicians to serve as speakers/endorsers. Despite these inherent diffculties, some conclusions about the basic contours of drug development spending appear warranted.25 First, development accounts for about two-thirds of the total R&D costs. This process includes testing on both animals and humans. The cost per project increases sharply as the project moves into the later phases of clinical development. As far as the basic research that constitutes the grounds for obtaining patents, approximately 85% of it originates from work supported by the National Institutes of Health and other government agencies, both in the U.S. and elsewhere. Only 15% comes from private investment.26 The business journalist Merrill Goozner provides details showing that most of the science for many “breakthrough” drugs, as well as important advances to state-of-the-art techniques for research and manufacturing, received principal funding by taxpayers.27 Light and Warburton conclude that “the net corporate investment in research to discover important new drugs is about 1.2 per cent of sales.” As far as the much costlier expenditures for clinical development, James Love28 concluded that the fgure provided by the industry for the average cost per clinical subject is six times the average cost per subject of what the National Institutes of Health reports and what otherwise appears plausible. By sifting through the large maze of conficting studies on pharma’s overall R&D costs, examining the logic and reasonability of each and relying upon independent sources and fair-minded arguments, Light and Warburton29 concluded that median R&D costs per new drug are oneeighteenth the amount peddled by the pharma industry. The patient advocacy group Public Citizen30 comprehensively examined the issue of spending for R&D and concluded that in the U.S., federal funding pays for approximately one-half of total R&D costs.31 The conventional wisdom has long held that while public sources pay for the bench science discovery and early testing of new compounds, pharma companies pay the freight on the more expensive, later phases. An analysis conducted by Researchers at Harvard Medical School’s Department of Medicine dented that assumption.32 They investigated 248 novel drugs approved in the U.S. during the ten-year period between January 2008 and December 2017 and found that 62 of them (25%) received late-stage (i.e., Phase 3) research contributions from publicly supported research institutions or spin-off companies. All but one of the 248 drugs beneftted from research and/or funding related to the drug’s “initial discovery, synthesis or other key intellectual property leading to a patentable invention.” Those early contributions were suffcient to allow a publicly supported research institution or spin-off company to hold at least one patent on 38 of the drugs (15%).

58

Economics of the Pharmaceutical Industry

Exaggerated Development Risks Reports by industry routinely claim that companies must test 5,000– 10,000 compounds to discover one drug that eventually comes to market.33 Light and Warburton,34 citing Dr. Marcia Angell, characterize these fgures as nonsense because the overwhelming number of candidate compounds are analyzed and discarded by initial computer screenings that represent negligible costs. Pharma could state that they must put double or triple the number of compounds through such high-speed computer screenings and neither their cost nor risk would be greater. Costs and associated risks for the pharma companies to conduct the next step of further testing those compounds that pass initial screening to create “a small number of candidates that seem both effective and safe enough to develop into fnal products” are also minimal. Economist Joseph DiMasi35 and his team at Tufts University, with funding from the pharmaceutical industry, calculated that approximately one in fve drugs entering human clinical trials ultimately receive approval by the U.S. FDA. Approximately two-thirds of those trial costs occur in Phase 3, when the risk of withdrawal, according to Light and Warburton,36 is “less than one in two.” In other words, “company risk drops precipitously as research costs rise.” Light and Warburton point out another element of deception when pharma refers to the risk of developing new drugs. These authors refer to most late-stage compounds that do not receive regulatory approval as “withdrawn” rather than as failures because the sponsor companies voluntarily discontinue a great number of the candidates before they gain approval. The companies estimate the compounds in question have either produced trial results that would make them insuffciently competitive and/or their revenue forecasts fail to meet internal standards for proftability.37 Infated Times to Develop New Products Along with infating the costs and embellishing the risk, the industry seeks to exaggerate development times because longer periods increase the foregone profts factor and support the supposed need for high prices. The pharmaceutical industry and their sponsored agents at Tufts University claim the average total length of time to develop, test and receive regulatory approval for new compounds is 11.8 years. This includes 52 months for preclinical research, 72 months for trials and 18 months for regulatory review.38 Dr. Salomeh Keyhani39 of the University of California, San Francisco, examined those fgures in light of what the pharma companies actually

Economics of the Pharmaceutical Industry

59

reported to the FDA in the Federal Register. There she saw that while trials started in 1985 took eight years to complete, those started a decade later in 1995 lasted less than three years. During the same decade, regulatory review periods fell from 2½ years to less than one year. For compounds that started U.S. testing in 1995, total trial and regulatory review time was less than four years and even shorter in Europe. (The total development time is more diffcult to discern, given the unknown and widely varying times for the drastically less expensive preclinical research.) Keyhani40 and her colleagues concluded that development times do not provide a justifcation for high and rising drug prices because the shortest trial times were for AIDS and cancer drugs, where compounds also received the highest proportion of external research funding. If prices depend upon development time and expenditures, then the fact that both putative determinants were lower in those two classes than elsewhere means AIDS and cancer drugs should exhibit lower prices than other therapies. In fact, a U.S. presidential panel in 2018 found that drug costs for cancer are accelerating far faster than costs for other components of care, creating what the panel termed a “fnancial toxicity” that prevents people from seeking and receiving needed care.41 If the costs for developing new drugs is far lower than what the industry claims, the required times far shorter and the associated risks much less daunting, pharma’s supporters still claim that the preponderance of its efforts goes to developing medications that improve the quality and increase the length of life. In truth that claim is as spurious as the others. Dr. Joel Lexchin42 notes a widely infuential French study that found most new medication products offer patients little or nothing new in terms of outcomes or safety. Between 2005 and 2014, of 1,032 new drugs and new uses for older drugs that were introduced in France, only 60 conferred signifcant advantages.

Pharma’s Defense of its Protected Status Loosening Government Regulation Beyond extending its intellectual property rights, pharma devotes as much or more resources, in the form of campaign contributions and lobbying, to loosening government regulation. This too forms an important element of its business model because lax regulatory behavior speeds new product approval and avoids safety recalls that can suspend sales and/or form of the basis of liability lawsuits. Lexchin43 cites the development of the “user fee” system for regulatory review as a successful effort by pharma to hamstring the FDA in the U.S. and its counterpart, the Medicines and Healthcare Products Regulatory Agency, in the U.K. The 1992 Prescription Drug User Fee Act44 commits

60

Economics of the Pharmaceutical Industry

the FDA to increase the percentage of new drug applications it approves within specifed periods. That legislation has the effect of withholding agency funding if it delays approval to more closely examine the safety issues of drugs45. An example of the threat the user fee system poses to public safety occurred in 2004 when Merck was obliged to withdraw its antiinfammatory product, Vioxx, from the market. The FDA’s epidemiologist who studied the product’s harmful effects on public health, Dr. David Graham,46 told Congress that his superiors frequently admonished him for jeopardizing the agency’s clients—the pharma companies whose user fees support the FDA budget. Graham replied coolly that he had been under the impression that the American public was the FDA’s client.47 . . . And Yet, Pharma Still Threatens That Affordable Prices Would End Innovation Pharma’s current scare threats about pricing constraints choking the development of innovative therapies are nothing new. For at least 60 years, the industry and its supporters have raised that scare every time offce holders raised the prospect of requiring the industry to make medications more affordable by constraining prices. The outcries from pharma and its propagandists go back at least to 1961. At that time a U.S. Senate subcommittee was assessing the Drug Industry Antitrust Act, which sought to constrain pricing and impose specifed licensing on drug makers. Eugene N. Beesley, then the president of Eli Lilly, told the subcommittee that the legislation would weaken patent protection, resulting in diminished discovery efforts and “a tragic result in an area so vital to the public health.”48 Michael Carrier and Genevieve Tung compiled a list dating from the 1980s to the present where pharma warned about pricing constraints stifing innovation (Table 3.1). The threats occur so regularly and with such alarm that Carrier and Tung refer to pharma as the industry “that cried wolf.”50, 51, 52, 53, 54, 55 Threats About Declining Profts Choking R&D Are Illogical and Contrary to Behavior in Other Research Sectors Journalist Merrill Goozner56 points out that no other research-oriented industry makes this kind of argument. Other sectors do the opposite, increasing their research when profts decline in an effort to develop new products that meet consumer needs and, thereby, generate more profts. Stinting on research at such times promises to only protract a slump and make it permanent. The bogeyman for U.S.-based pharma companies consists of European “price controls,” which in reality consist of volume discounts. The chauvinistic ploy used by the American companies and their camp followers

Economics of the Pharmaceutical Industry

61

Table 3.1 Pharma Warned About Pricing Constraints Stifing Innovation Year

Legislation

Issue

Pharma’s Warning

1983

Waxman-Hatch

Establish the modern system of generic drugs in the U.S.

2004

Modifcations to WaxmanHatch

Further encourage availability of generics

2013

Innovation Act

Curb misuse of patent protection

2013

U.S.-EU Free-Trade Agreement

2013

Hearing to examine regulating pay-for-delay deals

2015

Massachusetts bill S1048; Pennsylvania bill No. 893

2016

Proposal to require greater disclosures Implementation of existing legislation

Cost containment measures on European prices contained in proposed U.S.–EU trade agreement Target pay-for-delay agreements that delay availability of generics State legislation in Massachusetts and Pennsylvania to cap drug prices U.S. president’s budget proposal to Congress NIH declaring “march in” rights if prices on drugs developed with federal funding endanger public health

“If Congress and the American public are unwilling to make a substantial investment in new drugs, they will get very little in return [and] innovation will dry up.” The proposed changes “would undermine the act’s few critical protections for innovator [IP] rights,” leading to “less innovation [and] fewer new drugs to enhance treatment.” “it would undermine the ability of patent holders to enforce their rights . . . potentially decreasing the value of patents and weakening incentives for innovation.” Proposed treaty thwarts “commitment to adequately reward innovation.”

2019

Legislation “would signifcantly undermine the value of patents that are the cornerstone of pharmaceutical innovation.” “would have a devastating impact on medical innovation.” “undermine our competitive . . . incentives for innovation.” Will “jeopardize U.S. innovation.”

Source: NB. Table compiled by authors from content of Carrier and Tung citation49

62

Economics of the Pharmaceutical Industry

is that European pricing does not allow the pharma companies to recover their enormous R&D costs, thereby making Europeans “free riders” and obliging U.S. consumers and taxpayers to pay higher prices. Comprehensive studies prove this “free rider” disinformation campaign lacks any validity. Light and Lexchin57 in 2005 found that while companies in other countries sell the same drugs at substantially lower prices than in the U.S., they also “fully recover their research and development costs” and maintain high profts. In 2010 and again in 2015, the Patented Medicine Prices Review Board58,59 of the Canadian government examined the relationship between price regulation and R&D spending. The 2010 report concluded there is “no obvious correlation between a country’s R&D-to-sales performance and its policies with regard to the pricing of patented drug products.” The 2015 report reached the same conclusion, stating, “although price levels are often cited as an important policy lever for attracting R&D, the data has not supported this link domestically or internationally.”

Chapter Summary The pharmaceutical industry benefts from extraordinary government protection that guarantees substantial proft margins even as demand for its products declines. The frst and foremost of these protections are patents, which serve to seriously limit competition by conferring market exclusivity, thereby allowing the industry to operate as a quasi-cartel that eschews pricing rivalry. Other protections include the following: • •

•

Preventing drug distributors from importing brands from foreign countries and selling them at lower prices than the same brands in the U.S. Government agencies using formulas to reimburse providers for drugs administered in physician offces and hospitals that accord them substantial profts (in the case of oncologists, amounting to more than 50% of their gross revenues) and incentivize them to use the costliest medications. Pharma receives tax benefts including a 50% tax credit, amounting to a government subsidy that pays half of pharma’s R&D costs. It is the least taxed industry in the U.S., and it pays a tax rate less than half the average of wage earners.

Close examination of the facts by numerous researchers have shown that each of the industry’s justifcations for pricing—high R&D costs, exceptional risk and long duration—are wildly exaggerated, if not downright false. Governments pay for a substantial proportion of research,

Economics of the Pharmaceutical Industry

63

while the risks decline signifcantly in the latter, more expensive stages of development. Moreover, the average development period for new drugs is much less than half the time claimed by industry proponents. Owing in large part to these government benefts, pharma is an extraordinarily proftable industry. Its average net operating margin is approximately 20%, while in most years, many Big Cap pharma companies enjoy margins in the 35–40% range. Its net operating proftability is 5½ times the average of Fortune 500 companies. Not only is pharma extraordinarily proftable, but it also generates these margins in defance of any economic market principles. Its margins are driven by unencumbered price hikes that are double and triple the size of cost-of-living increases. Branded (i.e., patent protected) pharma companies have been able to steadily maintain their pattern of aggressive price increases even as demand for their products has continued to decline over many years. Even as the basis for their increasingly unaffordable drug prices are misleading and fallacious, pharma continues to threaten the public and offce holders that price limitations would strangle the development of innovative new drugs. This is despite the fact that stinting on research is both illogical and contrary to the behavior of other sectors, which devote more resources to research during down cycles.

Notes 1. See the discussion that patents actually provide an impediment to pharmaceutical research in Donald W. Light and Antonio F. Maturo, Good Pharma (New York, NY: Palgrave Macmillan, 2015), pp. 3, 11–14, and passim. 2. “ ‘We Didn’t Make This Medicine for Indians . . . We Made It For Western Patients Who Can Afford It’: Pharmaceutical Chief Tries to Stop India Replicating Its Cancer Treatment,” Mail Online, January 24, 2014, https://pnhp. org/news/bayer-designs-its-products-for-the-market-not-for-poor-people/ 3. Joel Lexchin, “The Pharmaceutical Industry in Contemporary Capitalism,” Monthly Review, March1, 2018, p.10, https://monthlyreview.org/2018/03/01/ the-pharmaceutical-industry-in-contemporary-capitalism/ 4. Peter Drahos, “Expanding Intellectual Property’s Empire: The Role of FTAs,” International Centre for Trade and Sustainable Development, November 2003, http://ictsd.org 5. Jean O. Lanjouw and William Jack, “Trading up: How Much Should Poor Countries Pay to Support Pharmaceutical Innovation?” CGD Brief, Vol. 4 (2004): 1–7. 6. See “Importation of Prescription Drugs Provisions in P.L. 108–173, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003,” March 12, 2004, https://www.everycrsreport.com/reports/RL32271.html 7. Juliette Cubanski, Matthew Rae, Katherine Young, and Anthony Damico, “How Does Prescription Drug Spending and Use Compare Across Large Employer Plans, Medicare Part D, and Medicaid?” Kaiser Family Foundation, May 20, 2019, www.kff.org/medicare/issue-brief/how-doesprescription-drug-spending-and-use-compare-across-large-employer-plansmedicare-part-d-and-medicaid/

64

Economics of the Pharmaceutical Industry

8. Ricardo Alonso-Zaldivar, “1 in 2 Seriously Ill Medicare Enrollees Struggles With Bills,” AP News, November 4, 2019, https://apnews.com/86a6553334 a44054b7528c3814c26495 9. Offce of the Minnesota Attorney-General, Follow the Money. The Pharmaceutical Industry: The Other Drug Cartel, September 30, 2003, p. 23. 10. Blase Polite, M.D., M.P.P., Rena M. Conti, Ph.D., and Jeffery C. Ward, M.D., “Reform of the Buy-and-Bill System for Outpatient Chemotherapy Care Is Inevitable: Perspectives from an Economist, a Realpolitik, and an Oncologist,” in American Society of Clinical Oncology Education Book (2015), www.ncbi.nlm.nih.gov/pmc/articles/PMC4594838/ 11. Ge Bai, Peter B. Bach, and Gerard F. Anderson, “Oncologists’ Charge Amounts Are Higher than Other Specialties,’ ” Health Affairs Blog, March 13, 2018, www.healthaffairs.org/do/10.1377/hblog20180306.287114/full/ 12. Blase N. Polite, M.D., M.P.P., et.al., “Payment for Oncolytics in the United States: A History of Buy and Bill and Proposals for Reform,” Journal of Oncology Practice, Vol. 10, Issue 6 (November 2014): 357–362, www.ncbi. nlm.nih.gov/pmc/articles/PMC4223709/ 13. See Common Cause, “Prescription for Power: How Brand-Name Drug Companies Prevailed Over Consumers in Washington,” June 12, 2001. 14. Offce of the Minnesota Attorney-General, op.cit., p. 11. 15. Julianne Slovak, “The Average Proft Margin of Pharmaceuticals,” AZCentral: Your Business, May 14, 2018, https://yourbusiness.azcentral. com/average-proft-margin-pharmaceuticals-20671.html 16. Richard Anderson, “Pharmaceutical Industry Gets High on Fat Profts,” BBC News, November 6, 2014, www.bbc.com/news/business-28212223 17. Richard Anderson, Families, USA, “Profting from Pain: Where Prescription Drug Dollars Go,” July 2002, http://www.bbc.com/news/business-28212223 18. Offce of the Minnesota Attorney-General, op.cit., p. 1. 19. Joseph Walker, “For Prescription Drug Makers, Price Increases Drive Revenue: Boosts Outpace Infation and Often Are Imposed Even When Demand for a Medication Falls,”Wall Street Journal, October5, 2015,www.wsj.com/articles/ for-prescription-drug-makers-price-increases-drive-revenue-1444096750 20. On the growth of generics as a percentage of flled prescriptions in the U.S., see Alfred B. Engelberg, “A Shortfall in Innovation Is the Cause of High Drug Prices,” Health Affairs, February 28, 2019, www.healthaffairs.org/ do/10.1377/hblog20190228.636555/full/ 21. Investopedia, “Average Research & Development Costs for Pharmaceutical Companies,” August 8, 2019, www.investopedia.com/ask/answers/060115/ how-much-drug-companys-spending-allocated-research-and-developmentaverage.asp 22. Institute for Health and Socio-Economic Policy, “The R&D Smokescreen: The Prioritization of Marketing & Sales in the Pharmaceutical Industry,” October 20, 2016, https://nurses.3cdn.net/e74ab9a3e937fe5646_afm6bh0u9.pdf 23. Donald W. Light and Rebecca Warburton, “Demythologizing the High Costs of Pharmaceutical Research,” BioSocieties, 2011, www.pnhp.org/sites/ default/fles/docs/2011/Biosocieties_2011_Myths_of_High_Drug_Research_ Costs.pdf 24. Ibid, p. 8. 25. Shannon Decker and Edward A. Sausville, “Drug Development and Overview,” in Principles of Clinical Pharmacology, edited by Arthur J. Atkinson and Derrell Abernethy (New York: Elsevier, 2007), excerpt available at https://www.sciencedirect.com/topics/nursing-and-health-professions/ drug-development 26. Jon Palfreman, “The Other Drug War,” PBS Frontline, June 30, 2003.

Economics of the Pharmaceutical Industry

65

27. Merrill Goozner, The $800 Million Dollar Pill: The Truth Behind the Cost of New Drugs (Berkeley, CA: University of California Press, 2004). 28. James Love, Evidence Regarding Research and Development Investments in Innovative and Non-Innovative Medicines (Washington, D.C.: Consumer Project on Technology, 2003), www.cptech.org/ip/health/rnd/evidenceregardingrnd.pdf 29. Light and Warburton, op.cit., p. 14. 30. Public Citizen, “Rx R&D Myths: The Case Against the Drug Industry’s R&D ‘Scare Card,’ ” 2001, www.citizen.org/wp-content/uploads/rdmyths.pdf 31. For a more recent analysis see Joseph A. DiMasi, Henry G. Grabowski, and Ronald W. Hansen, “Innovation in the Pharmaceutical Industry: New Estimates of R&D Costs,” Journal of Health Economics, Vol. 47 (2016): 20–33, www.ncbi.nlm.nih.gov/pubmed/26928437 32. Rahul K. Nayak, Jerry Avorn, and Aaron S. Kesselheim, Harvard Medical School, Department of Medicine, “Public Sector Financial Support for Late Stage Discovery of New Drugs in the United States: Cohort Study,” British Medical Journal, Vol. 367 (October 23, 2019): l5766, https://doi. org/10.1136/bmj.l5766 33. The Pharmaceutical Industry in Figures (Brussels, Belgium: European Federation of Pharmaceutical Industries and Associations, 2010), p. 7, www.efpia. eu/media/219735/efpia-pharmafgures2017_statisticbroch_v04-fnal.pdf 34. Light and Warburton, op.cit., p. 8. 35. Joseph A. DiMasi, et.al., “The Price of Innovation: New Estimates of Drug Development Costs,” Journal of Health Economics, Vol. 22 (2003): 151– 185, www.ncbi.nlm.nih.gov/pubmed/12606142 36. Light and Warburton, op.cit., p. 9. 37. Congressman Henry Waxman, New GAO Analysis of Drug Development Refutes Industry Myths (Washington, D.C.: U.S. Congress, 2006). 38. DiMasi, op.cit., pp. 164–166. 39. Salomeh Keyhani, et.al., “Are Development Times for Pharmaceuticals Increasing or Decreasing?” Health Affairs, Vol. 25, Issue 2 (2006): 461–468, www.ncbi.nlm.nih.gov/pubmed/16522587 40. Ibid, p. 467. 41. Dennis Thompson, “Presidential Panel: Costly Cancer Drugs Harm Care,” WebMD,March13,2018,www.webmd.com/cancer/news/20180313/presidentialpanel-costly-cancer-drugs-harm-care 42. Lexchin, op.cit., opening page. 43. “New Drugs and Indications in 2014,” Prescribe International, Vol. 24 (2015): 107–110, https://english.prescrire.org/en/109B561E03CAD2313B7 046521B310752/Download.aspx 44. Lexchin, op.cit., p. 7. 45. James L. Zelenay, Jr., “The Prescription Drug User Fee Act: Is a Faster Food and Drug Administration Always a Better Food and Drug Administration?” Food and Drug Law Journal, Vol. 60 (2005): 261–338. 46. John Abraham and Graham Lewis, “Europeanization of Medicines Regulation,” in John Abraham and Helen Lawton Smith, editors, Regulation of the Pharmaceutical Industry (Hampshire, U.K.: Palgrave Macmillan, 2003), pp. 42–81. 47. Gardner Harris, “FDA Failing in Drug Safety, Offcial Asserts,” New York Times, November 19, 2004, www.nytimes.com/2004/11/19/business/fdafailing-in-drug-safety-offcial-asserts.html 48. U.S. Senate, Eighty-seventh Congress, Drug Industry Antitrust Act: Hearings Before the Subcommittee on Antitrust and Monopoly of the Committee on the Judiciary (Washington, D.C.: U.S. Government Printing Offce, 1961), https://hdl.handle.net/2027/uc1.c051765044

66

Economics of the Pharmaceutical Industry

49. Michael A. Carrier and Genevieve Tung, “The Industry That Cries Wolf: Pharma and Innovation,” Stat News, September 26, 2019, www.statnews. com/2019/09/26/innovation-boy-cried-wolf-pharma-industry/ 50. House of Representatives, Ninety-eighth Congress, Drug Legislation: Hearings Before the Subcommittee on Health and the Environment of the Committee on Energy and Commerce (Washington, D.C.: U.S. Government Printing Offce, 1983), https://hdl.handle.net/2027/uc1.31210005599459 51. Committee on Commerce, Science, and Transportation United States Senate, Generic Pharmaceuticals: Marketplace Access and Consumer Issues (Washington, D.C.: U.S. Government Printing Offce, 2002), www.govinfo.gov/ content/pkg/CHRG-107shrg90155/pdf/CHRG-107shrg90155.pdf 52. U.S. House of Representatives, Committee on Energy and Commerce, Subcommittee on Commerce, Manufacturing, and Trade, The U.S.-EU FreeTrade Agreement: Tipping Over the Regulatory Barriers (Washington, D.C.: U.S. Government Printing Offce, 2013), www.govinfo.gov/content/pkg/ CHRG-113hhrg86399/pdf/CHRG-113hhrg86399.pdf 53. Committee on The Judiciary United States Senate, Subcommittee on Antitrust, Competition Policy and Consumer Rights, Pay-for-Delay Deals: Limiting Competition and Costing Consumers (Washington, D.C.: U.S. Government Printing Offce, 2013), www.govinfo.gov/content/pkg/CHRG113shrg87818/pdf/CHRG-113shrg87818.pdf 54. Priscilla VanderVeer, “Who Is Pushing for Price Controls,” PhRMA, August24, 2015, https://catalyst.phrma.org/who-is-pushing-for-price-controlsthe-answer-may-surprise-you 55. Stephen Ubl, “PhRMA Statement on President’s FY2017 Budget,” PhRMA, February9, 2016, https://catalyst.phrma.org/phrma-statement-on-presidentsfy2017-budget 56. Goozner, op.cit., p. 7. 57. Donald W. Light and Joel Lexchin, “Foreign Free Riders and the High Price of US Medicines,” British Medical Journal, Vol. 331 (2005): 958–960, www.researchgate.net/publication/7526276_Foreign_Free_Riders_and_the_ High_Price_of_US_Medicines 58. Patented Medicine Prices Review Board, “2010 Annual Report,” October 24, 2018, http://www.pmprb-cepmb.gc.ca/view.asp?ccid=897 59. Patented Medicine Prices Review Board, “2015 Annual Report,” July 13, 2017, http://www.pmprb-cepmb.gc.ca/view.asp?ccid=1273

4

A Somnolent Public Awakens

Some readers may wonder why we predict that the pharmaceutical industry now faces a day of reckoning that will torpedo its stock prices and cause it many other adverse effects. Doubters may point out that the public has complained of high drug prices for years, yet pharma continues to post extraordinary profts. Such wariness is well founded, but this prediction rests both on the worldwide public perception of pharma and the desire for change that has reached a tipping point. The 2020s will differ from previous decades because pharma can no longer insulate itself from blowback on its egregious pricing of medications. The industry’s ability to distract, mislead and overwhelm the world’s aging populations and the parents of children is reaching its limits. Journalist Bob Hennelly speculated that public recognition of health care’s cost burden actually smoldered beneath the surface for several years before it surfaced. This long period of latency, in his view, persisted because major media around the world downplayed the story as a result of their dependence upon Big Pharma and other health care companies for advertising revenue. “Right now,” Hennelly1 wrote, “the most underreported of all economic stories is that the anemic wage gains posted by American workers have been entirely devoured, and then some . . . [by the] spike in health care premiums and drug costs.” Assessing how health care costs are immiserating the American middle class, he concluded that, “Nowhere is this crushing hardship more manifest than in the stratospheric spike in drug costs.” Another factor that may have extended the latency period until the recent eruption of public outrage in the U.S. is that Democratic politicians in the U.S. have paid tribute to corporate oligarchs by exaggerating the benefts of Barack Obama’s Affordable Care Act (ACA) that took effect in 2014. These corporatist Democrats neglect to mention that while the Obama legislation boosted revenues for pharma and the health insurers, costs for coverage and medications have continued to claim increasing percentages of Americans’ household income. Health care costs, in fact, serve as the leading cause of U.S. bankruptcies.2

68

A Somnolent Public Awakens

According to a Gallup survey, a total of 33% of U.S. households in 2019 delayed medical care due to costs.3 Another 2019 study, this one by American Cancer Society researchers that appeared in the Journal of General Internal Medicine, concluded that 137 million Americans struggled with medical debt.4 Yet another U.S. survey, this one by the Kaiser Family Foundation, concluded that average family premiums for health insurance increased by 22% in fve years following passage of the Affordable Care Act.5 That increase far outpaced both wages and infation. Equally detrimental to average Americans is the fact that insurance policies now cover smaller percentages of drug and other medical costs. Annual deductibles—the amounts families must pay out-of-pocket before their policies pay dollar one of coverage—rose by 36% since the ACA took effect.6 Kaiser researchers found that nearly 30% of Americans fail to take medications as prescribed because of prohibitive costs. It is little wonder that the New York Times reported Americans were forced to borrow $88 billion in 2018 to cover health care costs.7 As the unaffordability of medications in the U.S. worsened and politicians either evaded the issue or implemented trivial solutions, it eventually became impossible to ignore the fact that high drug prices have fueled personal bankruptcies and noticeably weakened the economic security of America’s middle class. Heading into a national election year, a large survey published by the Kaiser Family Foundation in November 2019 found that nearly eight in ten Americans said drug costs are unreasonably high.8 A survey published in late 2019 revealed that 35% of the country’s diabetics were obliged to receive donations of diabetes medications and supplies from “black market” sources.9 Signs of an emerging public health crisis in the U.S. due to the high cost of medications emerged almost daily as the country moved toward its national elections of 2020. Despite rising public hostility against pharma in the U.S. and large majorities favoring drug price constraints, any prospects for substantial price controls in that country before the mid-2020s remain slim. As discussed in the chapter on the industry’s violations and dirty tricks, reforming the way America discovers, develops and distributes drugs must extend to the wider health care system that includes providers and payers. As one example, ending the ease with which pharma corrupts prescribers and clinical researchers needs to alter the organization and professional norms of medical practice. Since the broader sector of health care accounts for almost one-ffth of the American economy, signifcant changes to most of its various components require both a public consensus and its implementation through the political system. Achieving the latter in the U.S. is usually a Herculean challenge if the objective involves taking wealth and power from the country’s billionaires and top corporate executives.

A Somnolent Public Awakens

69

The empirical demonstration of that appeared in a remarkable 2014 paper by two political scientists, Martin Gilens of Princeton University and Benjamin Page of Northwestern University. The authors concluded that the U.S. may be fairly characterized as a corrupt oligarchy where ordinary voters barely matter. Their fndings show that ”economic elites and organized interest groups play a substantial part in affecting public policy, but the general public has little or no independent infuence.”10 After analyzing nearly 2,000 surveys, legislative issues and outcomes, they found that average citizens only get what they want if economic elites or interest groups also want it. Lacking such buy-in from the wealthy and top corporate executives, non-wealthy citizens are no more likely to achieve their desired outcomes even when popular majorities favoring their positions increase. This is not to say that a health care system and a pharmaceutical industry in the U.S. favoring public health and well-being over private proft are an impossibility. Wealthy elites in other economic sectors may be enlisted in bringing pharma and the rest of health care to heel. Rather the situation is one, despite large majorities favoring drug price controls, where a successful outcome will take several years, during which time public abuses and price-gouging by pharma may get worse. In the meantime, as activists continue organizing against pharma’s depredations, efforts are underway elsewhere to mitigate pharma’s extortionate pricing. Areas worth examining for this include several states and localities in the U.S. (e.g., Massachusetts, Colorado, Maine and Maryland) as well as the leading nations of Europe, Japan and the emerging nations of Brazil, Russia, India, China, Mexico, Indonesia and Turkey.

State and Local Pressures in the U.S. Pharma has thus far been able to prevent national legislation in the U.S. to address exorbitant pricing through lobbying and political contributions. Despite the resulting gridlock in Washington, pressures are emerging at the state and local levels that may constrain pharma pricing in the more immediate future. In Massachusetts, for example, legislators are considering eliminating insurance deductibles for insulin and capping co-pays at $25 per month, according to the Boston Globe.11 Although the proposed legislation there would initially focus on insulin, the program would also enable price negotiations by the state’s Medicaid program, together with other provisions aimed at making medications generally more affordable. In Colorado, the governor signed a bill, HB-1216, that caps the out-of-pocket amount an insured person is required to pay for prescription insulin at $100 per one-month supply. Florida, meanwhile, established a program to import cheaper drugs from Canada and the Michigan legislature is considering a similar measure.12

70

A Somnolent Public Awakens

Meanwhile, the states of Maine and Maryland, alarmed that the cost of prescription drugs under Medicare increased ten times the rate of infation between 2012 and 2018, voted to create Prescription Drug Affordability Boards. Those Boards received the authority to investigate any drug whose costs increased more than $3,000 in a year or which pose signifcant cost burdens to their residents. After fnding that a price increase poses an undue burden to consumers, the Board is empowered to set a limit on it. Then in early 2020, the governor of California announced that the state will start its own generics drug company to ensure that those medications remain available to its residents at affordable prices.13 Under the plan, the state would contract with generic manufacturers to produce medications for sale to all Californians. At the same time, the governor announced his intention to have all state agencies pool their drug purchases as a means of strengthening its purchasing power in negotiations with pharma companies. As the White House had previously announced that Americans are at liberty to purchase medications abroad more cheaply, the California governor also stated his intention to allow the state’s Department of Health Care Services to negotiate internationally for the lowest drug prices rather than limiting purchases to domestic sources. Meanwhile, at the national level, various approaches to let Medicare use its purchasing power for lowering drug prices have enlisted bipartisan support, largely due to the fact that 80% of Republicans and 90% of Democrats favor such proposals.14 All of this suggests that although pharma’s payoffs to legislators will slow the process of putting national constraints on the industry’s extortionate pricing, the U.S. public’s clamor for lower drug prices will keep getting stronger. In part, this is due to a growing recognition that the unaffordability of medications has actually worsened to the point of contributing to the country’s declining life expectancy. A study published in JAMA in November 2019 showed that U.S. life expectancy has not kept pace with other wealthy countries and is now decreasing.15 The authors found that the largest relative increases in mortality rates occurred among adults between the ages of 25 and 64 (i.e., people not eligible for Medicare) in regions of the country where deindustrialization and declines in the percentage of workforce participation act most severely to make medication purchases unaffordable. For at least a few more years, activity in the U.S. to limit excessive drug pricing is likely to consist of more complaining and posturing rather than tough legislation or executive branch decrees. Nonetheless, the growing public discontent and the fact that left-leaning politicians will continue to favor more drastic initiatives has at least hit home with a large number of pharma companies. As an example, several pharma companies in 2019 postured and gave lip service to a call for moderating their annual price

A Somnolent Public Awakens

71

hikes. Their actions, however, suggest that any changed attitudes toward moderating unconscionable price increases are more artifce than reality. In late December 2019 and early January 2020, for example, the Big Cap companies announced the frst of their biannual price increases with a median rise,16 depending upon various calculations, between 5.3% and 5.8%. Although the price hikes greatly exceeded the cost-of-living increase, the industry took pains to say that it was moderating down its price raises from the double-digit boosts of past years.17 Even these lip service claims of more moderate price increases by pharma companies were deceptive. Equity analysts at investment banker Morgan Stanley identifed a total of 2,167 price increases in the frst week of January 2020. This exceeded the 1,851 increases in the same period of 2019. Of the 2020 price increases, 95% were at or below 10%; 46% of those increases are at or below 5%. This compared to the same period of 2019, where 93% of the increases were at or below 10% and 40% at or below 5%. Among a “market basket” of 260 top-selling drugs, Morgan Stanley counted 102 price increases during the frst fve days of January 2020, versus 86 increases during same period of 2019. As far as the 2020 average weighted price hike, Morgan Stanley calculated it at 5.4% versus 5.8% during the same period of the prior year.18 In other words, even if pharma’s frst price increase of 2020 was in some fashion smaller than its regular price-gouging of previous years, it was only marginally so.

Drug Price Control Actions in Europe National governments across Europe and elsewhere in the world have long been more vigilant than the U.S. in making medications affordable for their residents. As part of this longstanding approach, Europeans during the past few years have quietly been taking actions that actually portend a more immediate collapse of pharma’s current way of doing business. A review of recent actions there will show that the larger nations in Europe have been deploying strong legislative and administrative actions to more substantively restrain unaffordable drug pricing. Although these actions do not necessarily indicate that the U.S. will closely follow the same procedures, it is fair to surmise that the initiatives of other countries will provide precedents for U.S. politicians who need to mollify voters’ pressures by demonstrating that they are not totally beholden to pharma money. Two other reasons make it worthwhile to examine the general approaches and some of the particular techniques the larger European countries use to limit drug prices. First, Europe in 2018 accounted for approximately 22.2% of the pharmaceutical industry’s global revenue (versus 48.1% from North America).19 The growth of stringent price

72

A Somnolent Public Awakens

restraints in Europe corroborates our argument about pharma facing a fnancial reckoning that demands the industry change its ways. Second, although Europe is not necessarily a harbinger for the way America—pharma’s biggest source of revenue—will address unaffordable drug prices, the continent’s nations do serve as useful data points that suggest paths the U.S. may tentatively follow. The Affordable Care Act, for example, which the U.S. passed under Barack Obama in 2010, followed the health care systems of Switzerland and the Netherlands in denatured and highly diluted form. In assessing what the larger European nations were doing more than two decades ago to control drug prices, David J. Gross, Jonathan Ratner and their co-authors studied policies in France, Germany, Sweden and the U.K.20 They found that all four countries deploy three approaches to limit the prices that manufacturers charge to wholesalers and retailers. These include (1) applying price limitations to all prescription products, (2) limiting the total unit volumes of sales by manufacturers and (3) limiting which drugs or types of drugs can receive reimbursement. Limitations on manufacturers’ prices in the four countries rely on at least one of three mechanisms: (1) applying price controls selectively to particular products, (2) limiting what insurers will reimburse and (3) controlling manufacturers’ proft margins. At the same time, Gross and his colleagues found that in the four countries, administrators recognized those measures were not suffcient to control spending on medications. That led each country to adopt individualized policies intended to suppress the increasing volume of prescriptions written, encourage the use of more cost-effective medications and shift some costs away from the national insurance systems to manufacturers, physicians and those consumers lacking price sensitivity. For example, the U.K., starting in 2014, has relied heavily on health care technology assessments (HTAs) as a value-based pricing mechanism. Under that approach, the National Institute of Clinical Excellence (NICE) advises the country’s National Health System on what constitute the more cost-effective drugs it should adopt. Also, instead of focusing on price controls, the U.K. regulates the profts that pharma companies can make by selling drugs to the NHS. In a 2019 report, the consultancy Datamonitor noted that21: Across Europe, the number of drugs subject to health technology assessment is growing and will continue to rise in the wake of recent policy developments. Furthermore, as HTA bodies apply increasingly restrictive approaches to the application of existing assessment mechanisms, these in turn will have implications for decisions on the funding, price, and uptake of new drugs.

A Somnolent Public Awakens

73

Datamonitor noted that throughout the continent, the fve largest nations are trending toward tougher positions on pricing. Moreover, those countries continue to constantly raise the number of drugs subject to HTA procedures, even as they are increasing the demands on clinical evidence required for reimbursement. France, for example, keeps raising the added beneft scores that new drugs must achieve. In Italy, seven of the frst 11 products assessed under their new guidelines were found to be “non-innovative.” The systems in Germany and Spain are also taking increasingly restrictive positions on products with low added beneft ratings by applying limitations and denials in clinical practice guidelines as well as reimbursement. According to the Datamonitor analysts, France in particular has applied more stringent HTA standards to new drugs. In Germany, the system permits pharma companies to set prices at will for the frst 12 months after launch. During that time, the Institut für Qualität und Wirtschaftlichkeit im Gesundheitswesen (IQWiG), which the Federal Ministry of Health retains to assess the quality and effciency of medical treatments, determines a new medication’s cost-effectiveness. German payers have become increasingly unhappy with regulations requiring them to reimburse the new brand at the manufacturer’s price during that frst year. Their consternation was aroused a few years ago by the high cost of hepatitis-C treatments such as Sovaldi and, more recently, by the even higher costs of new orphan drugs. This has led to calls for reducing or even abolishing the 12-month, manufacturer-determined pricing. Many of Europe’s national health systems are contemplating the use of managed entry agreements that consist of contracts for mitigating the uncertainty of a new drug’s relative effectiveness, cost-effectiveness or budget impact.22 Some nations are aggressively pursuing the adoption of patient prioritization criteria that involve reserving new brands for the most seriously affected or advanced patients and queuing others according to stratifcation criteria.23 Still other tools for suppressing drug prices have emerged in Europe. For several years now, France has used budget ceiling agreements to cap the total annual reimbursement that the system will pay for individual products. If a pharma company aggressively markets a brand and demand at the agreed price exceeds the ceiling cap’s absolute amount, then the company is obliged to meet the greater demand and rebate much of the incremental revenue back to the system payer.24 Payers in Italy increasingly favor tough price-volume agreements while the U.K. introduced in 2017 a £20m budget impact test to prevent new, breakthrough brands with unexpectedly high prices from devastating health care budgets.25 Some observers suspect that the test could delay market access in the U.K. for 20% of new drugs.

74

A Somnolent Public Awakens

Thirty-one European countries have long used reference pricing to constrain drug prices, and a 2012 study found that the tactic has led to price reductions for medications ranging from 7–24%.26,27 In 1994 and 1995, the Canadian province of British Columbia introduced reference pricing for the purchase of nonsteroidal antiinfammatories (NSAIDs). A 2005 study found that the approach cut the province’s costs for NSAID purchases in half.28,29,30 Reference pricing operates by grouping medications according to clinical activity and/or mode of action, thereby enabling health system managers to effectively consider the products in each group as interchangeable. The drug plan then limits the reimbursement of interchangeable medicines to a reference price, which is often the lowest priced product in the group. Patients have to pay any additional cost for another product within the class priced above the reference amount. In British Columbia and in Italy, health system managers set the reference price equal to the lowest-price drug in the group. According to economist Austin Frakt, “Germany uses an average price across drugs; Spain also uses an average, but only of the lowest-priced products that account for at least 20 percent of the class’s market.”31 The experience in British Columbia is instructive regarding a direction Europeans may well pursue with reference pricing. Paul Grootendorst and his colleagues found that approximately 80% of the cost savings in that province came from what administrators labeled “Type 2” reference pricing, which involves changing usage from one patented brand to another. Only 20% of the savings resulted from “Type 1” switching, that is, switches from a patent-protected brand to a generic. Health system managers across the European continent are doubtlessly developing awareness that brand-for-brand switching represents a fruitful opportunity for cost savings. In this fashion, reference pricing constitutes a means of compelling branded pharmaceuticals to function as a market by injecting a more robust price competition that dispels the industry’s cartel behavior.32 The ways that European nations are using reference pricing, as well as other aggressive tactics for reducing drug prices, contribute to the likelihood that the pharmaceutical industry’s current business approach will face ever more formidable public and governmental opposition.

Price Control in Japan While Japan accounted for 9% of worldwide pharma sales in 2017, its percentage of global sales is projected to be 6% by 2022.33,34 The Japanese have been so aggressive at reducing drug prices that the market there for pharmaceuticals is projected to see a negative growth in coming years. Citing pharma data supplier IQVIA, the McKinsey consultancy projected that the growth of pharma sales in Japan will be the

A Somnolent Public Awakens

75

slowest among the developed markets, amounting to a negative compound annual growth rate (CAGR) between −3% and 0% in 2019–2024, even as the worldwide growth is projected at a positive CAGR between 3% and 6% during the same period. “To control healthcare costs,” according to McKinsey analysts, “the [Japanese] government has been revising drug prices biennially, leading to price cuts of 5 to 7 percent every other year.” Together with an increasing penetration of generics and expanding restrictions to physician access by pharma sales personnel, these factors led McKinsey to caution that pharmaceutical sales in Japan face an “erosion of attractiveness.”35 Until the past few years, the Japanese regulatory body, the Pharmaceutical and Medical Devices Agency, approved new medications for reimbursement by public health care insurance without regard to rigorous cost-effectiveness assessments. Instead, the country’s Ministry of Health, Labor, and Welfare used two methods to calculate prices. One compared the effcacy of new drugs to others already on the market with similar effcacy and properties. Those deemed to add value were permitted to charge a premium and those assessed as me-too’s were priced similar to existing brands. A second method was applied to regulate the prices of drugs without pertinent comparators. In those cases, price was calculated by taking into account various costs (e.g., manufacturing) and then factoring in an allowable proft rate and degree of innovation. In 2014, those approaches to pricing medications proved inadequate to limit pharma’s exorbitant charges. That year, Bristol-Myers Squibb (BMS) introduced a new immuno-oncology brand, the PD-1 inhibitor Opdivo (nivolumab). BMS launched it in Japan at more than double its U.S. price and almost fve times its U.K. price. Around the same time, Gilead launched its hepatitis-C treatment, Sovaldi (sofosbuvir). Sovaldi was a genuine breakthrough in the treatment of hepatitis-C because it raised the percentage of patients that achieved sustained viral responses to more than 90%, up from the 50% with previous therapies. But unlike pharma companies of previous generations that were content to let curative accomplishments drive their reputations, Gilead made certain Sovaldi would live in infamy by pricing it at $1,000 a pill for a 12-week course of treatment. These two launches inspired Japan to create the Special Organization for Cost-Effectiveness as a subcommittee of the Central Social Insurance Medical Council (Chuikyo) for the purpose of “repricing” what were considered “ultra-expensive” drugs. Analogous to the U.K.’s NICE and Germany’s IQWiG, the Special Organization for Cost-Effectiveness is Japan’s attempt to control health care expenses with health technology assessments (HTAs).36 By early 2016, price reductions in Japan appeared on several brands. Sovaldi’s price was reduced by 32% and Opdivo’s by 50%. Chuikyo instituted further price cuts in subsequent years. The price for Sovaldi

76

A Somnolent Public Awakens

eventually fell to $300 for the 12-week course, with the government covering 99% of it.

Growing Resistance to Pharma Pricing in Emerging Nations No discussion of the factors contributing to an approaching pharma collapse could be complete without at least mentioning activity in the larger, emerging markets. These include the BRIC countries of Brazil, Russia, India and China, as well as Mexico, Indonesia and Turkey. Although these emerging nations account for a much smaller percentage of the world’s pharmaceutical revenues than the U.S., Europe and Japan, growth there on a percentage basis remains appreciable. Opportunities in the emerging markets have long tantalized pharma managements. Several sources within a Big Cap pharma company have confrmed a story in which a former CEO told his vice-presidents, “Going forward, when you speak to analysts and media people, I don’t care what the question is. The answer is China.” That sort of exuberance, both within Big Cap pharma and among developing nations, was rampant during the early 2000s, but slowing rates of overall GDP growth in emerging markets since then have caused many of those countries to pursue lower drug costs more aggressively. At a minimum, even during high growth periods in the emerging markets, those nations pose a challenge to pharma’s current fundamental of price-driven growth. Governments in the emerging nations seek to improve health care access for their populations. With respect to medications, their limited budgets have obliged them to focus on providing free and/or heavily subsidized generics. For this reason, pharma’s business model in advanced, Western countries, where growth amidst declining unit sales derives mainly from escalating prices, appears implausible in the emerging countries. Prospects for pharma’s growth in emerging markets require a volume-based business with enormously reduced-price points. The recent proliferation of expensive, new medications in categories such as oncology have led emerging nations to adopt especially more aggressive measures to contain prices. In early 2020, for example, reports indicated that India was about to add several top-selling cancer medications to the National List of Essential Medicines (NLEM). The NLEM represents a government effort to ensure the availability of new medications at affordable prices. At the time of the reports, India already had 57 oncology medications on the NLEM, with an additional 42 that were not on the list selected for price control and margin restriction. It is worth noting that the reports contained language that India’s health authorities provided to media outlets, as the same language appeared in reports from several publications. The sense of it was that

A Somnolent Public Awakens

77

health administrators in India appeared proud of the NLEM’s accomplishments in slashing the prices of oncology medications. The move seeking to curb profteering on vital medicines has reduced prices of cancer drugs by 85 percent, covering 72 formulations and 355 brands like carflzomib, erlotinab, pemetrexed, epirubicin and leuprolide acetate.37 The emerging countries use other tactics to depress drug prices.38 These include: • • • •

Limiting annual price raises to levels lower than cost-of-living increases Constantly expanding the NLEM and its analogous agencies in other countries to cap prices on top-selling brands Requiring signifcant discounts and bonuses to gain acceptance to the national formularies that drive public sector prescribing and procurement Using a variety of local rules and innovative applications to limit prices

In addition to these tactics, Russia, China and India are also engaged in a larger strategic initiative that pursues the dual purposes of making medications easily affordable to their consumers and taxpayers and developing their own pharmaceutical industries to capture shares of the sector’s profts. That is to say, the largest of the emerging nations seek to participate in pharma both as producers for pursuing profts and as consumers determined to make medications more affordable. The Russian government, as outlined in its “Pharma 2020 Strategy,” has focused on creating its own pharmaceutical industry to reduce their reliance on imported medications. In July 2016, Prime Minister Medvedev said he expected domestic production to increase from 28.5% to 75% of all medicine sold in Russia by 2020.39,40 China was the world’s second-largest market for pharmaceuticals in 2017, with sales of $122.6 billion that year and $137 billion in 2018. The dollar volume of sales there doubled in a period of just six years. It is also the fastest growth market for the sector, expected to reach $145 billion to $175 billion by 2022. Its basic demographics, involving an expanding middle-class and a rapidly aging society, present enormous opportunities for a pharmaceutical industry. Although most of the pricier drugs China is now developing are me-too or me-better versions of existing therapies, the government, investors and scientists there have stated their intention to develop products with novel mechanisms of action that advance the standards of care.41

78

A Somnolent Public Awakens

At the very least, drug innovation in China will exert downward “pressure on the exorbitant prices of new medicines in the West. Some biotech frms [in China already] sell advanced drugs for 70% less than Western equivalents.”42 *** Although the problematic pace of achieving signifcant controls on drug prices in the U.S. will determine the point when pharma must face its comeuppance, trends in Europe, Japan and the emerging markets mean that despite the U.S.’s corruption-driven dawdling, pharma’s day of reckoning will nevertheless come soon and with major changes to the industry’s fundamentals. Despite the likelihood that the U.S. will be late in joining efforts by the rest of the world to tame pharma, America will eventually implement some form of price control, despite the industry’s protestations. The increasing unaffordability of medications for one-third of the country means political payoffs by pharma and evasiveness by politicians will eventually fail to distract voters. As the country’s baby-boom generation moves into age brackets where chronic and serious conditions become prevalent, onerous drug costs will deplete life savings among millions of the elderly. Even though America, especially under its Chicago School/ Reagan delusion, enjoys thinking of itself as the land of unbounded business opportunity, its citizens will have to reconcile that image with the fact that pharma is helping transform the U.S. into a nation where people are free to sleep under bridges and wander the streets like restless ghosts.

Chapter Summary The prices of prescription medications have long been exorbitant, particularly in the U.S., but up until recently, the toll of drug costs has stirred neither public consternation nor government action to the point of causing any adverse consequences for the pharmaceutical industry’s proftability. That is about to change. In the U.S., several factors are roiling public sentiment into growing demands for stringent drug price controls. Some of these include: •

• • •

Rising drug prices increasingly force health insurance premiums for consumers and employers up toward unsustainable levels. The resulting plans include higher deductibles and co-payments, resulting in health insurance covering smaller percentages of medication costs. Nearly 30% of Americans within the past year have failed to take medications as prescribed because of prohibitive cost. This unaffordability of medication and other treatments has caused a decrease in the U.S.’s life expectancy. Various efforts to control drug prices are moving forward among several state and local governments in the U.S. as these are less

A Somnolent Public Awakens

79

compromised by pharma contributions and the rigidly pro-business ideology among many members of Congress. As impoverishment among Americans grows due to unaffordable drug prices, more earnest and signifcant efforts are underway in Europe, Japan and the emerging BRIC+3 countries (Brazil, Russia, India and China, plus Mexico, Indonesia and Turkey) to slash drug prices. Those efforts are facilitated by greater use of stringent Health Technology Assessments, constraints on practitioners to limit prescribing volumes and increasing restrictions on manufacturers’ profts. In Japan, for example, drug prices across the board have been falling since 2016 by 5–7% every two years. China and Russia have publicly stated that as drug consumers, they intend to aggressively lower prices even as they seek to capture a share of pharma profts by becoming developers and manufacturers of drugs. The problematic pace of achieving signifcant controls on drug prices in the U.S. will determine the point within the near term where pharma must face its grim fate. Despite the U.S.’s corruption-driven delays and distractions, trends in Europe, Japan and the emerging markets mean that pharma’s day of reckoning will nevertheless come soon. The drug industry’s deployment of payoffs and misleading propaganda to deal with its imminent fate will lose its effectiveness and start to prove counter-productive.

Notes 1. Bob Hennelly, “What Strong Economy? Health Care Costs Are Destroying American Families,” Salon, December 22, 2019, www.salon.com/2019/12/22/ what-strong-economy-health-care-costs-are-destroying-american-families/ 2. Lorie Konish, “137 Million Americans Are Struggling With Medical Debt,” CNBC.com, November 10, 2019, www.cnbc.com/2019/11/10/americansare-drowning-in-medical-debt-what-to-know-if-you-need-help.html 3. Lydia Saad, “More Americans Delaying Medical Treatment Due to Cost,” Gallup News, December 9, 2019, https://news.gallup.com/poll/269138/americansdelaying-medical-treatment-duecost.aspx?utm_source=alert&utm_medium= email&utm_content=morelink&utm_campaign=syndication 4. K. Robin Yabroff, Jingxuan Zhao, Xuesong Han, and Zhiyuan Zheng, “Prevalence and Correlates of Medical Financial Hardship in the USA,” Journal of General Internal Medicine, Vol. 34 (May1, 2019): 1494–1502, www.semanticscholar. org/paper/Prevalence-and-Correlates-of-Medical-Financial-in-Yabroff-Zhao/ fecf6c94fc4b1ebec69d1a60fe8a94c9f5d341ab 5. Gary Claxton, et.al., “Employer Health Benefts: 2019 Annual Survey,” Kaiser Family Foundation, http://fles.kff.org/attachment/Report-EmployerHealth-Benefts-Annual-Survey-2019 6. Ashley Kirzinger, Cailey Muñana, Bryan Wu, and Mollyann Brodie, “Data Note: Americans’ Challenges With Health Care Costs,” Kaiser Family Foundation, June 11, 2019, www.kff.org/health-costs/issue-brief/data-note-americanschallenges-health-care-costs/

80

A Somnolent Public Awakens

7. Karen Zraick, “Americans Borrowed $88 Billion to Pay for Health Care Last Year, Survey Finds,” New York Times, April 2, 2019, www.nytimes. com/2019/04/02/health/americans-health-care-debt-borrowing.html 8. Emmarie Huetteman, “Voters Say Congress Needs to Curb Drug Prices, But Are Lawmakers Listening?” Kaiser Health News, November 11, 2019, https://khn.org/news/voters-say-congress-needs-to-curb-drug-prices-butare-lawmakers-listening/ 9. “U.S. Diabetes Patients Turn to ‘Black Market’ for Medications, Supplies,” First Word, December 26, 2019, www.frstwordpharma.com/print/ 1690598?al=39c41e-880ab1ccd0501e78c98f5dc0da30e574%5E%7C%5EMTE wOTYyMA%3D%3D%5E%7C%5ENQ%3D%3D&cp1=bmV3c2xldHRlcl9y ZWdpb25faWQ9dHJlbmRz&tsid=17 10. Martin Gilens and Benjamin I. Page, “Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens,” American Political Science Association, 2014, www.cambridge.org/core/services/aop-cambridge-core/content/view/ 62327F513959D0A304D4893B382B992B/S1537592714001595a.pdf/ testing_theories_of_american_politics_elites_interest_groups_and_average_ citizens.pdf 11. “Massachusetts Zeroes in on Drug Costs,” Boston Globe, November 11, 2019, www.bostonglobe.com/2019/11/11/opinion/massachusetts-senate-zerosdrug-costs/ 12. National Academy for State Health Policy, “State Prescription Drug Legislative Tracker 2019,” 2019, https://nashp.org/wp-content/uploads/2019/09/ Rx-end-of-year-Tracker-2019-12.5.2019.pdf 13. For Maine and Maryland, see Antoinette Kraus, “Out-of-Control Prescription Drug Prices Finally Have a Solution in Pennsylvania | Opinion,” Philadelphia Inquirer, February 6, 2020, www.inquirer.com/health/expertopinions/prescription-drug-costs-affordability-board-pennsylvania-frankel-20200206.html For California, see “California Looks to Launch Its Own Prescription-Drug Label,” FirstWord Pharma, January 9, 2020, www.frstwordpharma.com/ print/1692560?al=39c41e-880ab1ccd0501e78c98f5dc0da30e574%5E%7 C%5EMTEwOTYzMA%3D%3D%5E%7C%5ENQ%3D%3D&cp1=bm V3c2xldHRlcl9yZWdpb25faWQ9c3Rvcnlfd2F0Y2g%3D&tsid=17 14. Ashley Kirzinger, Lunna Lopes, Bryan Wu, and Mollyann Brodie, “KFF Health Tracking Poll-February 2019: Prescription Drugs,” Kaiser Family Foundation, March 1, 2019, www.kff.org/health-costs/poll-fnding/kff-healthtracking-poll-february-2019-prescription-drugs/ 15. Steven H. Woolf and Heidi Schoomaker, “Life Expectancy and Mortality Rates in the United States, 1959–2017,” Journal of the American Medical Association, Vol. 322, Issue 20 (November 26, 2019): 1996–2016, https:// jamanetwork.com/journals/jama/article-abstract/2756187 16. Michael Erman and Carl O’Donnell, “Exclusive: Drugmakers from Pfzer to GSK to Hike U.S. Prices on Over 200 Drugs,” Reuters, December 31, 2019, https://uk.reuters.com/article/us-usa-healthcare-drugpricing-exclusive/ exclusive-drugmakers-from-pfzer-to-gsk-to-hike-u-s-prices-on-over-200drugs-idukkbn1yz1c4 17. Cristin Flanagan, “Drugmakers Hike 2020 Medicine Prices Despite Lawmakers’ Ire,” Bloomberg News, January 2, 2020, www.bloomberg. com/news/articles/2020-01-02/drugmakers-hike-2020-medicine-pricesdespite-u-s-lawmakers-ire 18. See Ricky R. Goldenwasser, “Drug Price Infation Update-Price Increases Thru January 5th Ahead of Last Year,” Morgan Stanley, January 6, 2020.

A Somnolent Public Awakens

81

19. Matej Mikulic, “Share of Pharmaceutical Revenue Worldwide in 2017, by Country,” Statista, August 13, 2019, www.statista.com/statistics/784420/ share-of-worldwide-pharma-revenue-by-country/ 20. David J. Gross, Ph.D., Jonathan Ratner, Ph.D., James Perez, B.B.A., and Sarah L. Glavin, Ph.D., “International Pharmaceutical Spending Controls: France, Germany, Sweden, and the United Kingdom,” Health Care Finance Review, Vol. 15, Issue 3 (Spring 1994): 127–140, www.ncbi.nlm.nih.gov/ pmc/articles/PMC4193451/ 21. Datamonitor Healthcare, “Market Access Trends in the US, Europe, and Emerging Markets,” March 2019, p. 13, https://pharmaintelligence.informa. com/~/media/informa-shop-window/pharma/2019/fles/whitepapers/globalmarket-access-whitepaper_.pdf 22. See Jacoline C. Bouvy, Claudine Sapede, and Sarah Garner, “Managed Entry Agreements for Pharmaceuticals in the Context of Adaptive Pathways in Europe,” Frontiers of Pharmacology, Vol. 9, Issue 280 (March 27, 2018), www.ncbi.nlm.nih.gov/pmc/articles/PMC5881456/ 23. See Deloitte Centre for Health Solutions, “Patient Access to Innovative Medicines in Europe: A Collaborative and Value-Based Approach,” January 2019, https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/ life-sciences-health-care/deloitte-uk-patient-access-to-innovative-medicinein-europe.pdf 24. Marc A. Rodwin, “What Can the United States Learn from Pharmaceutical Spending Controls in France?”The Commonwealth Fund, November11, 2019, www.commonwealthfund.org/publications/issue-briefs/2019/nov/what-canunited-states-learn-drug-spending-controls-france 25. Joy Ogden, “How Will NICE’s Budget Impact Test Affect New Drug Availability?” Prescriber, August 2017, www.prescriber.co.uk/wp-content/ uploads/sites/23/2017/08/NICE-budget-impact-EB-edit-lsw.pdf 26. Cécile Rémuzat, et.al., “Overview of External Reference Pricing Systems in Europe,” Journal of Market Access & Health Policy, Vol. 3, Issue 10 (September 10, 2015): 3402, www.ncbi.nlm.nih.gov/pmc/articles/PMC4802694/ 27. Joy Li-Yueh Lee, Michael A. Fischer, William H. Shrank, Jennifer M. Polinski, and Niteesh K. Choudhry, “A Systematic Review of Reference Pricing: Implications for US Prescription Drug Spending,” The American Journal of Managed Care, Vol. 18, Issue 11 (November 16, 2012): e429-e437, www. ajmc.com/journals/issue/2012/2012-11-vol18-n11/a-systematic-review-ofreference-pricing-implications-for-us-prescription-drug-spending/ 28. Paul V. Grootendorst, John K. Marshall, Anne M. Holbrook, Lisa R. Dolovich, Bernie J. O’Brien, and Adrian R. Levy, “The Impact of Reference Pricing of Nonsteroidal Anti-Infammatory Agents on the Use and Costs of Analgesic Drugs,” Health Services Research, Vol. 40, Issue 5 Pt 1 (October 2005): 1297–317, www.ncbi.nlm.nih.gov/pubmed/16174135 29. For Germany’s experience with reference pricing on statins, see Tom Stargardt, “The Impact of Reference Pricing on Switching Behaviour and Healthcare Utilisation: The Case of Statins in Germany,” European Journal of Health Economics, Vol. 11, Issue 3 (July 29, 2009): 267–277, www.ncbi. nlm.nih.gov/pubmed/19639351 30. For Italy, see Simone Ghislandi, Iva Krulichova, and Livio Garattini, “Pharmaceutical Policy in Italy: Towards a Structural Change?” Health Policy, Vol. 72, Issue 1 (April 2005): 53–63, www.ncbi.nlm.nih.gov/pubmed/15760698 31. Austin Frakt, “To Reduce the Cost of Drugs, Look to Europe,” New York Times, October 19, 2015, www.nytimes.com/by/austin-frakt 32. Grootendorst, et.al., op.cit.

82

A Somnolent Public Awakens

33. Matej Mikulic, “Share of Pharmaceutical Revenue Worldwide in 2017, by Country,” Statista, August 9, 2019, https://www.statista.com/statistics/ 784420/share-of-worldwide-pharma-revenue-by-country/ 34. Elizabeth Doughman, “North America Projected to Generate $635 Billion in Pharmaceutical Sales by 2022,” Pharmaceutical Processing World, May 30, 2019, www.pharmaceuticalprocessingworld.com/north-america-projected-togenerate-635-billion-in-pharmaceutical-sales-by-2022/ 35. McKinsey & Co., “Change in the Japanese Pharmaceutical Market: Cradle of Innovation or Grave of Corporate Profts,” 2019, www.mckinsey.com/ industries/pharmaceuticals-and-medical-products/our-insights/change-inthe-japanese-pharmaceutical-market-cradle-of-innovation-or-grave-ofcorporate-profts 36. The process of Japanese pricing is detailed in Ryan Clark and Rhea Jang, “Japan’s Ongoing Shift from a Traditional Reimbursement Assessment to a Novel Cost-Effectiveness Submission Requirement,” HTA Quarterly, Late Summer, September 12, 2018, www.xcenda.com/insights/htaq-summer-2018japan-novel-cost-effectiveness-submission-requirement 37. “Top Cancer Drugs May Come Under Price Control, Says Report,” The Economic Times, January 7, 2020, https://economictimes.indiatimes.com/ industry/healthcare/biotech/pharmaceuticals/top-cancer-drugs-may-comeunder-price-control/articleshow/73131162.cms 38. See Datamonitor Healthcare, op.cit., p. 25. 39. See “Russia-Pharmaceuticals,” Export.com, August 14, 2019, www.export. gov/article?id=Russia-Pharmaceuticals. 40. “Russian Pharma 2020 Strategy,” Chameleon Pharma Consulting, 2020, https://www.chameleon-pharma.com/russian-pharmaceutical-agenda-2020/ 41. Huileng Tan, “China’s Pharmaceutical Industry Is Poised for Major Growth,” CNBC.com, April 19, 2018, www.cnbc.com/2018/04/19/chinaspharmaceutical-industry-is-poised-for-major-growth.html 42. “China’s Pharmaceuticals Industry Is Growing Up: The Country’s Drugmakers Increasingly Eye Lucrative High-End Drugs,”The Economist, September28, 2019, www.economist.com/business/2019/09/28/chinas-pharmaceuticals-industryis-growing-up

5

The Path Toward Reform

The pharmaceutical industry has reached a tipping point. Its business growth is predicated upon fagrantly raising drug prices (especially in the U.S.), thereby increasing the inability of patients to afford medications. The clinical trials that provide the basis for pharma’s new drug development rely on biased designs to favor approvable outcomes, even as sponsors selectively publish mainly the reports that contain favorable results for their test drugs. The industry’s research process exerts a corrupting infuence on medical researchers and the channels of medical communication, while its everyday product promotions involve regular payments of fnancial and other inducements to prescribers that effectively constitute bribes. Even its involvement in continuing medical education poses a confict of interest and a corrupting infuence on medical practitioners. If pharma continues operating in this manner, it cannot complain when citizens worldwide demand their governments impose onerous restrictions. Each passing week sees the emergence of additional outrages that make such controls more likely. The following proposals from a range of sources represent various approaches to making the crucial pharmaceutical industry one that is directed more toward public well-being and the advancement of curative medicine rather than amoral, fnance-driven proft. The list here is by no means exhaustive. The following measures have been selected because they represent some of the most discerning policy proposals to have emerged. As most of the initiatives are complementary, health care reformers need to pursue policies containing several, if not all, of the following measures.

Use Public Money to Establish a Few Publicly Owned Pharma Companies The case for a small number of publicly owned and managed pharma companies is entirely straightforward. Publicly owned pharma companies would operate free from the need to indulge proft-seeking shareholders. As policy analysts Dana Brown and Isaiah J. Poole1 argue, companies

84

The Path Toward Reform

freed from the short-term proft albatross would be “able to focus on public health priorities, namely, making sure that needed medications are available in adequate supply and priced to be accessible to everyone who needs them.” They make the point that pharma’s claim of public involvement stifing innovation holds no merit because the industry’s remorseless drive for short-term profts is primarily responsible for stifing innovation by diverting R&D funding into stock buybacks, marketing and sales. A major avenue through which the existence of several nonproft pharma companies can foster innovation includes the exploration of generically available compounds for repurposed uses. The core of branded pharma research consists of exclusively studying patent-protected compounds. Donald Light and Antonio Maturo,2 in their study of Italy’s Mario Negri Institute, showed how research outside the yoke of patented compounds encourages collaboration and stimulates scientists to pursue major challenges instead of minor innovations that can command high prices under patent protection. This is not to suggest that governments should nationalize all or even any existing pharma companies. Governments should play two roles in helping create a pharmaceutical industry that operates primarily to enhance public well-being instead of pursuing private proft by exploiting consumers and taxpayers. First, the existing Big Cap pharma companies are largely fnanciers and marketing entities. Governments should leave them to pursue their own goals and business approaches while exercising close regulatory oversight to prevent them from abusing patents, inficting extortionate prices and otherwise acting as a rogue oligopoly. A second useful role for government intervention into the pharma market consists of capitalizing a few publicly owned pharma companies that will develop both patented and unpatented compounds and charge easily affordable prices. In this way, publicly owned and managed pharma companies will stimulate innovation by supplementing the National Institutes of Health and other government agencies. Public pharma companies will also stimulate innovation by providing alternative research funding for small, startup pharma companies. Many biotechs and other new pharma ventures originate with a few research scientists who grew frustrated working for Big Cap pharma companies or academic centers. They developed innovative ideas for new therapies but felt thwarted by the slow, backbiting culture of the Big Caps and the miserly support in academia. Eventually they decided to start their own companies on shoestring budgets. After a few years of preclinical research that yielded auspicious results, the founders typically fnd that government grants would not be suffcient to fund the clinical programs they need to win approval for a new drug. At that point, they face the demeaning choice of going hat in hand to

The Path Toward Reform

85

either venture capital frms or deep-pocket pharma companies. A tie-up with either source of funding would put an end to their control of the development process and place them in thrall to the short-term demands of investors. Publicly owned pharma companies can fll the gaps in funding innovative ventures without restricting the scientifc, public-interest endeavors to the requirements of bean counters.

Start With Reference Pricing, but Recognize Its Serious Limitations The adoption of reference pricing in certain countries, principally the U.S., would likely have a moderating effect on the excessive drug pricing there. Each medication can readily be assigned to a comparability class. By permitting both public and private payers to maintain restrictive formularies that reimburse only the lower or lowest priced brands in each class, product marketers in each grouping would, thereby, face the need to compete with each other on price. That clearly represents an advance for the U.S., where unscrupulous fnance managers at each pharma company set prices strictly according to the percentage of earnings growth they need to appease Wall Street and increase executive compensations. The use of reference pricing to foster market competition can prove benefcial in the usual run of cases where intrinsic differentiation among competing brands within a given class remains slight. As Japan, Germany and other countries have seen, however, reference pricing can prove inadequate when a company launches a genuine breakthrough brand. Then the melding of a scientifc breakthrough with neoliberal capitalism and a government-provided monopoly can deplete the budgets of government agencies, private insurers, hospitals and consumers. The limit of reference pricing and market competition as approaches to affordable medications shows the fatuousness of economic libertarians when they posit a rigid dichotomy between the free market and government regulation. The two are better conceived as analytical constructs in which each works more effciently when coupled with the other. A free market bearing all the elements of Adam Smith’s defnition doesn’t exist anywhere in the world and probably never has. Only when buttressed by a stern, yet unobtrusively watchful regulatory system can a market bestow the benefts its 18th-century philosophizers conceived for it.

Use Health Technology Assessments (HTAs) to Calculate Incremental Value and Clinical Beneft as a Basis for Price Negotiations Most developed nations use HTAs as a systematic way of evaluating the incremental clinical beneft of new drugs. The U.S. remains the notable

86

The Path Toward Reform

trailing exception. HTAs allow payers and providers a means of incorporating cost-effectiveness evaluations and, thereby, aligning price and value. The experiences of other countries have shown that HTAs can beneft consumers, taxpayers and health care entities to achieve affordable drug prices while encouraging genuine (as opposed to marketinghyped) pharmaceutical innovation.3 Reformers should keep in mind, however, the fact that HTAs are not a panacea. For example, they must not ignore the corrupting infuence of pharma on organizations such as patient advocacy groups and regulatory agencies that infuence HTA assessments. A systematic analysis of the U.K.’s HTA body, for example, has shown that “Financial interests are highly prevalent among patient organizations contributing to health technology assessment[s]” conducted by the National Institute for Health and Care Excellence (NICE). The authors found that the vast majority (72%) of patient organizations “had accepted funding from the manufacturer(s) of a technology or a competitor product in the same year that they had contributed to the appraisal of that technology or the previous year,” even though “NICE’s decision making committees were aware of less than a quarter” of those conficting interests.4

Require Governments to Use Volume Purchasing Power Even in the U.S., where the prevailing ideology disparages the very idea of government involvement in the economy, governments at all levels— federal, state and local—accounted for 44.1% of all prescription drug spending in 2017.5,6 In other countries, governments have used their situation as pharma’s largest customer segment to exercise opportune purchasing power. Such action was specifcally prohibited by the U.S.’s 2003 Medicare Prescription Drug Bill that banned the government from negotiating drug prices and made it illegal to import identical, cheaper drugs from other countries. The bill’s foor leader, Billy Joe Tauzin of Louisiana, managed to secure its passage in an extraordinary 3:00 a.m. Congressional session. Almost exactly one year later, in January 2005, Tauzin left Congress and took a position as the president of the pharmaceutical industry’s political lobby, the Pharmaceutical Research and Manufacturers of America, at a salary of $2 million a year.7,8 Specifc legislation to reverse those provisions and permit Medicare the use of a restrictive formulary would introduce a more symmetrical market situation by letting the Centers for Medicare and Medicaid Services negotiate prices. As an example, Medicare spending on diabetes medications is one of the top three categories, along with antivirals and psychotherapeutics, of drug cost expense incurred by that agency.9 A 2020 study that appeared in JAMA Internal Medicine concluded that Medicare could save half the $8 billion it spent on insulin (after it received

The Path Toward Reform

87

manufacturers’ rebates) in 2017 if it were allowed to negotiate directly with the drug companies and use a restrictive formulary.10 A confederation of U.S. states can also constrain drug prices. Article 1, Section 10 of the U.S. Constitution permits states to enter “interstate compacts,” or agreements between two or more states, as long as they get the “consent of Congress.” In the years since Constitutional ratifcation, however, the U.S. courts, including the Supreme Court, have effectively nullifed the provision requiring Congressional consent. At the present time, there are almost 200 active interstate compacts operating in the U.S. These include the Regional Greenhouse Gas Initiative, a marketbased program among ten states to reduce greenhouse gas emissions, and the Driver License Compact. Interstate compacts provide several states with the economy of scale to do what a single state cannot do on its own. The former Congressional staffer and political strategist Daley Gruen illustrated the point:11 Vermont tried to create their own single-payer system, but the startup and administrative costs were too much for one single state to bear alone—especially one with a small tax base. But the 16 bluest [i.e., strongly Democratic] states represent almost half of the country’s GDP and 37 percent of its population. If states such as California, Massachusetts, Maryland and Illinois form a single-payer compact, the lower drug and health care costs there will lead people in surrounding states to pressure their own politicians to join. In 2019, the governor of California proposed a statewide, singlepurchaser program that would enable all government entities in the state—Medicaid, the correction system, the counties, other government units—to act as a single buyer and exert purchasing power against pharma companies.12

Have Regulatory Agencies Such as the FDA Prevent Evergreening When They Approve New Drugs The patent systems in most countries permit patent evergreening, in which overlapping market exclusivity periods extend monopoly rights and prolong exclusivity beyond reasonable justifcation. The practice delays generic and biosimilar compounds from providing lower-priced competition to patent-protected brands. In the U.S., where the political economy of neoliberal capitalism is facilitated by government laxity and largesse, patent evergreening operates so as to shamefully stife competition. According to law professor Robin Feldman,13 “new patents can be obtained on minor tweaks such as adjustments to dosage or delivery systems—a once-a-day pill instead of a twice-a-day one; a capsule rather than a tablet.”

88

The Path Toward Reform

Yet Feldman argues that the FDA can address the inequity of patent evergreening without wading through a corrupt Congress to change patent law. The agency can use what he terms a “one-and-done” approach for patent protection. “Under it,” according to Feldman, “a drug would receive just one period of exclusivity, and no more. The choice of which ‘one’ could be left entirely in the hands of the pharmaceutical company, with the election made when the FDA approves the drug.”

Institute and Enforce Criminal Penalties to Ensure the Transparency of Clinical Trials The pharmaceutical industry must make all design elements and results of every clinical trial fully available to regulatory authorities and physicians. Although the U.S. Department of Health and Human Services has issued a ruling which helps to make information about clinical trials more widely available to the public by requiring registration and the submission of summary results to ClinicalTrials.gov, this fails to address the problem of companies hiding the results of the studies they feel have not produced suffciently favorable results for their test compounds.14 Although the U.S. government for several years has urged pharma companies and other entities conducting clinical research to enter all clinical trials into a federal database, the government has played its traditional American role of handmaiden to industry and failed to fully implement the proposal. In 2017, the National Institutes of Health and the FDA tried again by issuing a long-awaited “fnal rule” to clarify expectations, including an explanation of penalties for failing to disclose trial results. Although this rule came into effect on January 18, 2018, a Science investigation showed that many sponsors still ignore the requirement and federal offcials do little to enforce it.15 Despite the promise of stiff penalties for noncompliance, including fnes up to $12,103 a day for failing to report a trial’s results, neither NIH nor FDA has cracked down. The FDA, fearful of compromising its own budget by challenging its pharma “clients,” says it won’t brandish its big stick. In typical bureaucratic evasion, the FDA stated it will seek further “guidance” on how it should best exercise that power. As of this writing, the agency had not yet set a date for reaching a decision on implementation.

Establish a Sarbanes-Oxley Analog to Prevent Off-label Marketing and Price Report Cheating Pharmaceutical companies routinely commit off-label marketing infractions to boost brand sales for conditions not approved by regulatory authorities. Even more frequently, they submit phony pricing reports in the U.S. that illegally reduce the rebates owed to Medicaid. Despite the

The Path Toward Reform

89

adverse impact on the image and reputation of pharma companies from these infractions, senior managers consider such penalties as routine costs of business. Company shareholders pay what sometimes amounts to multibillion-dollar penalties, while the managers themselves suffer no fnancial or criminal liability. That provides scant reason to believe increasing the fnes would deter future violations. Severe fnancial penalties and imprisonment for senior executives are the only actions likely to stamp out the routine practices of off-label marketing and pricing falsifcation. In the U.S. and other countries, fduciary offcers are currently liable for enormous fnes and imprisonment for “insider trading” and submitting misleading fnancial statements. The consequences of off-label marketing make it no less serious an infraction. Since regulatory agencies incline toward pandering to the demands of the pharmaceutical industry, even brands used in approved ways occasionally cause seriously adverse consequences that were not anticipated. To take one example, various sources estimate that Vioxx contributed to anywhere between 30,000 and 50,000 deaths. The practice of pharma companies promoting their brands for uses that have not even been formally approved represents an incalculable risk.16,17,18 As a means of removing this serious risk to public health, legislators and regulators should establish an analog to the federal Sarbanes-Oxley legislation in the U.S. that requires senior executives to regularly attest to the veracity of fnancial statements. Under the pharma counterpart, managers would have to forswear, every 90 days, that their companies did not engage in off-label marketing. An essential part of this process must hold them personally subject to fnancial and criminal penalties for erroneous certifcations. In this way, the regulatory agencies could substantially advance the core mission of public protection which led to their establishment in the early 20th century.

Ban Gifts and Payments to Practicing Physicians Lawyers are rightly regarded by the public and the profession’s own societies as partisan advocates that act in the interests of their paying clients. For that reason, when an attorney represents a client in a legal dispute with another party, that attorney and even his/her partners may not represent or accept payment from the second party. No similarly effective constraints exist on physicians’ conficts of interest. Physicians are supposed to act entirely on the basis of furthering their patients’ well-being, but the overwhelming majority of them accept payments and gifts from pharma companies that, according to studies, deform their prescribing behavior. Most practicing physicians see nothing wrong with this pattern, yet numerous studies have shown that even minor, inexpensive gifts—such as

90

The Path Toward Reform

dinners costing less than $150—cause physicians to favor a benefactor’s products. To remedy this routine confict of interest, legislation and/or the administrative fat of national health agencies must prohibit physicians from accepting any and all gifts from pharma companies. Many societies of organized medicine, particularly in the U.S., will emit blood curdling howls upon learning of such restrictions. That’s too bad. They must learn to live with them. The sense of entitlement among physicians has reached its limit in leading them to forsake social responsibility.

Prevent Clinical Investigators From Publishing Their Results or Giving Presentations About Them for Five Years If physicians who are full-time employees of pharma companies act as principal investigators at trial sites and wish to publish their fndings, they should be free to do so. Such activity does not seek to convey to other physicians, regulatory agencies, insurers or the general public that they are anything other than good employees, acting in the interests of their sponsoring companies. Given this understanding, their journal articles deserve little if any recognition beyond that of infomercials. Clinical researchers who are not pharma employees, on the other hand, represent an entirely different species and must operate under other guidelines. Heretofore these researchers have done their work under the fction that they are independent agents, advocating on behalf of the likely patient candidates by acting under the strict and ethical canons of scientifc research. Under this fction of disinterest, they publish articles and give advocacy presentations to physicians, proclaiming the successes of test drugs. All the while, the study designs they enact, the results they reach and the interpretations of those results are developed by their sponsoring pharma companies. This spurious pretense of independence gives their involvement and communications the entirely misleading suggestion of objective detachment. Research physicians, whether in academia, private practice, managing trial sites or any other venue are entirely free to sell their services as clinical investigators to sponsoring pharma companies. There is no quarrel with their right to continue working in strictly a backroom capacity. It is only when they trade upon the implicit value of detached independence that they act perniciously. Despite the disclaimers in journal articles and speech materials that they conducted their work with a pharma company’s support, communications from them implicitly convey the suggestion that the contents are unbiased. Researchers that act as parts of that process are engaged in an inherently deceitful practice. It is well understood, as journalist Snigdha Prakash19 found in her account of the Vioxx litigation, that clinical design and procedure routinely involve patterns of hedging, shading,

The Path Toward Reform

91

manipulating and conniving to show the most favorable possible results for a sponsor’s test drug. For this reason, legislation and/or the administrative fat of national health agencies must prohibit clinical researchers from publicly communicating about studies they have conducted for a period of fve years following the completion of their last engagement on any compound. The sponsors, on the other hand, remain free to make such public proclamations as they wish—in journal articles, at dinner meetings and medical conferences—but without implicitly conveying that the messages carry a banner of independent and unbiased researchers. Given this prohibition, pharma companies can use obviously paid spokespeople (for example, the classic, “I’m not a doctor, but I play one on television”) who cannot even pretend expertise or direct involvement in the studies they are touting in journal articles and at medical conventions. In this manner, prescribers and the public may rightly perceive the medical communications of pharma companies as promotions, whether they appear as articles in the New England Journal of Medicine or in television ads.

The Role of Business Intelligence (BI) The foregoing should preempt fervent advocates of the pharmaceutical industry who would tar the authors as opponents of private enterprise. The authors’ underlying argument is that pharma can become a more constructive part of public health and less likely to exploit consumers and taxpayers if it faces genuine competition. Such competition can come from publicly owned pharma companies, the use of reference pricing and HTAs as the basis for pricing negotiations, and governments exercising volume purchasing power. By enforcing full disclosure on clinical trials, getting tough on deterring off-label marketing, and limiting the ability of investigators to promote products they studied, regulators and legislators would help satisfy the market requirement for a symmetrical distribution of information between sellers and buyers/gatekeepers. Similarly, banning pharma gifts and payments to prescribing physicians would remove a confict of interest and encourage prescribing behavior based more on a cost-beneft assessment that is not obscured by gratitude to benefactors. All these elements of heightened competition would make pharma a more constructive, less venal part of contemporary society. It is entirely ftting that governments take an active hand in creating and encouraging such competition because their actions—granting patent exclusivity, tax breaks and other largesse—created the oligopoly situation that impeded competition and generated pharma’s depravity. The pharmaceutical industry possesses another road to rehabilitation. This involves the improbable alternative that wise, far sighted managers would recognize the long-term benefts of not preying on their customers.

92

The Path Toward Reform

That remains improbable because pharma, similar to most industries, is dependent upon stock markets for capital and must remain in thrall to short-term whims by catering exclusively to the quarterly fnancial demands of their shareholders. The fnancial incentives of senior managers are aligned against long-term thinking and action. The worldwide public expects that pharma’s insulation from a competitive market obliges the industry to exercise good citizenship and a strong concern for public well-being. The price-gouging and extensive violations by many pharma companies during the past 20 years have betrayed that expectation and created a public perception that the industry is fundamentally driven to achieve exorbitant profts by exploiting society’s most vulnerable segments—the aged, the sick and those of modest means. Pharmaceutical companies and their lobby, the Pharmaceutical Research and Manufacturing Association, have so far sought to address the public distrust of the industry and government regulatory efforts as principally matters for public relations and political infuence. As a prime example, the industry’s refexive response to the issue of unaffordable medication costs has centered on the spurious and debunked explanation that high prices are needed to fund the R&D that advances the standards of care. That deceptive effort illustrates how pharma relies upon the wrong methods to address public image and government controls. The industry’s communications/public relations and government affairs functions mask, distort and/or suppress the issue of unaffordable pricing rather than forthrightly acknowledging it and recommending ways to rectify the situation. To Adequately Address Public Perceptions of Pharma and Consequent Government Actions, the Industry Must Substantially Reconfgure the Fundamental Nature of Its Business Model and the Way It Defnes Its Role in Society At most times, pharma managements regard public opinion and government activity as relatively peripheral matters that they can safely delegate to their PR and government affairs departments, while those in the C-suite go about the tasks of beseeching and beguiling investors, even as their lieutenants develop and sell patent-protected products. Managements now must reassess their approach to these core activities. For those few managers with suffcient wisdom, public regard and integrity to contemplate an alternative business approach, the task need not be as daunting as they fear. Pharma actually deploys a function that can play a key role in both accurately assessing developing situations and in providing insightful solutions. Unfortunately, the industry underutilizes this activity by limiting it almost exclusively to tactical operations at the product and franchise level. This function is known as Business Intelligence (BI).

The Path Toward Reform

93

How BI Can Help Pharma to Improve its Public Image and Mitigate Government Intrusion Some companies use BI, under the rubric of Marketing Research, to discern customer needs and attitudes. At the same time, they rely on another of its elements, Competitive Intelligence, to better understand the thinking, planning and resources of other companies. The term Business Intelligence is used here to refer to both functions but also to include the activities of collecting and assessing political intelligence and public opinion in a dispassionate manner that does not assume the immutability of preset operating strategies or goals. A BI possessing the capability of addressing public perception and government involvement should accept as its only presupposition the need for pharmaceutical companies, as proft-seeking enterprises in a capitalist system, to show some return on equity. Beyond that, the amount of return, the time periods for measuring growth, as well as the objectives, strategies and methods for achieving it must all be subject to empirical inquiry rather than accepted as mandates from the C-suite responding to Wall Street. By making the pharmaceutical industry’s bedrock fundamentals subject to constant, empirical assessment, BI can do an infnitely better job than the PR and government affairs functions of allaying the threats from public opinion and government intrusion. The latter two departments that pharma tasks with deluding and bribing accept pharma’s dysfunctional premises as givens and provide no basis to drive for change. To effectively use BI for the purposes of assessing and adapting to the imperatives of politics and public opinion, management must give it a seat at the senior decision-making table and ask it to provide evaluated options for action. The approach presented here is not new to managements in other sectors. Although the idea may be novel to pharma, the industry is typically a late adopter of innovative managerial thinking. Procter & Gamble, for example, introduced the product management system in 1929, but pharma did not adopt it until well into the 1950s. The present notion has its roots in 1960, when Jerome McCarthy of Harvard20 introduced the concept of the “marketing mix,” which Phillip Kotler,21 a few years later, popularized as the 4 P’s of marketing: product, price, place and promotion. By the 1980s, after advising the pharmaceutical company G.D. Searle, Kotler added two more P’s to his typology: politics and public opinion. If management must change the way it thinks of BI, the practitioners of business research must also alter the way they defne their jobs by appreciably widening their scope of professional acumen. They must increase their knowledge to address larger, strategically signifcant issues that are integral to establishing the long-term sustainability of individual pharma

94

The Path Toward Reform

companies and the sector, thereby functioning as “truth tellers” to senior management. Some of the issues that BI must regularly assess and put on the record for senior management to consider include the following: •

•

•

• •

As demand for branded medications declines, how long can branded pharma companies continue regular price hikes that are three times greater than cost of living increases, thereby defying a fundamental tenet of a competitive market? Will the public and the government permit pharma to base its R&D upon the search and development of patented compounds and market exclusivity, even though research is capable of demonstrating that repurposed, generic compounds can advance standards of care? What is the cumulative effect upon public perception and government activity of pharma devoting ever increasing proportions of its R&D to rare conditions in order to charge higher prices, while selling fewer units and neglecting research in areas such as anti-infectives that affect vastly larger populations? When and how will the growing percentage of pharma revenues from emerging markets oblige pharma to forsake its price-based growth model in favor of one based on volume? What other social and political trends loom on the horizon that will adversely affect pharma?

In a world undergoing ever more rapid change and dislocations, an industry that fails to regularly monitor major trends and adjust accordingly risks going the way of Polaroid, Laura Ashley, BlackBerry, the record industry, the camera industry and buggy whip manufacturers. Not only must corporate directors look to BI as a source of empirical assessment and truth telling, but business research professionals must no longer limit themselves to remaining primarily a service to line management at the brand and franchise levels. A failure on the part of BI to accept and agitate for addressing the threat to pharma will produce, at a minimum, an unparalleled level of consolidation across the industry. That may not be fnancially harmful to C-suite occupants, for whom a merger or acquisition will trigger the payout provisions of their contracts. For many BI professionals, on the other hand, a wave of industry consolidation will mean the end of their careers because “right-sizing” (i.e., reducing fxed costs by fring employees) is integral to mergers and acquisitions. A critical question to ask is why BI, which has been in place in the pharma industry for many years as both an internal resource and external consultancies, has not assisted senior managers to better understand the industry’s deteriorating scenario and develop strategies for correcting it.

The Path Toward Reform

95

Several reasons account for pharma having relegated BI to the broom closet of product and franchise assessments. First and most importantly, senior executives don’t want to change their bondage to Wall Street. Their contracts are structured so that they get the largest compensation over the shortest time span from fnancial legerdemain and other, nearterm moves that boost company share prices. Second, even those executives that clearly know bean-counting management is contrary to public health, as well as to pharma’s long-term sustainability, and admit as much in private, claim there is nothing they can do to alter the situation. In conversations between one of the authors (Hoffman) and several C-suite executives, the following refrains consistently emerge. 1. Contemplated changes away from a short-term focus on developing patented compounds with marginally different outcomes will depress stock prices for several years and cause the large, institutional investment frms that hold power over the pharma companies to merely replace the managements with others that pledge a more slavish deference to vulture capitalists. 2. Even if the current, major investors are inclined to grant managements suffcient time to reorient the companies toward more effcient, long-term goals, the depressed stock prices would encourage activist investors or hedge funds to swoop down and seize control of those companies whose leaders adopt the longer-term perspective. 3. These structural realities, as senior executives see them, induce a feeling that they will be able to enjoy only short tenures running their companies and any major changes to the industry’s business model must await future managements during other eras. Senior executives across the pharma industry commonly voice the expression, “If that ever happens, IBG, YBG; I’ll be gone, you’ll be gone.” 4. A few executives, likely seeking to strike an idealistic tone that they think will appeal to people in their presence, claim that their best course lies in achieving the “stake” contained in their management contracts (i.e., a parting compensation in the vicinity of $100 million) and using it to buy a partnership interest in a private equity frm, where they can support long-term research based on medical need and substantively advance scientifc therapeutics. Such “idealistic” aspirations, however, are entirely disingenuous because private equity frms keep even tighter leashes on the companies they fund. Self-directed initiatives that pharma companies may take to advance the reforms advocated here will undoubtedly be less disruptive than those measures legislators and regulators introduce. Government schemes that respond to vehement public concerns sometimes create changes with a

96

The Path Toward Reform

meat axe rather than a surgeon’s scalpel. In a political economy of privately owned capital that operates without a centralized management, most legislators and regulators would prefer to see corporate managements acting on their own initiative to enhance public well-being, rather than imposing regulatory requirements on them. Business intelligence stands as a tool that pharma managers can use to reform their industry and provide for its long-term sustainability and growth. The price to be paid for an alternative of willfully blind ignorance will be far higher than what they can now contemplate. How Reformers Can Make Pharma Better Serve the Public LEARNING FROM A HISTORICAL PRECEDENT

A useful historical precedent suggests a path for citizens seeking to reform pharma and end its victimization of society’s most vulnerable members. In the latter half of the 19th and early 20th centuries, social change in the advanced, industrial countries of the West had progressed to the point where tens of millions of people were crowding into cities and abandoning farms. In their new places and forms of work, they were cut off from direct access to fresh, natural foods. As technology had not yet brought widespread refrigeration to preserve food from farm to table, many among the urban masses had to access their meat, dairy and produce from packages—cans, boxes, bottles and assorted other forms. To retard spoilage and preserve an edible appearance for these foods, the packaged goods processors adulterated their concoctions with preservatives that regularly sickened and even killed people.22 The public in the U.S. and Europe remained largely unaware of the extent to which meat packers and other food processors were poisoning them at every meal. A few academics in the new discipline of food chemistry had studied the issue, but their work was largely unknown. One prominent scholar within this group was Harvey Wiley, a Civil War veteran who became a doctor of medicine and went on to study chemistry at Harvard. In 1874, he took a position as professor of chemistry at Purdue University, where the Indiana State Board of Health asked him to study the adulteration of jams, sugars and honey. In 1878, Wiley went to Europe for the purpose of studying the latest advances in food chemistry. There he learned that Great Britain had already limited the addition of certain chemical additives in foods. By 1881, France had banned salicylic acid in wine and Germany prohibited it in beer. As one might now suspect, the U.S. at that time had taken no legislative or administrative action to improve food safety. In short order, Wiley determined that he could more effectively aid the reform effort by working in a government position, so in 1882 he accepted a job as chief chemist at the U.S. Department of Agriculture. During nearly 25 years at that agency, Wiley completed and published

The Path Toward Reform

97

scores of studies demonstrating the adulteration of nearly every food that reached the American table. In one series of studies that would doubtlessly be prohibited today, Wiley recruited handfuls of young, healthy volunteers and added measured portions of common preservatives to their meals, which they ate at his laboratory. The volunteers became sick from the preservatives and Wiley determined that continued ingestion would eventually cause severe damage to one or more of their organ systems. The popular press was made aware of Wiley’s poisoned meal studies and their writeups helped fuel a public demand for food reform. Although Wiley testifed many times before Congress and helped to develop food safety legislation, those efforts amounted to almost nothing because the giant food processors—including dairymen and meat packers such as Armour, Swift and Wilson—owned Senators and Congressmen as a result of lobbying, campaign contributions and other forms of payment. Then, in early 1906, a publishing sensation captured the public’s attention. Upton Sinclair’s novel, The Jungle, described the squalid conditions in the Chicago slaughterhouses where human appendages, rats and feces were regularly tossed into meat products. The public outcry was overwhelming. Wiley told a friend that Sinclair was able to move reform farther along with one book than Wiley himself was able to do after nearly 25 years of meticulous research. Congress passed the Pure Food and Drug Act that same year. But Wiley’s contributions to the food safety movement only intensifed because he knew that implementing the reforms through a complex, government bureaucracy required more than passing a piece of legislation. He saw that women were the most responsive attendees at his public lectures, so he allied his food safety efforts with the woman’s suffrage movement. After leaving the Department of Agriculture in 1912, Wiley took a position heading the laboratories at a prominent women’s magazine, Good Housekeeping. He remained there until his death 18 years later, ever an effective advocate for his cause. Consumers today seeking to change pharma’s essentially exploitive form can learn many lessons from these efforts, more than a century ago, in another industry. LESSON #1: UNDERSTAND THE STRUCTURED OPPOSITION FACING PHARMA REFORMERS

To start with, reformers must recognize the structural opposition they face. The fnancial system in which western pharma companies depend upon stock markets for capital will not permit meaningful reform. As a counterexample, one might consider the Japanese pharma companies. Very few of them make the annual list of transgressors prone to off-label marketing and pricing fraud. That is not necessarily because the Japanese are more law abiding or ethical than their Western counterparts. Instead, many

98

The Path Toward Reform

Japanese companies across a range of economic sectors are organized into sōgō shōsha, giant trading companies that engage in a wide range of diversifed business lines, encompassing scores of products and services. Mitsubishi, Mitsui and Sumitomo are among the largest of these general trading companies. They include investment banks, insurance companies and other fnancing entities among their component parts. These sources of capital lessen the dependence of Japanese pharma companies on stock markets and the consequent pressures to cheat for achieving short-term metrics. LESSON #2: A BALEFUL IDEOLOGY SUPPORTS A SOCIAL STRUCTURE TO IMPEDE REFORM

Second, the obstacle of investment capital is buttressed in the Western world’s popular imagination by the delusional and pernicious Chicago School, a neoliberal ideology, which holds that the market by itself will rectify all wrongs and the sole objective of corporations consists of returning proft to investors. Again, this contrasts with the Japanese culture where public notice that an executive’s company violated the law confers shame and disrespect on him. LESSON #3: IN THE U.S., A FOUNDING SPIRIT OF GOVERNMENT IMPEDES PHARMA REFORM

The rancid Jeffersonian legacy of a minimal national government in the U.S. considers central planning and regulation as abhorrent. Even when popular sentiment eventually overcomes these obstacles, as it did with respect to food safety in the early 1900s and today on pharma, a corrupted Congress will continue to suppress reform legislation and, when unable to dismiss it entirely, will dilute it into uselessness. Given these elements that dominate the Western world’s political economy and make giant corporations what Thorsten Veblen called “the master implements of civilization,” reformers must exert unremitting pressure on holders of top executive positions in government. Although those leaders are subject to the same anti-reform obstacles of corruption and inimical ideology as legislators, their reduced number and frequent obligation to demonstrate moral leadership make them more subject to exposure and reformers’ infuence. *** If pharma reformers seek to infuence executive heads of government, the food safety movement also suggests some ways they can do it effectively. TACTIC #1 FOR PHARMA REFORMERS: ALLY WITH OTHER, GROWING POLITICAL REFORM MOVEMENTS

Again, Harvey Wiley pointed in the right direction when he joined forces with the woman’s suffrage movement. Although adulterated food affects

The Path Toward Reform

99

everyone, it was and remains principally a women’s issue because, in a majority of families, women buy and prepare the meals. Similarly, women serve as the health care sentinels of their families by attending to sick children, taking them to see physicians and encouraging their more stoic husbands to seek care when ill. Women gained suffrage in the 20th century and today they seek equitable treatment in business and the professions. It is no accident, as reformers of a previous generation used to say, that nursing societies and associations constitute the most advanced, progressive agitators for universal medical coverage. Pharma reformers would do well to align themselves with nursing societies and work toward common purposes. TACTIC #2 FOR PHARMA REFORMERS: ALLY WITH YOUNG PHYSICIANS AND MEDICAL STUDENTS

As noted earlier, pharma has corrupted medical practice and research to the point where reforming the pharmaceutical industry would require altering the modes and values of the medical profession. Younger physicians and medical students in particular tend to favor progressive changes in their profession, such as preferring a medical team approach (“pit crew”) over the profession’s classic “lonesome cowboy”23 paradigm. Time will tell if these young physicians maintain their progressive positions or if pressures to repay student debts, maintain lavish households and pay exorbitant college costs for their children will turn them into rationalizing money grinders that whore for pharma companies. Nonetheless, pharma reformers should seek to encourage these youthful inclinations and see if they can make a common cause. TACTIC #3 FOR PHARMA REFORMERS: ALLY WITH ETHNIC MINORITIES

Ethnic minorities pursuing legal rights and economic opportunities in the world’s advanced nations constitute another rising reform movement that those seeking pharma changes would do well to support. These populations typically live in crowded districts with few or substandard medical facilities and they suffer disproportionately from high drug prices. As they comprise rising percentages of the populations in the U.S., France, Germany and other nations, this demographic fact alone will accord them more political power. Reformers of the pharmaceutical industry can make progress by joining their struggle. TACTIC #4 FOR PHARMA REFORMERS: FORM ORGANIZATIONS LED BY FULLTIME, PROFESSIONAL AGITATORS

A political truism since at least Machiavelli’s time concerns the opportunities for advancing one’s cause by taking advantage of unforeseen

100

The Path Toward Reform

events. In most cases, this opportunity tends to beneft the side that is prepared and able to move quickly. Wiley and his allies in the food safety movement never would have been able to capitalize on the public’s outrage against meat packers created by The Jungle and secure passage of the Pure Food and Drug Act within a matter of months if they hadn’t already been ubiquitous in the halls of Congress and in President Theodore Roosevelt’s ear. Gun safety advocates in the U.S. present a counter example that reinforces this notion of “preparedness is all.” Despite the fact that an ample majority of Americans favor more stringent gun controls, proponents were unable to advance legislative action even after several incidents of mass murder by frearms. These episodes included 20 children who were lethally shot at an elementary school, 14 government workers killed in a mass shooting at their offce Christmas party and 58 concert goers killed—with another 413 wounded—by a sniper shooting from a nearby hotel room. The people who appeared before government bodies advocating for gun control were noticeably school students and mothers of slain children. Although their appearances evoked sympathy and an opinion shift favoring gun control among the general public, the U.S. Senate refused to even bring any proposed gun control bills up for consideration. This was because advocates for gun control were not represented by suffciently large organizations under leaders agitating for gun reform as their fulltime profession. Despite the effective emotional appeals of high school students and the mothers of murdered children, gun control advocates didn’t control enough money or votes to wag a threatening fnger in the face of offce holders. TACTIC #5 FOR PHARMA REFORMERS: CULTIVATE AND START MEDIA OUTLETS TO MAINTAIN AN UNRELENTING BARRAGE OF EXPOSURE, RIDICULE AND CONTEMPT AGAINST PHARMA

In 1922, the American newspaperman Walter Lippmann published the defnitive treatise, Public Opinion, that later became the basis for scholarly journals, graduate programs and an entire industry of polling practitioners.24 At a time when disciplines such as social psychology were still in their infancy, Lippmann explained in everyday language how the notions people maintain about the world are determined by their backgrounds and experiences. In societies with an advanced division of labor, people possess neither the time, the background or the interest to inform their views of the world with knowledgeable assessments of the facts. That means they form their judgments on the basis of stereotypes and the outside world rarely corresponds to the pictures in people’s heads. General news outlets—newspapers in Lippmann’s day—are rarely able to provide the factual assessments required by an informed public in a democracy because they simply bring episodic events to light.

The Path Toward Reform

101

Lippmann’s musings relative to informing the public about the world in general take on a particular sharpness in the adversarial situation that reformers must address against pharma. That is because the pharmaceutical industry, through its smothering advertising, public relations and its facks in medicine, actively seeks to propagate lies and misinformation for the purpose of deceiving the public. Left unchallenged, pharma will continue obtaining public assent to its meretricious claims, such as the one about price controls stifing innovation. Reformers must start media journals and magnify the ideas they develop there in the wider outlets. Another American journalist of the early 20th century, H.L. Mencken, recommended an approach that informed communicators should take in battling against the kinds of “superstition” the pharmaceutical industry peddles to maintain its protected status. The major media, ever fearful of alienating readers/viewers/listeners from their advertisements, maintain the attitude that in combat with superstition, they should be very polite to it. “This, I fear, is nonsense,” Mencken wrote in 1925. The way to deal with superstition is . . . to tackle it with all arms, and so rout it, cripple it, and make it forever infamous and ridiculous. Is it, perchance, cherished by persons who should know better? Then their folly should be brought out into the light of day and exhibited there in all its hideousness until they fee from it, hiding their heads in shame.25 *** As noted at the outset of this writing, a productive pharmaceutical industry, one capable of discovering and developing new therapies to enhance curative medicine, provides a vital component of any good health care system. In this sense it is unlike other rapacious industries such as tobacco, coal and other fossil fuels that the world would be better off eliminating. But for pharma to become a wholly benefcial component of society that does not prey upon the vulnerable and compound their misery, reformers must forcefully pry it from the protective arms of an exploitive political economy and change its inner workings drastically. The authors hope that the issues discussed here and the recommended approaches to change can assist in that effort.

Chapter Summary The pharmaceutical industry operates in the manner of a predatory extortionist toward consumers and taxpayers. Governments worldwide must extend all of the following measures to transform it into a more public regarding component of health care that seeks to advance curative medicine. 1. Use public money to establish a few publicly owned pharma companies.

102

The Path Toward Reform

2. Start with Reference Pricing, but recognize its serious limitations. 3. Use Health Technology Assessments (HTAs) to calculate incremental value and clinical beneft as a basis for price negotiations. 4. Require governments to use volume purchasing power and negotiate prices directly with pharma companies. 5. Have regulatory agencies such as the FDA prevent evergreening when they approve new drugs. 6. Institute and enforce criminal penalties to ensure the transparency of clinical trials. 7. Establish a Sarbanes-Oxley analog to prevent off-label marketing and price report cheating. 8. Ban gifts and payments to practicing physicians. 9. Prevent clinical investigators from publishing their results or giving presentations about them for fve years. 10. Give the industry’s Business Intelligence function expanded scope and a seat at the senior management table to assess the business model and objectives, as well as strategies and tactics for achieving them. All these elements would introduce greater competition to the drug industry and would make pharma a more constructive, less venal part of contemporary society. It is entirely ftting that governments take an active hand in creating and encouraging such competition because their actions—granting patent exclusivity, tax breaks and other largesse— created the oligopoly situation that impeded competition and generated pharma’s depravity. In addition to the aforementioned government actions, the pharmaceutical industry also possesses a more self-directed road to rehabilitation in the form of its business intelligence function. Unfortunately, there is only a minimal likelihood the industry would deploy business intelligence for reform purposes because pharma is dependent upon stock markets for capital and, for that reason, it must remain in thrall to the short-term whims of investors. Reformers can help make pharma better serve the world’s public by adopting the following approaches. • • • •

Better understand the social structure that obstructs their efforts to ameliorate pharma. Ally with other, growing political reform movements such as women’s groups, young physicians, nurses and medical students and ethnic minorities. Form organizations under the direction of full-time organizers for whom reform agitation is a profession. Cultivate and start media outlets to maintain an unrelenting barrage of exposure, ridicule and contempt against pharma.

The Path Toward Reform

103

Notes 1. Dana Brown and Isaiah J. Poole, “The Case for a Public Option for the Drug Industry,” The New Republic, September 16, 2019, https://newrepublic.com/ article/155071/opioid-settlement-purdue-bankruptcy-pharmaceutical-industry 2. Donald W. Light and Antonio F. Maturo, Good Pharma: The Public Health Model of the Mario Negri Institute (New York, NY: Palgrave Macmillan, 2015), p. 14 and passim. 3. See Steven D. Pearson, Len Nichols, and Amitabh Chandra, “Policy Strategies for Aligning Price and Value for Brand-Name Pharmaceuticals,” Health Affairs Prescription Drug Pricing: A Health Affairs Collection, March 15, 2018, www. healthaffairs.org/pb-assets/documents/Collections/Collection_CMWF_ Prescription_Drug_Pricing_May_2018.pdf 4. Kate L. Mandeville, Rosie Barker, Alice Packham, Charlotte Sowerby, Kielan Yarrow, and Hannah Patrick, “Financial Interests of Patient Organizations Contributing to Technology Assessment at England’s National Institute for Health and Care Excellence: Policy Review,” British Medical Journal, Vol. 364 (2019): k5300, www.bmj.com/content/364/bmj.k5300 5. Suzanne M. Kirchhoff, Judith A. Johnson, and Susan Thaul, “Frequently Asked Questions About Prescription Drug Pricing and Policy,” Congressional Research Service, April 24, 2018, https://fas.org/sgp/crs/misc/R44832.pdf 6. David Blumenthal, Shanoor Seervai, and Shawn Bishop, “Three Essentials for Negotiating Lower Drug Prices,” To the Point, Commonwealth Fund, August 22, 2018, www.commonwealthfund.org/blog/2018/threeessentials-negotiating-lower-drug-prices 7. Michelle Singer, “Under the Infuence: Drug Lobbyists’ Role in Passing Bill That Keeps Drug Prices High,” CBS News, 60 Minutes, March 29, 2007, www.cbsnews.com/news/under-the-infuence/ 8. Wendell Potter and Nick Penniman, “The Lobbyist Who Made You Pay More at the Drugstore,” Bill Moyers & Company, March 18, 2016, https:// billmoyers.com/story/the-man-who-made-you-pay-more-at-the-drugstore/ 9. Juliette Cubanski, Matthew Rae, Katherine Young, and Anthony Damico, “How Does Prescription Drug Spending and Use Compare Across Large Employer Plans, Medicare Part D, and Medicaid?” Health Spending, May 20, 2019, www.healthsystemtracker.org/chart-collection/how-does-prescriptiondrug-spending-and-use-compare-across-large-employer-plans-medicare-partd-and-medicaid/ 10. William B. Feldman, et.al., “Estimation of Medicare Part D Spending on Insulin for Patients With Diabetes Using Negotiated Prices and a Defned Formulary,” JAMA Internal Medicine, February 3, 2020, https://jamanetwork.com/journals/jamainternalmedicine/article-abstract/2759734 11. Daley Gruen, “How We Can Bypass Mitch McConnell and the Republican-Controlled Senate to Get Medicare-for-All Now,” Salon, April 1, 2019, www.salon.com/2019/04/01/we-can-have-medicare-for-all-and-bypassmitch-mcconnell-and-the-gop-controlled-senate-to-get-it-now/ 12. Melody Gutierrez, “Newsom Plans to Take on Big Pharma Over Prescription Drugs. L.A. County Wants In,” Los Angeles Times, April 17, 2019, www. latimes.com/politics/la-pol-ca-california-gavin-newsom-prescription-drugscosts-20190417-story.html 13. Robin Feldman, “ ‘One-and-Done’ for New Drugs Could Cut Patent Thickets and Boost Generic Competition,” Stat, February 11, 2019, www.statnews. com/2019/02/11/drug-patent-protection-one-done

104

The Path Toward Reform

14. “HHS Takes Steps to Provide More Information About Clinical Trials to the Public,” National Institutes of Health, News Releases, September 16, 2016, www.nih.gov/news-events/news-releases/hhs-takes-steps-provide-moreinformation-about-clinical-trials-public 15. Charles Piller, “FDA and NIH Let Clinical Trial Sponsors Keep Results Secret and Break the law,” Science, January13, 2020, www.sciencemag.org/news/2020/01/ fda-and-nih-let-clinical-trial-sponsors-keep-results-secret-and-break-law 16. For the lesser estimates, see a report originating from the FDA’s epidemiologist. Carolyn Abraham, “Vioxx Took Deadly Toll: Study,” Globe and Mail, January 25, 2005. 17. Ibid, www.theglobeandmail.com/life/vioxx-took-deadly-toll-study/article11 13848/ 18. For the larger mortality estimate, see Mike Ferrara, “Vioxx Killed Half a Million? The Facts Are Grim,” The Legal Examiner, May 1, 2012, www. legalexaminer.com/health/vioxx-killed-half-a-million-the-facts-are-grim/ 19. Snigdha Prakash, All the Justice Money Can Buy: Corporate Greed on Trial (Fort Lauderdale, FL: Kaplan Publishing, 2011). 20. Jerome McCarthy, Basic Marketing: A Managerial Approach (Homewood, IL: Irwin, 1964). 21. Phillip Kotler, Marketing Management (Upper Saddle River, NJ: PrenticeHall, 1967). 22. The discussion here of the food safety reform movement follows Deborah Blum, The Poison Squad: One Chemist’s Single-Minded Crusade for Food Safety at the Turn of the Twentieth Century (New York, NY: Penguin Press, 2018). 23. Atul Gawande, “Cowboys and Pit Crews,” The New Yorker, May 26, 2011, www.newyorker.com/news/news-desk/cowboys-and-pit-crews 24. Walter Lippmann, Public Opinion (New York, NY: Harcourt, Brace, 1922). 25. The Impossible H.L. Mencken: A Selection of His Best Newspaper Stories, edited by Marion Elizabeth Rodgers (New York, NY: Doubleday Anchor, 1991), p. 608.

Afterword

Pharma and Coronavirus (and Other Updates) Shortly after this manuscript was submitted for publication, the world started to suffer the ravages of a pandemic from the coronavirus. Various observers drew assorted implications from the pandemic for pharma that ranged from citing the potential for extraordinary profts from vaccines and treatments, to a transformation of the industry’s public image “from pricing villain to public benefactor.” Two months into the contagion, the following trends have emerged. 1. Profts for pharma companies that can develop effective treatments and vaccines for the coronavirus will not appreciably change their economic fundamentals. On February 7, 2020, Morgan Stanley’s biotech analyst, Matthew Harrison, reported the following caution to clients on Gilead Sciences, a company at the forefront of testing a coronavirus treatment. “[W]e think that the sales of remdesivir will provide little, if any, direct fnancial beneft to Gilead.” In the event its antiviral proves effective, Harrison wrote, “Gilead may gain a reputational beneft . . . which could ultimately result in increased use of other Gilead products.”1 The pharma companies that are focused on developing vaccines, new antivirals or treatments to help alleviate COVID-19 symptoms are unlikely to see a signifcant fnancial gain for their efforts. For example, Johnson & Johnson, a company likely to be among the frst with a vaccine, said it will make a successful product available “on a not-for-proft basis.”2 The pandemic won’t provide any windfall to alter this monograph’s fundamental thesis that looming price constraints will jeopardize the industry’s proftability and investment appeal. Gilead had originally applied to the FDA and received "orphan" drug status for remdesivir, a designation the U.S. government grants to certain compounds that treat small patient populations. Orphan status confers several government benefts designed to encourage the development of medications for smaller populations that pharma companies might otherwise not undertake. These incentives include shorter waiting periods for

106 Afterword approval, discounts on registration fees, additional exclusivity rights and a seven-year window of tax reductions. The public and political blowback to this orphan designation in the midst of a pandemic prompted Gilead to relinquish the FDA’s benefaction for remdesivir within days after receiving it.3 In this and other instances, the coronavirus pandemic has even hardened the resolve of many countries to prevent pharma companies from using the opportunity to make substantial profits at the expense of their taxpayers and patients. Governmental departments outside the U.S. are clearly concerned about the budgetary impact for the potential widespread use of newly developed vaccines and new treatments, and have taken steps to reduce any possibility of price gouging. On March 23, 2020, STAT News reported that Ecuador, Chile and Israel had already exercised compulsory licensing to obtain medications at reasonable prices for treating COVID-19. At the same time, Colombia, Peru, Malaysia and the Netherlands were thinking of doing likewise.4 As the pandemic was approaching its peak, dozens of public advocacy groups and academics sent an open letter to 37 nations, urging them to reverse a position taken three years previously when they decided to refuse importing medications from countries that had declared compulsory licensing. The countries that had expressed their disdain for compulsory licensing include the U.S., Germany, France, Italy, the U.K., Japan, Australia and Switzerland. The academics and public advocates cautioned that, “It’s totally irrational for any country, even a rich country, to keep its own hands tied to meet the Covid-19 needs of its population by voluntarily shutting itself off from patented ingredients, components, and essential medical products and supplies.”5 The coronavirus pandemic even prompted some major international health agencies such as the World Health Organization and Unitaid to ask that pharma companies and other manufacturers abandon their “holiest of holies,” patent exclusivity, in response to the global outbreak. They urged these companies to voluntarily pool their intellectual property for all medical interventions, including treatments, vaccines and diagnostics.6 Such a pooling, according to the WHO and Unitaid, would make coronavirus medications affordable for even the poorest countries. In sum, the coronavirus pandemic failed to provide contrary evidence to this monograph’s contention that increasingly stringent pricing constraints will crimp pharma’s profitability and lessen its appeal to investors. 2. In lieu of windfall profits, pharma companies and their supporters expressed the hope that the coronavirus pandemic could enhance their public image, thereby forestalling pricing constraints. Pharma companies may have believed that if they displayed exemplary behavior by placing public health before a typically zealous pursuit of profit during the pandemic, they could reverse the disdain that has

Afterword

107

resulted from their many infractions and signifcant price increases and recapture the public’s trust. Harrison’s point concerning a PR rather than a proft gain from the pandemic was expanded two months later by his colleague, David Risinger, who told clients that the entire beneft to pharma from the coronavirus pandemic was in potentially acquiring a more favorable public image that could avert pricing constraints. We see an opportunity for BioPharma executives to further capitalize on the industry's role as a powerful life-saving force and a tremendous national asset. Political and public sentiment toward pharma has pivoted from being critical of high drug prices to constructive on the industry's potential to address the coronavirus threat, which reduces legislative threats. Washington offcials are championing development of novel COVID-19 drugs and vaccines.7 The plan envisioned that the display of technical acumen in rapidly developing virus treatments and/or vaccines to save lives, together with a show of goodwill by making these medications affordable, would forestall the public clamor for price constraints. In public relations terms, the goal consisted of altering pharma’s public image from that of “pricing villain to public savior.” However, at the pandemic’s crest, pharma’s plan didn’t appear to be working. A survey conducted by CNBC/Change Research found that 58% of the U.S. public disapproved of pharma’s performance during the outbreak, the same as what a Gallup survey found several months before the pandemic!8 Thus, the benefts to pharma in terms of enhancing its public image appear questionable and short-lived, if indeed any were to be seen. 3. This monograph concluded that reforming pharma necessitates altering some fundamentals of the larger health care system and the coronavirus pandemic led some observers to opine that adequate public health cannot be maintained under the neoliberal market approach that enables pharma in its current condition. Beyond the political sectarianism that characterized dialogue about the pandemic, a larger recognition rose to the surface that chastised the U.S. for lacking any cohesive public health system and, instead, relying on private, for-proft entities. This dependence upon uncoordinated private entities puts the country at a disadvantage in caring for the common good or public health as a whole. The private corporations that supply U.S. health care operate on the basis of short-term proft and, therefore, are unwilling to maintain the sort of reserve capacity (e.g., large inventories of masks, gowns, shields, ventilators, tests) needed for fghting a pandemic. Even if such supplies were available, a system of health care favoring the “ambitions of private providers, private insurers and private

108

Afterword

manufacturers over the public’s health” has no institution to administer the tests needed for nationwide care.9 New York City, the U.S. area hit hardest by the coronavirus, illustrates how public health can fall through the tangled web of private companies and local governments that serve individuals rather than the community. During the pandemic, hospitals and other health care facilities in New York suffered dire equipment shortages. That surprised some locals who remembered that in 2006, after a nasty fu season in Asia, the city prepared a comprehensive pandemic plan that included stockpiling vast stores of equipment and supplies. Within a few years, budget cuts meant the city was unable to maintain its stockpile and the equipment on hand became outdated, deteriorated or no longer serviceable. Eventually New York sold off what remained of its inventory. By the time of the 2020 coronavirus pandemic, local hospitals in New York claimed they maintained inadequate supplies for a pandemic as they considered the city an emergency storehouse. The city relied on the state and the state looked to the federal government’s Strategic National Stockpile for supplies. President Donald Trump’s son-in-law and chief coronavirus advisor spoke for the federal government when he said that the Strategic National Stockpile was not for the states to use.10 This is not to say that a health system managed by a national government is a suffcient condition for maintaining public health during normal times or even a pandemic. The performances of Italy and the U.K. in containing the coronavirus, two countries which do maintain such national management, were also suboptimal. Adept management of a national health system is also required and these two countries came up short in that regard. The U.K.’s early reliance on building up herd immunity while eschewing any extraordinary measures was foolhardy, while Italy’s refusal to limit social interaction until the pandemic was well underway also proved to be harmful. By contrast, Germany contained the pandemic more successfully as a result of the national government quickly ramping up testing capacity and implementing social distancing right at the start. In aspects of social and political life beyond health care, the coronavirus led some observers to a broader rejection of the Chicago School’s forum ad Deum notion that claims the market provides the optimal means of addressing every situation, while government typically creates obstacles. As Washington Post columnist E.J. Dionne stated it: [A] virus does not respond to market incentives . . . Understanding and defeating an epidemic requires a government . . . [Y]ou would like to hope it would encourage a bit of rethinking among those who regularly . . . claim the market can solve every problem.

Afterword

109

Might they now acknowledge that some problems can only be dealt with collectively through public action?11 The pharmaceutical industry and its conduct do not exist in a vacuum. Instead they operate within health care systems that permit or even encourage such practices as have been described. The coronavirus pandemic provides a clear illustration of how pharma’s exploitive behavior exists within disparate approaches to health care that themselves require reform.

Other Updates 1. Academic pharmacists at the University of Pittsburgh debunked pharma’s claim that their actual price increases during recent years have been quite modest after accounting for rebates and discounts offered by drug makers. In an article published in JAMA, the Pittsburgh pharmacists showed that during a recent 11-year period from 2007 to 2018, net prices for hundreds of drugs rose 60%, which was 3.5 times the infation rate. The list prices on 602 medicines rose by 159%, or 9% per year. Even after accounting for rebates and discounts, net prices for the same drugs increased by 60%, or 4.5% per year. The Pittsburgh pharmacists found enormous increases in both list and net prices during the 11 years in numerous drug categories. These included multiple sclerosis treatments, where list prices rose 439% and net by 157%. For cholesterol medicines, list prices rose 278% and net prices jumped 95%. Among rheumatoid arthritis medications, list prices went up 166% and net prices increased by 73%.12 2. A new study reported that almost 50% of the clinical studies sponsored by pharma companies failed to report their results within the oneyear deadline required by law. Confrming the practice noted in the manuscript, a U.K. study published in January 2020 found that almost 60% of more than 4,200 studies failed to publish their results within a year, as mandated by federal rules in the U.S. Failure to report results was more common in trials with an industry sponsor (50%) than in those with a non-industry (34%) or U.S. government sponsor (31%).13 One of the authors, Dr. Ben Goldacre, stated, “To our knowledge the FDA has never levied a single fne or other enforcement action, despite all the levers available to them.”14 3. While studies on the extent of pharma’s proftability continue to state various metrics, a new one published in March 2020 found that it was “signifcantly greater” than that of other large companies. A study that appeared in JAMA “compared the profts of 35 large pharmaceutical companies with those of 357 large, nonpharmaceutical

110

Afterword

companies from 2000 to 2018.” The authors found that median earnings/revenue “was signifcantly greater for pharmaceutical companies compared with nonpharmaceutical companies (13.8% vs 7.7%).” In other words, pharma’s median proftability from 2000 to 2018 was almost 77% greater than that of other, non-pharma companies.15 4. Despite claims by pharma companies and physicians that payments associated with specifc brands exert no infuence on prescribing, a study appearing late in 2019 found that physicians prescribe more of a brand if they receive money from a pharma company tied to it. ProPublica conducted an analysis, published at the end of 2019, in which they correlated data from the U.S. government’s Open Payments database with other publicly available information from Medicare Part D. The Open Payments database showed payments in 2016 disclosed by manufacturers to more than 400,000 providers, related to +/–1,800 different drugs. The Medicare Part D prescription data showed the number of claims Medicare paid for each drug by each provider in that year. Contrary to claims by pharma companies that these payments are not intended to infuence prescribing behavior, as well as denials by physicians that they are affected by such remunerations, the ProPublica authors found that physicians who received payments linked to specifc drugs prescribed more of those drugs.16 5. A team of international scientists attacked pharma’s cornerstone principle of working exclusively on patent-protected compounds by arguing that re-purposing existing medications offers a far more rapid path to reducing coronavirus morbidity and mortality than developing new, patented compounds. On May 1, 2020, when most of the world’s countries were at the height of the coronavirus pandemic, an international team of eleven scientists published an article in the British Journal of Pharmacology in which they argued that developing effective and safe new compounds as either vaccines or treatments for COVID-19 will take too long. Instead they claimed that some existing medications have already shown effcacy against COVID-19. In particular, the authors referred to a key target protein on the “surface of cells to which SARS-CoV-2 binds, allowing it entry.” The protein, “TMPRSS2 appears to be very common on cells.” They advised that compounds which block binding to TMPRSS2 have been on the market for decades and studies to re-purpose these existing medications offer a more rapid hope for tackling COVID-19 than developing and manufacturing new compounds as either vaccines or treatments.17 Even as their BJP article appeared, the Japanese pharma company Ono was supplying their 35-year old product, Foipan (camostat) to clinics in Japan and elsewhere for studies on COVID-19 patients. Ono had launched Foipan in 1985 for chronic pancreatitis and expanded its label

Afterword

111

in 1994 to treat postoperative refux esophagitis.18 Although several hospitals and university clinics in the U.S. and Europe had embarked at the time on studies to re-purpose other compounds for COVID-19, the western pharma companies that were pursuing re-purposing studies had limited their efforts to their own, patent-protected brands. Alas, while the coronavirus pandemic seemed unlikely to provide either a fnancial or a PR windfall for pharma, the industry’s exclusive focus on patent-protected compounds as the sine qua non of its business model, was shown to create an obstacle to worldwide plague recovery. *** A monitoring of studies related to the pharmaceutical industry up through the middle of the 2020 coronavirus pandemic refect a continuing central theme. The industry’s business practices highlighted in this monograph—exorbitant pricing, the promotion of over-prescribing, providing gifts to prescribers that infuence prescribing behavior, publishing less than objective clinical fndings, and the rest—are entrenched parts of pharma’s ongoing, routine operations. Pharma’s supporters respond to every infraction and payment of enormous fnes by claiming the conduct at hand occurred during the “bad old days” that no longer exist because the industry has reformed itself. The most recent fndings refute their misplaced view of the industry by showing that pharma’s pattern of unethical and criminal business behavior, enabled by overindulgent governments, continues unabated.

Notes 1. Matthew Harrison, “Assessing Remdesivir's Possible Financial Impact,” Morgan Stanley, February 7, 2020. 2. Josh Nathan-Kazis, “Johnson & Johnson Says Its Coronavirus Vaccine Could Be Ready Early Next Year,” Barrons, March 30, 2020, https://www. barrons.com/articles/johnson-and-johnson-covid-19-vaccine-emergencyuse-human-testing-51585573762 3. Matthew Brown, “Fact Check: Drugmaker Gilead Sciences Claimed Rights to a Possible COVID-19 Treatment,” USA Today, March 27, 2020, https://www.usatoday.com/story/news/factcheck/2020/03/27/fact-checkcoronavirus-gilead-sciences-received-withdrew-fda-orphan-statusremdesivir/2922115001/ 4. Ed Silverman, “Ecuador Becomes the Latest Country to Eye Compulsory Licensing for COVID-19 Products,” STAT News, March 23, 2020, https:// www.statnews.com/pharmalot/2020/03/23/ecuador-compulsorylicensing-covid19-coronavirus/?utm_source=STAT+Newsletters&utm_ campaign=a17f231765-Pharmalot&utm_medium=email&utm_term= 0_8cab1d7961-a17f231765-152067321 5. James Love, “Open Letter Asking 37 WTO Members to Declare Themselves Eligible to Import Medicines Manufactured Under Compulsory License in Another Country, Under 31bis of TRIPS Agreement,” Knowledge Ecology International, April 7, 2020, https://www.keionline.org/32707

112

Afterword

6. Ed Silverman, “WHO Director-General Endorses a Voluntary Intellectual Property Pool to Develop Covid-19 Products,” STAT News, April 6, 2020, https://www.statnews.com/pharmalot/2020/04/06/covid19-coronaviruspatents-voluntary-pool-world-health/ Also see First Word, “Big Drugmakers Under Pressure to Share Patents Against Coronavirus,” March 31, 2020, https://www.frstwordpharma.com/ print/1712120?al=39c41e-880ab1ccd0501e78c98f5dc0da30e574%5E%7 C%5EMTEwOTc0Ng%3D%3D%5E%7C%5ENQ%3D%3D&cp1=bmV 3c2xldHRlcl9yZWdpb25faWQ9c3Rvcnlfd2F0Y2g%3D&tsid=17 7. David Risinger, “Positioning in the Time of COVID,” Morgan Stanley, April 2, 2020, http://linkback.morganstanley.com/web/sendlink/webapp/f/pjpv52623qjk-g000-892e-005056013008?store=1&d=UwBSZXNlYXJjaF9NUwBiYT U1NmQ5NC02ZDBkLTExZWEtOTBhNi1mY2NkZmRiZDg3ZTE%3D& user=cu81pp6pvvre3y5-0&__gda__=1838111423_58b9c609a2a09d9af337 52be777b7384 8. John Carroll, “Pharma Approval Ratings Remain in the Toilet,” Endpoints, April7, 2020, https://endpts.com/covid-19-roundup-trump-asks-biotech-execsto-send-drugs-to-boris-johnson-martin-shkreli-wants-covid-get-out-of-jailfree-pass/ 9. See Robert Reich, “Coronavirus Outbreak Proves There Is No Public Health System in the US,” Common Dreams, March 17, 2020, https:// www.commondreams.org/views/2020/03/17/coronavirus-outbreakproves-there-no-public-health-system-us 10. Justin Elliott, Annie Waldman and Joshua Kaplan, “How New York City’s Emergency Ventilator Stockpile Ended Up on the Auction Block,” ProPublica, April6,2020,https://www.propublica.org/article/how-new-york-city-emergencyventilator-stockpile-ended-up-on-the-auction-block 11. E.J. Dionne, “Will the Coronavirus Socialize Our Thinking?” Washington Post, March 15, 2020, https://www.washingtonpost.com/opinions/will-thecoronavirus-socialize-our-thinking/2020/03/15/d23b1194-6555-11ea-acca80c22bbee96f_story.html 12. Inmaculada Hernandez, Alvaro San-Juan-Rodriguez, Chester B. Good, Walid F. Gellad et.al., “Changes in List Prices, Net Prices, and Discounts for Branded Drugs in the US, 2007–2018,”JAMA, Vol. 323, Issue 9 (March3, 2020): 854–862, https://jamanetwork.com/journals/jama/fullarticle/2762310?guestAccess Key=436c5e49-870b-46ae-b1f5-250603900c85&utm_source=For_The_ Media&utm_medium=referral&utm_campaign=ftm_links&utm_ content=tf&utm_term=030320 13. Nicholas J. DeVito, Seb Bacon and Ben Goldacre, “Compliance With Legal Requirement to Report Clinical Trial Results on ClinicalTrials.gov: A Cohort Study,” The Lancet, Vol. 395, Issue 10221 (February 1–7, 2020): 361–369, https://www.sciencedirect.com/science/article/pii/S0140673619332209 14. Ben Adams, “More Than Half of Clinical Trials Still Hidden From Public View: Report,” FierceBiotech, January 30, 2020, https://www.fercebiotech. com/cro/more-than-half-clinical-trials-still-hidden-from-public-view-report 15. Fred D. Ledley, Sarah Shonka McCoy and Gregory Vaughan, “Proftability of Large Pharmaceutical Companies Compared With Other Large Public Companies,” JAMA Network, March 3, 2020, https://jamanetwork.com/ journals/jama/article-abstract/2762308 16. Hannah Fresques, “Doctors Prescribe More of a Drug If They Receive Money from a Pharma Company Tied to It,” ProPublica, December 20, 2019, https://www.propublica.org/article/doctors-prescribe-more-of-a-drugif-they-receive-money-from-a-pharma-company-tied-to-it

Afterword

113

17. S.P.H. Alexander, et.al., “A rational roadmap for SARS-CoV-2/COVID19 pharmacotherapeutic research and development,” British Journal of Pharmacology, May 1, 2020, https://bpspubs.onlinelibrary.wiley.com/doi/ abs/10.1111/bph.15094 18. Rocky Swift and Christine Soares, “A tale of two Japanese drugs in tests to fght COVID-19,” Reuters, May 12, 2020, https://www.reuters.com/article/ us-health-coronavirus-japan-medicine/a-tale-of-two-japanese-drugs-in-teststo-fght-covid-19-idUSKBN22O3DC. For a discussion of researchers at the University of Tokyo studying another existing product for treating COVID-19, see University of Tokyo, “Identifcation of an existing Japanese pancreatitis drug, nafamostat, which is expected to prevent the transmission of new coronavirus infection (COVID-19),” Discover Excellence, March 23, 2020, “https://bpspubs.onlinelibrary.wiley.com/doi/abs/10.1111/bph.15094” https://www.drugtargetreview.com/news/58915/nafamostat-inhibits-sarscov-2-infection-preventing-covid-19-transmission/

Glossary

Big Cap refers to a company with a market capitalization value of more than $10 billion. Capitalism an economic and political system in which a country’s trade and industry are controlled by private owners for proft rather than by the state. CFO Chief Financial Offcer. Clinical trials studies with groups of human subjects to evaluate the effectiveness and safety of medications or medical devices. Compound annual growth the rate of return that would be required for an investment to grow from its beginning balance to its ending balance, assuming the profts were reinvested at the end of each year of the investment’s lifespan. Data mining the practice of examining large databases in order to generate new information. FDA U.S. Food and Drug Administration, an agency within the U.S. Department of Health and Human Services that regulates the manufacturing and distribution of food, pharmaceuticals, medical devices, tobacco, other consumer products and veterinary medicine. It is the agency charged with approving new compounds for sale, together with the label that regulates their reimbursement. Generic drug a term referring to the chemical makeup of a drug rather than to the advertised brand name under which a compound under patent protection and exclusivity is sold. A generic version of a branded drug, once approved, can be prescribed after the patent protection of the branded product has expired. A generic drug is almost always less costly than a branded version of the same compound.

Health Technology Assessments (HTAs) the systematic evaluation of the properties and effects of a health technology (e.g., a drug or device), addressing both its direct and intended effects and its indirect and unintended consequences.

Glossary

115

M&A mergers and acquisitions. Medicaid the U.S.’s public health insurance program that provides health care coverage to low-income families or individuals. It covers doctor visits, hospital stays, long-term medical care, custodial care and other health-related costs. Medicare the U.S. federal government program that provides health care coverage (health insurance) to people over age 65. It also covers people under 65 who are receiving Social Security Disability Insurance (SSDI), as well as those with end-stage renal disease. Metastatic a cancer or tumor that has spread from the primary site of origin, i.e., where it started, into different areas of the body. Me-too a branded product/service designed to emulate or rival another product or service which has already been successful. Its intrinsic properties (e.g., effectiveness, safety) are only negligibly different from those of an older competitor. Off-label use of a medication in a manner not specifed in the packaging label or insert approved by the FDA or its counterpart in another country.

Patient-advocacy Organizations groups that advocate for patients and often provide support services for them and their caregivers. They are typically nonproft entities, each of which seeks to advance research, together with public and political support for people suffering from a particular condition or disease. Patrimonial capitalism a variant of capitalism in which the economic elite mostly attain their fortunes through inheritance rather than entrepreneurship or innovation. P/E ratio the ratio for valuing a company that measures its current share price relative to its per-share earnings (EPS). Pharma a collective term that describes pharmaceutical companies that produce prescribed drugs, including biotechnology companies, plus those producing generic (off-patent) drugs. Price-gouging a process in which unusual and/or dire circumstances enable a company to spike the prices of goods, services or commodities to a level much higher than is considered reasonable or fair. Price-gouging is considered unethical and exploitative. R&D research and development. Shill an accomplice of a hawker, gambler or swindler who acts as an enthusiastic customer to entice or encourage others. Statins a class of drugs often prescribed by doctors to help lower cholesterol levels in the blood.

Index

Note: Page numbers in bold indicate a table on the corresponding page. 340B Drug Pricing Program 24 Affordable Care Act (ACA) 67, 68, 72 asymmetry of information 7–8 Average Manufacturers Price (AMP) 23–24, 25 bankruptcies 67, 68 Best Price 23, 42 bias: in clinical trials 31–32, 35, 42, 83; in research 12; resulting from payments and gifts 27, 36 Bill & Melinda Gates Foundation 4 bribery: banning gifts and payments 89–90; of clinical researchers and key opinion leaders 30–33, 42; of prescribers 26–30, 42, 110 British Columbia 74 business intelligence (BI) 91–96, 102; improving public image and mitigating government business research, possible role for 93–96; issues for assessment 94 “buy-and-bill” 54–55 cancer drugs 27–28, 34, 52, 59, 76–77 Centers for Medicare and Medicaid Services 24, 86 Chicago School of economics 6, 7, 78, 98, 108 China 76, 77–78, 79 clinical researchers: bribing of 30–33; publications and presentations 90–91 clinical studies see clinical trials

clinical trials 12–13, 58; biased 31; ensuring transparency of 88; failure to report results by deadline: failure to report studies by 109; unpublished studies 33 Clinicaltrials.gov 12, 88 competition 91, 102; and patents 87; protection from 9, 51, 52, 62; and reference pricing 85 compulsory licensing 52, 53, 106 confederation (compact) of U.S. states 87 continuing medical education (CME) 11 coronavirus and pharma 105–109 drug development: costs 55–57; exaggerated risks 58; exaggerated times 58–59; times 22 drug price controls 2–3, 13, 68; in Europe 71–74; factors increasing demand for controls in U.S. 78; in Japan 74–76 drug prices 2, 9, 14; and development times 59; effect on middle class 2, 67, 68; in Europe 60, 62; and innovation 60, 61; price increases 55, 63, 70–71, 109; state and local pressures in the U.S. 69–71; U.S. control over 2; see also drug price controls drug safety issues 8, 39, 60 emerging markets 76–78 Europe: drug price control actions 71–74; drug prices in 60, 62; France

Index 59, 72, 73; Germany 34, 72, 73, 74, 108; Italy 73, 74, 84, 108; Spain 73, 74; U.K. 2, 37, 72, 73, 86, 108 evergreening 87–88 executive compensation 22, 23 False Claims Act 19 FDA 23, 39, 59–60, 88 federal ceiling price 23, 24 fnancial toxicity 59 food safety movement 96–98, 100 fraudulent pricing manipulation 23–26, 42, 88–89 ghostwriting 34–35 gifts to prescribers see bribery Gilead Sciences 54, 75, 105–106 government: regulatory and legislative capture 39, 43; impediment to pharma reform 98; loosening regulation 59–60; protection of pharmaceutical industry 51–54; volume purchasing power 86–87 Hatch-Waxman Act 52, 61 health insurance 68 health technology assessments (HTAs) 72–73, 79, 85–86 high fxed-cost model 55–56 importation 69, 86; laws 52 India 52, 76–77 inducements 11, 29, 36 innovation 60, 61, 84 Internet medical information sites 13 interstate compacts 87 Japan 2, 79; pharma companies 97–98; price control in 74–76 Jungle, The 97, 100 key opinion leaders 30–33, 42 kickbacks 11 life expectancy, declining 70 Lippmann, Walter 100–101 media outlets 100–101 Medicaid: limited coverage of prescription drugs 52; price manipulation 23–26; pricing formulas 53–54 medical conventions, sponsorship of 12

117

medical debt 68 medical journals 11–12; reviewers 32; subverting 33–35, 42–43 Medicare: limited coverage of prescription drugs 52; pricing formulas 53–54; purchasing power 70, 86; restrictive formulary 86–87 mergers and acquisitions 18, 94 middle class 2, 67, 68 multiple publication 31, 34 National Institutes of Health (NIH) 12, 57 National List of Essential Medicines (NLEM) 76–77 neoliberal capitalism/ideology 85, 87, 98 neoliberalism 1, 6 net operating margin 54, 63 NICE 37, 72, 86 nonproft pharma companies 83–84 off-label promotion/marketing 10–11, 19, 22–23, 41; preventing 88–89 oligopoly 51, 55 oncologists/oncology 28, 53–54 Opdivo 75 operating margins 1–2 opioids 40–41, 43–44 patent evergreening 87–88 patent protection 7, 28, 51–52, 62 patient advocacy groups 13, 36–38, 43, 86 pharmaceutical industry: defense of protected status 59–60, 62; defance of market principles 55; economic basis of 50–51; fnancial outlook 1; global market growth 1; government protection of 51–54, 62; proftability 54–55, 63, 109– 110; protection from the market 7–8, 9, 10, 14, 51–52; public image of 3–4, 106–107 pharma’s role, evolution of 4–6, 13–14 philanthropic foundations 37–38 prescribing guidelines 35–36 Prescription Drug Affordability Boards 70 price controls see drug price controls price/earnings ratios 1 price report cheating 88–89

118

Index

pricing manipulation 23–26, 42, 88–89 product development see drug development product management system 93 proftability 54–55, 63, 109–110 Public Citizen 10, 19, 22, 23, 57 publicly owned pharma companies 83–85 Pure Food and Drug Act 97, 100 R&D 22, 94; costs 55–57; profts and 60, 62; tax benefts 54 reference pricing 74, 85 reform measures 91; alliances between pharma reformers and other reform movements 98–99; clinical investigators 90–91; clinical trials 88; evergreening 87–88; gifts/ payments to physicians 89–90; government measures 101–102; HTAs 85–86; impediments to 97–98; learning from historical precedent 96–101; and neoliberal ideology 98; publicly owned pharma companies 83–85; reference pricing 85; role of business intelligence 91–101; tactics 98–101, 102; volume purchasing power 86–87 regulation, loosening 59–60 regulatory and legislative capture 38–40, 43 remdesivir 105–106 research promotion-sponsorship 12–13, 50; industry-funded 36; and medical journals 33–34; and patient advocacy groups 36–37, 43; and philanthropic foundations 37; and profts 60, 62; see also R&D

Research and Experimentation Tax Credit 54 research physicians 36, 90 Russia 76, 77, 79 safety issues 8, 39, 60 Sarbanes-Oxley legislation 89 settlements 20–21, 25, 29 shareholders 6, 92 side effects 8 Sovaldi 75–76 specialty society committees 35–36, 40, 43 stock market 92, 97, 102 tax credits 54, 62 tax cuts 6 user fee system 59–60 U.S. states, efforts to constrain drug pricing 69–71, 87 violations 9–13, 14, 18–19; bribery 26–33, 42, 89–90, 110; capturing regulators 38–40, 43; fraudulent pricing manipulation 23–26, 42, 88–89; off-label marketing 19, 22–23, 41, 88–89; and patient advocacy groups 36–38, 43; pushing opioids 40–41, 43–44; and specialty society committees 35–36, 40, 43; subverting medical journals 33–35, 42–43 Vioxx 23, 60, 89 volume purchasing power 53, 86–87 wealth inequality 6 whistleblower lawsuits 24–25, 29 Women’s Health Initiative (WHI) 35