Power of Pills: Social, Ethical and Legal Issues in Drug Development, Marketing and Pricing

Power of Pills: Social, Ethical and Legal Issues in Drug Development, Marketing and Pricing



Product Details

ISBN-13: 9780745324036
Publisher: Pluto Press
Publication date: 12/07/2006
Pages: 320
Product dimensions: 5.32(w) x 8.46(h) x (d)

About the Author

Jillian Clare Cohen is an Assistant Professor at the Leslie Dan Faculty of Pharmacy, University of Toronto and Director of the Comparative Program on Health and Society. She conducts research and publishes widely on drug access including corruption and intellectual property rights. She has also advised governments and international organizations on pharmaceutical policy. Patricia Illingworth is an Associate Professor at Northeastern University. She has written three books, AIDS and the Good Society (1991), Trusting Medicine ( 2005), and Ethical Health Care (2006) with Wendy Parmet. Udo Schuklenk is a Professor of Ethics in Public Policy and Corporate Governance at Glasgow Caledonian University. He is a co-editor of the journal Bioethics and author of Access to Experimental Drugs in Terminal Illness: Ethical Issues (1998).

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The pharmaceutical industry and the pursuit of profit

Joel Lexchin

For over 30 years profit levels in the pharmaceutical industry have outstripped profits in other industries by a wide margin, and the gap has been growing. Based on data from Fortune magazine, during the 1970s drug companies averaged 8.9 per cent profit as a percentage of revenue compared to 4.4 per cent for all Fortune 500 industries. In the 1980s, drug companies increased their margin by earning 11.1 per cent compared to 4.4 per cent for all Fortune 500 companies during the 1990s, the gap grew to 15.1 per cent compared to just 4.1 per cent (Public Citizen 2002). In the past couple of years, the pharmaceutical industry has fallen from first place in the Fortune rankings, but even at third place it still outpaces nearly all other industries in profitability (Fortune 500 2005).

Drug companies frequently claim that their profits are overstated because traditional accounting measures count R&D as an expense rather than an investment. This method reduces taxes, because all the R&D is deducted immediately instead of being spread over several years as other investments (e.g. machines and buildings) are. The firms really don't have much choice about how to handle these matters for tax purposes. But when it comes to calculating the return on investment – which is more a policy matter than a tax matter – the odd way in which R&D is handled creates a problem. Because R&D is left out of investment, the ratio of profits to total investment is distorted; the denominator is artificially small. That makes the return on investment look larger than it really is (Calfee 2004).

In the early 1990s, the OTA investigated this issue in depth for the period 1976-87. The accounting profit rate for the pharmaceutical companies was 4-6 percentage points per year higher in the study period (1976-87) than for the control firms, selected to be similar to pharmaceutical companies over a range of financial characteristics. Using alternative methodology, the OTA concluded that, after adjusting for differences in risk, returns to the pharmaceutical industry as a whole over the twelve-year period were 2-3 percentage points per year higher than returns to non-pharmaceutical firms (USC 1993). Therefore, although the drug industry remained above average in terms of profitability, there may be some merit to its defense.

This debate on the correct way to measure profits raises the much wider issue of what is an acceptable level of profit. The British have answered this through their PPRS, which sets a profit range for the industry at 17-21 per cent based on sales of pharmaceuticals to the NHS (DoH 2003). The rational for using this is somewhat murky. What is a fair profit is a question that will elicit a wide variety of responses depending on the point of view that is being adopted: industry might say "high enough to attract the capital needed for research and development," but the Treasury Department, which is paying the bills, might say "too high" to any figure.

Rather than continue a fruitless debate about "appropriate profit levels," this chapter takes the approach of looking at the activities that the industry engages in to achieve its profits, regardless of what they may be, and the consequences of those actions. Specifically I will examine the industry's priorities around how it directs its R&D money, how research is conducted, and ultimately how it is reported to both regulators and in medical journals. Part of this analysis will involve parsing the industry's argument that high profits are necessary because R&D is enormously expensive. Another major thrust will be an assessment of the incremental therapeutic value of new drugs. Next, I will look at tactics that industry uses to encourage sales of its products focusing on DTCA, promotion to physicians and off-label promotion, and the effect of these different types of promotion on prescribing and drug use. The following section will show how expanding the use of a drug is not confined to off-label promotion but includes widening indications for the product and loosening the boundaries around those indications. Safety issues can significantly affect the sales of products and an examination of how companies treat safety will be the topic of the penultimate section. Finally, I will examine the use of IPR, especially as drugs approach the end of their patent life.

Most of the material in this chapter is based on data from the U.S., which is the home of most of the multinational pharmaceutical companies as well as being by far the single largest market for drugs. Where necessary I also draw on information from other settings, such as Canada and Europe. I also utilize specific case histories to illustrate general points.

The research agenda

Pharmaceutical companies have never denied that they are motivated by profit, but the caveat has always been that there is no contradiction between profit-seeking behavior and delivering medications that satisfy healthcare needs. At present, in order to meet shareholder expectations on rates of return, the industry has increasingly been adopting a blockbuster mentality, meaning that it is looking for drugs that will generate annual sales in the order of at least US$500 million and preferably US$1 billion. What such a focus means is that drugs with low revenue potential will not be developed.

In a report by MSF, of 1,223 new chemical entities marketed between 1975 and 1997, only 13 (1 per cent) were specifically for tropical diseases, and just four could be considered to be products resulting directly from research activities of the pharmaceutical industry (Pécoul et al. 1999). More recently, the DND-WG and the HSPH sent questionnaires to the world's top 20 pharmaceutical companies to assess the level of R&D activity in five neglected diseases: sleeping sickness, leishmaniasis, Chagas disease, malaria and tuberculosis. Thirteen companies responded, eleven of which completed the questionnaire. In fiscal 2000, eight of the eleven spent nothing on R&D for sleeping sickness, leishmaniasis and Chagas disease; only two spent anything on malaria research; and seven spent less than 1 per cent of their R&D budgets on any of the five diseases or failed to respond to the question (DND-WG 2001).

Even in the developed world market, size and the contribution a medication is expected to make to the bottom line play the largest role in determining whether companies invest in R&D on new molecules. In the mid- to late 1980s, 43 per cent of the terminations in the development of new compounds were for economic reasons versus 31 per cent for efficacy issues and 21 per cent for safety problems (DiMasi 1995). Companies do not hesitate to terminate ongoing clinical trials if their commercial priorities change, despite the fact that this means that there will be no meaningful results from these trials (Psaty and Rennie 2000).

Another indication of research priorities comes from an examination of the therapeutic value of new medications. Based on figures from the Canadian PMPRB only 14 out of 111 new chemical entities that were marketed in 1999-2003 were major therapeutic gains compared to the other 97, which were rated as having moderate, little, or no therapeutic advantage over existing treatments (PMPRB 2004). This assessment of the value of new drugs is echoed by evaluations done by the French drug bulletin La revue Prescrire between 1981 and 2004. In that time, the journal looked at almost 3,100 new products or new indications for existing drugs; out of that total 10 per cent were considered to be moderate to significant advances and another 15 per cent were rated as "possibly helpful", but over 68 per cent fell into the "nothing new" category (La revue Prescrire 2005). Garattini and Bertele noted that new anti-cancer drugs reaching the European market in 1995-2000 offered few or no substantial advantages over existing preparations yet in some cases cost an order of magnitude more (Garattini and Bertele 2002). This type of investment pattern makes rational economic sense from an industry whose prime motivation is profit-seeking as opposed to producing medications that meet the greatest health needs.

The outcome of clinical research

The outcome of clinical research on new drugs can have profound effects on the financial gains from the products. Trials with results that are unfavorable to the sponsor – that is, trials that find the drug to be less clinically or cost-effective or less safe than other drugs used to treat the same condition – have the potential to pose significant financial risks to companies. Pressure to produce results showing an association between the drug and a favorable outcome can potentially result in biases in the outcome of industry-sponsored research. The question of bias has recently been investigated by a number of authors. Lexchin and colleagues combined the results of 15 studies (18 different comparisons between industry- and non-industry-funded research) using meta-analytic techniques (Lexchin et al. 2003). The summary odds ratio for favorable outcomes for research with industry sponsorship was 4.05 (95 per cent CI, 2.98, 5.51). Their results applied across a wide range of disease states, drugs, and drug classes, over a period spanning at least two decades and regardless of the type of research being assessed – pharmacoeconomic studies, clinical trials, or meta-analyses of clinical trials.

Subsequently, three similar articles have appeared. In one of these, Als-Nielsen et al. (2003) analyzed 370 RCTs in 25 meta-analyses in the Cochrane Library. The experimental drug was recommended as treatment of choice in 16 per cent of trials funded by non-profit organizations and in 51 per cent with for-profit sponsorship. Trials funded by the latter type of organization had a 5.3 times greater chance (95 per cent CI, 2.0, 14.4) of recommending the product being tested as the treatment of choice compared to trials with non-profit sponsorship.

Suppression of unfavorable results

Besides biasing the results, companies have also suppressed unfavorable research. GlaxoSmithKline did not publish results that showed that paroxetine (Paxil™) was ineffective for the treatment of depression in children and adolescents because, according to an internal company memo, "It would be commercially unacceptable to include a statement that efficacy had not been demonstrated, as this would undermine the profile of paroxetine" (Kondro and Sibbald 2004: 783). The Wall Street Journal claims that "internal Merck e-mails and marketing materials as well as interviews with outside scientists show that the company fought forcefully for years to keep safety concerns from destroying the drug's [Vioxx's] commercial prospects" (Mathews and Martinez 2004: A1).

Biases in publication

Just as research results may have economic consequences, so too will published results. Companies try to ensure that what is published will reflect favorably on their products. One set of researchers obtained access to the data that were submitted to Swedish regulatory authorities as part of the approval process for a number of SSRIs and then compared these studies with the ones that were eventually published (Melander et al. 2003). Three types of bias were identified: multiple publication of single trials; selectively publishing studies showing positive effects as stand-alone publications; and using analytic techniques that were more likely to produce favorable results. All three types have the effect of making the product look more effective or safer. Multiple publication of industry-funded trials has been documented in other clinical areas as well (Gotzsche 1989; Huston and Moher 1996). Redundant and fragmented publications may give an artificially inflated impression of the value of a product and, if unrecognized, may be counted multiple times in a meta-analysis. The end result will be higher sales.

The CLASS study published in JAMA in 2000 appeared to confirm the gastrointestinal protective effects of celecoxib (Celebrex™) over traditional NSAIDs after six months of treatment (Silverstein et al. 2000). However, material on the website of the FDA revealed a number of discrepancies between the data as published in JAMA and those submitted to the FDA. The published trial actually combined the results of two trials, one that continued for twelve months and the second which ran for 16 months. At 12-16 months there was no difference in gastrointestinal adverse effects between the celecoxib and traditional NSAID groups (Hrachovec and Mora 2001; Wright et al. 2001).

Drug companies are also frequently accused of ghostwriting, the practice of writing an article favorable to one of their products and then seeking a well-known clinician to sign it. Fugh-Berman (2005) recounts her experience with an article describing interactions between herbal preparations and anticoagulants; Healy analyzes publications on the anti-depressant sertraline (Zoloft™) (Healy and Cattell 2003); and the Hartford Courant describes how Wyeth-Ayerst amended manuscripts to remove unfavorable data about its diet medication fenfluramine (Pondimin™) (Kauffman and Julien 2000).

Drug prices

Nearly all developed countries, with the exception of the U.S., exercise some control over drug prices. In the absence of price controls, pharmaceutical manufacturers set U.S. prices for brand-name products at levels that are, in general, 30-40 per cent higher than those in Canada and Europe (Danzon and Furukawa 2003) making drugs unaffordable, especially for the one third of American seniors who lack drug insurance (Poisal and Chulis 2000). In order to protect its ability to set prices without government interference the industry used its lobbying power to ensure that the U.S. federal government would not be able to negotiate price discounts when the new Medicare drug benefit came into effect in 2006. Over a ten-year period this benefit is expected to cost American taxpayers US$400 billion. Out of that total, according to one estimate, as much as US$139 billion will be net profits for drug companies (Sager and Socolar 2003).

Companies justify these prices as necessary to generate profit levels sufficient to attract the capital necessary for researching and developing the next generation of drugs. A widely cited article by DiMasi and colleagues puts the figure for bringing a new drug to market at US$802 million (DiMasi, Hansen, and Grabowski 2003).

There is serious debate about the accuracy of DiMasi et al.'s calculations. To begin with their figure does not apply to all new drugs, just NCEs (drug molecules that have never been marketed before). Only 36 per cent (467 out of 1,284) of new drugs approved in the U.S. between 1990 and 2004 were NCEs; all the others were new formulations, or combinations, of existing drugs (USFDA 2005). DiMasi et al. invited 24 companies out of 33 members in PhRMA to submit data on drug development costs; only twelve accepted and data from two were not useable. The data that the companies supplied could not be independently audited and therefore there was no way of knowing exactly what was counted as a research cost. Only drugs that were developed in-house were included, therefore products produced in conjunction with the NIH, charities, or other institutions would have been excluded. Based on other data, that restriction would have excluded as many as 33 per cent of drugs made by the sample firms (DiMasi et al. 1991). Finally, DiMasi et al. did not deduct tax credits that companies receive for doing research from the total, arguing strenuously that an after-tax figure is "inadequate for our purposes and potentially misleading" (DiMasi, Hansen, and Grabowski 2003: 174). However, elsewhere this is precisely what DiMasi and others did – use an after-tax figure for R&D costs. By doing so they reduced the pre-tax estimate of US$686 million by 30 per cent to US$480 million (Grabowski, Vernon, and DiMasi 2002).

Estimates of total industry R&D spending, and therefore the profit levels necessary to generate that level of spending, also need to be questioned. In 2000, PhRMA reported that the industry spent US$21,364 billion on in-house and contracted out research (PhRMA 2004), but the amount from the survey done by the NSF was US$15,451 billion (NSF 2003), leaving a gap of almost US$6 billion to be explained.

Drug promotion

In order to encourage the rapid uptake of new high-priced drugs and, the industry would say, to inform physicians and consumers about improved medications, the industry spends billions marketing its products. DTC advertising of prescription drugs represents the most rapidly escalating portion of promotion expenses, rising from US$791 million in 1996 to US$3,235 billion in 2003 (IMS 2005). This level of promotion can have serious negative consequences.


Excerpted from "The Power of Pills"
by .
Copyright © 2006 Jillian Clare Cohen, Patricia Illingworth, and Udo Schüklenk.
Excerpted by permission of Pluto Press.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

Table of Contents

Chapter 1: Pharmaceutical Industry, Profits and Obligations
1. The Pharmaceutical Industry and the Pursuit of Profits by Joel Lexchin
2. Social, Ethical and Legal Issues in Drug Development, Marketing and Pricing Policies: 'Setting Priorities: Pharmaceuticals as Private Organizations and the Duty to Make Money/Maximize Profits' by Kristina M. Lybecker
3. The Pharmaceutical Industry and its Obligations in the Developing World by Ann Mills, Patricia Werhane, and Michael Gorman
4. Drug Companies as Organi

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