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The term, “Big Pharma,” commonly describes large pharmaceutical corporations like Pfizer, Merck, GlaxoSmithKline and other large- and mega-cap companies. They pour billions of dollars into research to cure the world’s diseases. Why, then, is Big Pharma essentially a four-letter word in the eyes of so many people?
Surveys show that the public ranks Big Pharma near the bottom of their list of favorite industries, ranking no higher than the oil and gas, chemical and tobacco industries. That’s it! Why would an industry with the mission of curing disease rank so low?
Not About the Public Good
At least that is the perception. People read accounts of lawsuits involving Big Pharma. They know that the pharmaceutical industry spends a lot of money sending sales representatives to doctors’ offices to convince them to use their products.
They may even see studies such as the one published in the New England Journal of Medicine that showed that 94% of all doctors had a relationship of some kind with the pharmaceutical industry, and an average of four out of five of these relationships included receiving food in the workplace. Another study found that 28% of all doctors reported receiving some kind of payment from pharmaceutical companies, often as speakers on behalf of a certain drug.
The lawsuits are even worse. Take the $3-billion fine against GlaxoSmithKline, the largest fine ever imposed to a pharmaceutical company by the U.S. Department of Justice. GlaxoSmithKline illegally marketed Paxil and Wellbutrin, antidepressant drugs, while withholding data describing the health risks of Avandia, a diabetes drug.
Although it was the largest pharmaceutical fine in history, it amounted to an insignificant punishment for GlaxoSmithKline, accounting for only 11% of associated revenue. Critics argue that lawsuits like these do not deter companies from unlawful or unethical practices.
Leaving even larger public relations damage in its wake, in 2004, Big Pharma company, Merck, announced a recall of the popular anti-pain medication, Vioxx. The FDA found that Vioxx put patients at a significantly greater risk for heart attack and stroke. Later reviews found that as many as 55,000 deaths might have occurred because of Vioxx.
Fines later cost Merck more than $900 million. An additional $4.85-billion judgment followed in 2007 because of a class action lawsuit. Nonetheless, this was no more than a short-term hit to the company, which has since recovered. In 2011, Merck reported gross revenues of $31 billion.
Bristol Myers Squibb
Bristol Myers Squibb paid $515 million in fines after it was discovered that the company marketed its antipsychotic drug, Abilify, to treat conditions the drug is not approved to treat.
In addition, Bristol Myers Squibb sent sales teams to nursing homes to promote the drug, although they knew it had potentially fatal side effects on the elderly. The government also accused the company of paying medical professionals as well as pharmacists to dispense the product by offering them kickbacks and vacations.
Clean up Your Act
The pharmaceutical industry’s representatives argue that they are working hard to enact policies and take actions that will restore the industry’s reputation. A revised voluntary code put in place in 2009 by the Pharmaceutical Research and Manufacturers of America (PhRMA) no longer permits mugs, pens, tablets or other non-educational “reminder” gifts to be dispensed by pharmaceutical companies. When the code was announced, 32 of the 34 member companies of the trade organization signed on.
PhRMA points out that member companies spent a collective $49.5 billion in research and development. This makes the pharmaceutical industry one of the most research-intensive industries in the United States. In contrast, the entire industry spent $11.3 billion on marketing and promotion in 2008, including $4.4 billion for direct to consumer advertising, such as commercials and Internet or magazine ads.
Others point to the Physician Payment Sunshine Act, which is legislation that requires pharmaceutical companies to report any gift or compensation of more than $10. This includes food, speaking fees and most other transfers. It does not include, however, drug samples earmarked for patients.
The Bottom Line
It costs about $1.3 billion to bring a drug to market. Many drugs never gain Food and Drug Administration approval. For that reason, Big Pharma companies have to market aggressively or hike prices of drugs in order to stay in business. Others argue that, much like the oil and gas industry, Big Pharma, as a whole, isn’t hurting for money. Engaging in criminal practices, they say, is not only bad for patients, but it’s bad for stockholders and the roughly 300,000 industry employees who have lost their jobs since 2000.
First published in Investopedia.