I posted this diary a year ago. Now that Novo Nordisk has cut off supplies of its insulin to Greece, it seems appropriate to republish it. It hasn't been revised, so some of the information may be out of date. —JG
The pharmaceutical industry is known for its ferocious marketing, campaign contributions, lobbying, and PR efforts that raise Research and Development to an untouchable faith. In fact, they're even worse than we think.
Big Pharma cuts prices on drugs for the poor in many parts of the world. Corporate foundations provide uninsured Americans with free medicines. Companies send RVs with smiling nurses to park at strip malls and sell flu vaccine at a reduced rate. In such ways they demonstrate that they have the best interest of their customers at heart, with marketing staffers in the background calibrating the response to their efforts.
The industry is at cross purposes with its product, serving patients less because it serves the profit motive more.
Here's proof of their unending belief in profit gouging.
What company behaviors illustrate these competing functions? How do they balance their activities between countries that control health care costs and those that let them charge whatever they please for their products? How do international subsidiaries manage research, marketing, and sales functions within their countries?
How does this all add up to the purposes of the Pharmaceutical Research and Manufacturers' Association (PhRMA), headquartered in the United States?
How does Big Pharma divide its attention between the manufacture of the drugs we take every day, the marketing and sales of those drugs, and the research that tests them and produces them?
A 65-page report entitled The Global Pharmaceutical Marketplace, written by a consultant for PhRMA in 2001, has turned up on my bookshelf. Its subject is as follows.
This paper is intended to gather evidence supporting the relative influence of diverse factors in the development and future growth of the global pharmaceutical marketplace. This analysis focuses on how pharmaceutical producers around the world execute tactics such as horizontal and vertical consolidation through mergers and acquisitions, legal protection, patent enforcements, and marketing strategies in order to sustain a competitive advantage. Further, this paper examines pricing issues and the impact of health care policies on pharmaceutical revenues, demand in relation to third party payers, healthcare compensation, and the population.
In many countries large pharmaceutical companies have managed to dominate smaller entities by utilizing legal strategies to create delays for generic approvals, regulate foreign imports, and implement healthcare standards.
The report details the conditions in many countries around the world and how companies respond with particular strategies and tactics.
After the research and reporting were done, the not-surprising conclusion was that innovation in drug development depends on charging high prices and maintaining a stranglehold on patents. Extending patents enables companies to develop and test drugs that are only a few molecules away from the patented drug, starting the cycle all over again. This is what the report concludes on patents and pricing.
Innovation is impacted by the economic return of products sold, varying according to the quantity (volume) and quality (price and net margins) of sales.
The key factors to developing a strong industry are . . . large population, high national income (naturally occurring market factors), free prices, an adequate patent protection and efficient marketing regulations (government-regulated factors).
According toMarcia Angell in the New York Review of Books in 2004,
Research and development (R&D) is a relatively small part of the budgets of the big drug companies—dwarfed by their vast expenditures on marketing and administration, and smaller even than profits. In fact, year after year, for over two decades, this industry has been far and away the most profitable in the United States. (In 2003, for the first time, the industry lost its first-place position, coming in third, behind "mining, crude oil production," and "commercial banks.") The prices drug companies charge have little relationship to the costs of making the drugs and could be cut dramatically without coming anywhere close to threatening R&D.
This is what the industry consultant said in 2001.
As opposed to Europe, the United States does not have to deal with a fragmented market and a myriad of prices and reimbursement regulations; rather, the American market is the largest in the world, generating huge revenues due to the combination of sales volume and free prices. The U.S. also offers adequate patent protection, and its government is usually responsive to the industry claims involving internal as well as external issues. [emphasis mine]
In 2001, these were considered the significant issues that nations (meaning the pharmaceutical companies in different countries) would face in the coming years.
- Generics competition
- Opportunities and threats in emerging markets
- Free trade and as a result manufacturing and registration harmonization
- Managed care cost-containment measures (US)
- National Health Systems price and reimbursement regulations (EU)
- Aging population
- Direct-to-consumer marketing
- Growing OTC market
We have seen the effects of their attention to these issues over the past eight years.
This is the consultant's final conclusion regarding "innovation," which we now know to mean me-too drugs, and patent protection, which has been manipulated to delay the intrusion of generics into their profitable captive markets.
Innovation is driven by the profitability of an industry; therefore, without patent protection, a firm loses a majority of its sales as the product faces generic competition. In order to remain competitive, the pharmaceutical companies of the world's industrialized countries must continue to enjoy increased promotion of R&D investment as well as a significantly free price setting system.
Big pharma's single-minded focus on the issues listed above has devoured the possibility of generating real medicines for real people at a reasonable price, particularly regarding cures for diseases. Pharmaceutical companies consider a "free price setting system" to be a matter of raw survival similar to that of a lion stalking a zebra. It looks as though we're the zebra.
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For more information on PhRMA and Marcia Angell, here are some links.
The PhRMA website
Wiki on PhRMA
Sourcewatch on PhRMA lobbying and marketing
Dr. Angell's article, a wealth of information
Ed Schultz on Dr. Angell 5/8/09
The report on which this diary is based was never made public. It is probable that the only existing copies are in dusty stacks of old papers in PhRMA members' offices, but I prefer not to name the author or the consulting company.