The perfect storm around pharmaceutical companies continues to gather strength. In recent months, DTC advertising has come under fire (read the ThirdWay Advertising Blog’s critique of this practice here) and the recall of Vioxx and other COX-2 selective anti-inflammatory drugs has brought the FDA review process under fire.
Now another controversy is swirling, with grave implications for the pharmaceutical industry. On Sunday, December 4, The Observer, a leading British newspaper published details of a dispute between a British researcher, Dr. Aubrey Blumsohn and Procter&Gamble. The dispute centers on the practice of ghostwriting in the pharmaceutical industry.
Today, the Wall Street Journal covered the same practices and cited an article in the British Medical Journal purportedly written by an Australian Doctor, Christine Jenkins, (and in this case the article contained a disclaimer claiming that no pharmaceutical company sponsored the research) but in fact drafted by a medical writer hired by GlaxoSmithKline.
Even worse, it seems that many articles destined for medical journals are being placed for publication as “Author to be named” after they have been drafted by writers working for the pharmaceutical companies and the analysis for the article has been completed by the company. Only then is an academic brought forth to sign off and claim credit for the article. And in some cases, as with Dr. Blumsohn above, the authoring Doctor may not even have access to the research that the article is discussing. In effect, research academics have become a commodity which pharmaceutical companies slot in to fill their publication needs in much the same way that NFL teams trade kickers.
Is this just another case of the fox guarding the henhouse? Will the damage be limited to industry analysts over pharma stock valuations and another cycle of bombshell expose pieces by all of the big media outlets which fade from our memory after a few more news cycles? Possibly. But if so, the mainstream media is missing the point.
The bigger point here is that protected markets hurt brands, consumers and the economy. And there is no better protected market in the US than pharmaceuticals. Drug manufactuers enjoy government protections on three sides. Here’s how:
- Drug Development – patents protect drug manufacturers from competition for over a generation, after which they can use their accumulated warchest of cash to fight off potential generic competitors in court, in doctor’s offices with detailing reps and in the media with consumer advertising.
- Drug Dispensing - most drugs enter the world as prescription pharmaceuticals after passing an NDA (new drug approval) process with the FDA. These drugs can only be sold with the prescription of a medical doctor. There are about 800,000 physicians in the United States and about 200,00 of these are generalists in Internal Medicine, Family Practice or General Practitioners. In some specialities the numbers of doctors are much smaller, however. There only 10,000 urologists and 11,500 neurologists (click here for the data) in total, and a smaller subset account for the vast majority of prescriptions of drugs in these categories. These doctors are a captive audience for pharmaceutical companies who are able to hire them as consultants, bring them to advisory board meetings in desirable destinations and meet with them through armies of attractive young “detailing reps” who are trained to help doctors sell their pharma company’s drugs.
- Drug Payment – Medical costs are covered by insurance, including most prescription drugs. Ideally insurers would be the natural antagonists of pharmaceutical companies, controlling drug prices and fostering competition but in practice they are far less efficient than consumers at this job. While they do promote generic drugs, they spend much of their energy protecting themselves from consumers who may desire life-extending treatments that they deem unaffordable.
The sum of these three measures is a system with no accountability. The market forces acting on pharmaceutical companies largely come from other pharmaceutical companies, from the FDA and from prescribing phsyicians. The result has been enormous profits for pharma companies. Pharma companies argue that strong patent protection is necessary to balance the huge risk of bringing expensive drugs to market. But the overall profitability of the industry over time would seem to belie this point.
These are not just the opinions of this Advertising Blog. Dr. Marcia Angell wrote the following in the New England Journal of Medicine:
How risky is the pharmaceutical business?
For a small company pinning everything on a few products, it may be immensely risky. But that is not the case for the large drug companies that dominate the market. True, their research and development costs are high, as compared with those of other industries.
The top 10 drug companies are reported to spend on average about 20 percent of their revenues on research and development. (9) (Many critics charge that marketing and promotional costs are misleadingly included in this figure.) But the pharmaceutical giants have so many drugs in the pipeline at any given time that they can count on being able to bring a certain number of drugs to market regularly.
It is instructive to compare the research and development costs of the large drug companies with their profits. The top 10 drug companies are reported to have profits averaging about 30 percent of revenues — a stunning margin. (4,10) Over the past few years, the pharmaceutical industry as a whole has been by far the most profitable industry in the United States. (9,11)
According to a recent issue of Fortune, in 1999 the pharmaceutical industry realized on average an 18.6 percent return on revenues. Commercial banking was second, at 15.8 percent, and other industries ranged from 0.5 to 12.1 percent. (11) An industry whose profits outstrip not only those of every other industry in the United States, but often its own research and development costs, simply cannot be considered very risky.
What about the picture of the drug industry as an exemplar of the free market? That image is very far from the truth. On the contrary, the pharmaceutical industry enjoys extraordinary government protections and subsidies. Much of the early basic research that may lead to drug development is funded by the National Institutes of Health. (12) It is usually only later, when the research shows practical promise, that the drug companies become involved.
The industry also enjoys great tax advantages. Not only are its research and development costs deductible, but so are its massive marketing expenses. The average tax rate of major U.S. industries from 1993 to 1996 was 27.3 percent of revenues. During the same period the pharmaceutical industry was reportedly taxed at a rate of only 16.2 percent. (13) Most important, the drug companies enjoy 17-year government-granted monopolies on their new drugs — that is, patent protection. Once a drug is patented, no one else may sell it, and the drug company is free to charge whatever the traffic will bear.
Is it correct that the U.S. pharmaceutical industry is highly innovative? Only partly. Some recently launched drugs do indeed fill important, previously unmet medical needs. But it is hard to escape the conclusion that many other new drugs add little to the therapeutic armamentarium except expense and confusion. Consider the welter of very similar drugs to lower cholesterol levels.
(Click here to read the entire editorial)
The branding effect of this entire system is to destroy the trust between consumer and brand. If these enormous brands were truly accountable to ordinary consumers, it would be hard to imagine a company of marketing geniuses like Procter & Gamble putting the entire patient-physician relationship at risk by undermining the credibilty of medical journal articles. Yet this practice of ghostwriting medical articles is not a P&G or GlaxoSmithKline issue – it is an accepted industry practice and industry insiders who have grown up in this system see no problem with it.
This is where all of the generous protections to the pharmaceutical industry have left us – with hugely profitable drug manufacturers who without any hint of malice are effectively subverting the credibility of their brands, the physicians who prescribe them and the regulatory agency that protects consumers. We have created a bad system and it has produced bad brands and bad results for the consumer. This Advertising Blog cannot have an opinion on the public policy question of how the system can be fixed but we’re sure that we trust Pringles and Tide more than we trust Actonel and Fosamax.