The global pharmaceutical industry has racked up fines of more than $11bn in the past three years for criminal wrongdoing, including withholding safety data and promoting drugs for use beyond their licensed conditions.
In all, 26 companies, including eight of the 10 top players in the global industry, have been found to be acting dishonestly. The scale of the wrongdoing, revealed for the first time, has undermined public and professional trust in the industry and is holding back clinical progress, according to two papers published in today’s New England Journal of Medicine. Leading lawyers have warned that the multibillion-dollar fines are not enough to change the industry’s behaviour.
The 26 firms are under “corporate integrity agreements”, which are imposed in the US when healthcare wrongdoing is detected, and place the companies on notice for good behaviour for up to five years.
The largest fine of $3bn, imposed on the UK-based company GlaxoSmith-Kline in July after it admitted three counts of criminal behaviour in the US courts, was the largest ever. But GSK is not alone – nine other companies have had fines imposed, ranging from $420m on Novartis to $2.3bn on Pfizer since 2009, totalling over $11bn.
Kevin Outterson, a lawyer at Boston University, says that despite the eye watering size of the fines they amount to a small proportion of the companies’ total revenues and may be regarded as a “cost of doing business”. The $3bn fine on GSK represents 10.8 per cent of its revenue while the $1.5bn fine imposed on Abbott Laboratories, for promoting a drug (Depakote) with inadequate evidence of its effectiveness, amounted to 12 per cent.
Mr Outterson said: “Companies might well view such fines as a quite small percentage of their global revenue. If so, little has been done to change the system. The government merely recoups a portion of the financial fruit of firms’ past misdeeds.”
He argues that penalties should be imposed on executives rather than the company as whole. He cites a Boston whistleblower attorney, Robert Thomas who observed that GSK had committed a $1bn crime and “no individual has been held responsible”.
Following GSK’s admission that it had withheld safety data about its best-selling diabetes drug Avandia, the company pledged to make more clinical trial information available. But the pledge has “disturbing exceptions”, according to Mr Outterson, and in any case is made under the corporate integrity agreement, which expires in five years.
Trust in the industry among doctors has fallen so low that they dismiss clinical trials funded by it, even when the trials have been conducted with scientific rigour, according to a second paper in the journal by researchers at Brigham and Women’s Hospital, Boston. This could have serious implications because most medical research is funded by the drug industry and “if physicians are reluctant to trust all such research, it could hinder the translation of … research into practice,” said Aaron Kesselheim, who led the study.
Andrew Witty, the chief executive of GSK, said at the time of the $3bn settlement last July that it had resolved “difficult, long-standing matters” for the company and that there had since been a “fundamental change in procedures” including the removal of staff engaged in misconduct and changes to incentive payments.
The Association of the British Pharmaceutical Industry said practices in the industry had improved and more changes to “build greater levels of trust” would be made. The UK Medicines and Healthcare Products Regulatory Agency said it monitored the conduct of companies and took “appropriate action” when it uncovered malpractice.
Alzheimer’s funding ‘must continue’
Governments, universities and charities should step in to ensure funding is maintained for research into Alzheimer’s disease, following a series of failed drug trials, experts said yesterday.
They were responding to a report in The Independent that the world’s leading drug companies are giving up on the search for a cure, scaling back their neuroscience departments and focusing on symptomatic, rather than disease-modifying, treatments.
A spokesman for the Alzheimer’s Society said: “This is not the time to back away from dementia research. Despite costing the economy more than cancer and heart disease, funding for research into dementia is only a fraction of these conditions. More funding is urgently needed if we are to defeat it.”
Can you Trust big Business? Practicing the most stark acts of corporate inhumanity -Pharmaceutical Giants
‘There were times not long ago that drug companies were merely the size of nations. Now, after a frenzied two-year period of pharmaceutical mega-mergers, they are behemoths, which outweigh entire continents. The combined worth of the world’s top five drug companies is twice the combined GNP of all sub-Saharan Africa and their influence on the rules of world trade is many times stronger because they can bring their wealth to bear directly on the levers of western power.’
The pharmaceutical industry is one of the most profitable industries in both the US and Great Britain. Gross Profit margins of some of the leading pharmaceutical companies in recent years has been around 70 to 80 percent .
The global drugs market is controlled by corporate behemoths such as Pfizer, Bristol-Myers Squibb, Bayer, Merck & Co, Pharmacia, Novartis, Johnson&Johnson, Abbott Laboratories, American Home Products, Eli Lilly, Schering-Plough, GlaxoSmithKline and Allergan. Their market domination enables them to dictate drug prices . In past years, pharmaceutical prices have risen faster than the rate of inflation. The fact that there is very little price elasticity (the elasticity of demand tells us how much the quantity demanded changes when the price changes) associated with price increases is a major factor contributing to the high profitability of the pharmaceutical industry. A patient will not change the demand for a product with a small change in price when there are no close or available substitutes. Actual manufacturing costs of medicines are relatively low .
The big pharmaceutical companies’ profits can be even higher due to limited competition in the pharmaceutical industry caused by strict patent laws [when a company owns a patent for a key drug, profits can mount up since the company faces no competition] and high barriers for small firms [new competitors] to enter the industry. In addition, through a recent and ongoing wave of mergers and acquisitions the big companies intensify the process of consolidation [limiting competition in the so-called free market even further]. Also, more frequently strategic alliances (less costly than mergers and acquisitions) are being formed with small biotech companies in order to reap the (new) economic benefits biotechnology offers. The drug giants cannot keep track of all new developments themselves, but want to keep their pipelines full
Tomorrow: Can you Trust big business? A look at Pfizer Inc
ANALYSIS: The pharmaceutical industry’s lobbying of the Government demonstrates how multinationals play governments off each other and limit political choices
The nature of the lobbying of Taoiseach Enda Kenny by the pharmaceutical industry, as disclosed in this newspaper during the week, illustrates the power of the industry, and of the multinational sector generally.
The series of letters from senior figures in the world’s largest pharmaceutical companies appeared co-ordinated and included references to meetings the writers had had with the Taoiseach to discuss their concerns.
They also referred to Ireland’s upcoming presidency of the European Union and topics of interest in that regard, including the pricing of drugs in countries that are the subject of troika programmes.
The conflation in the letters of the sector’s commercial objectives with its importance to the Irish economy illustrated how Ireland’s success in attracting multinational investment can affect the role it plays in the globalised world.
Because globalisation has raced ahead of political control, multinationals play countries off each other, seeking concessions everywhere they go. Governments, unless they can agree regional or global measures that reassert their power, are hugely exposed.
In his letter of February 23rd, 2012, to the Taoiseach, Miles D White, chairman and chief executive of Abbott Laboratories in Illinois, directly linked inward investment and the price his company gets paid by the State for the drugs it supplies.
“In common with other pharmaceutical multinational organisations, we find it difficult to reconcile a policy of pursuing inward manufacturing investment with an attempt to drive medicine prices to among the lowest in the European Union,” he wrote.
The price paid by a government for pharmaceuticals is referenced according to the prices paid by other governments, with the system being organised into “baskets” of countries whose prices are linked.
White’s concern was not so much with his company’s profits from sales here as with the effect any drop in Irish prices would have in other, larger markets.
“International price-referencing results in pricing in Ireland having a knock-on effect on the pricing of medicines in 11 other European countries and up to an additional 37 countries worldwide,” he wrote.
“Driving down the price of medicines across such a large number of export markets for the Irish-based pharmaceutical industry could directly jeopardise jobs in Ireland as it will create substantial pressure to cut manufacturing jobs.”
The Irish pharmaceutical sector employs up to 25,000 people directly, and the same number indirectly, and is a major contributor to Irish exports. The pharmaceutical firms that wrote to Enda Kenny warned that Government decisions aimed at reducing its drugs bill could have “unintended consequences”.
It is a strange thing to have a sector lobbying the Taoiseach to help it combat reductions in the price of its products, not just in this country but in 11 others in Europe, and up to 37 worldwide, and while doing so to suggest that a failure to deliver might affect inward investment into Ireland.
Ireland’s drug prices are among the highest in the world, with a recent survey finding that costs here are up to 45 per cent higher than they are in Sweden.
As this newspaper’s health correspondent, Paul Cullen, has observed, it is hard to avoid the conclusion that the high cost of drugs in Ireland is part of the price we pay for having a large pharmaceutical sector.
In fact, given the basket arrangement, citizens in 11 other European countries, and 37 worldwide, may be paying the price. It is important to remember that what is at issue is the price paid by governments for pharmaceutical products.
Yet, despite the importance to them of sales funded by government revenues, pharmaceutical companies, as with almost all multinationals, organise their affairs so they direct profits to low-tax jurisdictions.
White’s company, Abbott, is in the process of creating a sister group, Abbvie, which will focus on research-based pharmaceuticals. This year two Irish Abbvie subsidiaries were established, with registered addresses at the offices of Matheson solicitors in Dublin. Also established was Abbvie Ireland NL BV, a Dutch company with an address in Sligo.
The structure looks like one designed to reduce Abbvie’s future tax bills in much the same way that Google, Microsoft, and other multinationals have used Ireland to save themselves fortunes in global corporation tax. A request for a comment from Abbvie on this point yesterday met with no response.
Just this week Bloomberg reported that Google avoided $2 billion in corporation tax in 2011 by way of its international tax structure. That tax structure is centred in Dublin, where two of Google’s key companies are based at the Matheson offices, and use a Dutch company as part of their tax avoidance policies (the so-called Dutch sandwich scheme).
Earlier this year a report for the Senate Permanent Subcommittee on Investigations in Washington disclosed that Microsoft reduced its US corporation tax bill by €1.87 billion in 2011. The saving was achieved mostly through the avoidance of tax on royalty payments between three companies with their registered addresses at the Matheson offices. One of them, Round Island One, is a Bermuda company, despite having its registered office here.
The structure channels non-US profits from around the globe (including Africa) to Bermuda, which does not charge corporation tax.
About 60 per cent of world trade occurs within multinational companies. An enormous amount of the profit from that trade is ending up in low-tax and offshore jurisdictions. The revenues lost to governments as a result has to be replaced by targeting other sources, including individuals and businesses that do not trade internationally.
In an environment where so many western countries are raising extra taxes and cutting services in an effort to narrow government deficits, the aggressive avoidance measures operated by multinationals are becoming a political issue.
This month the head of the UK’s public accounts committee, Margaret Hodge, described the tax policies of Google, Amazon and Starbucks as “outrageous and an insult to British businesses and individuals who pay their fair share”. Starbucks, stung by reputational damage, offered to voluntarily pay £20 million to the British exchequer.
On the other hand, Google executive chairman Eric Schmidt responded by saying he was “proud” of his company’s tax structures.
Calls for reform of how multinationals are taxed are entering mainstream debate. The issue featured at last month’s meeting of G20 finance ministers in Mexico.
But Ireland, because of its dependence on foreign direct investment, finds itself on the side of the status quo. Likewise, in relation to financial services, the Irish Financial Services Centre complicates Irish policy on banking regulation and the implementation of a financial transaction tax.
A number of the letters sent to Enda Kenny by the pharmaceutical companies quoted his stated ambition to “make Ireland the best small country in the world in which to do business in 2016”.
That ambition is all very well, but having a disposition towards siding with multinational companies as they play countries off one another carries with it the probability of ongoing erosion of the scope to make political decisions.
It is not true that everything comes with a price. But a lot does.