Case Study
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Case201.docxBig Pharma’s Marketing Tactics“Big Pharma” is the name the business press uses for the gigantic pharmaceutical industry. Most of us are familiar with Big Business and Big Government. Now Big Pharma continues to be in the news and has been for several years regarding its marketing, advertising, pricing, and sales tactics. The pharmaceutical industry has been under attack by consumers and patient groups for well over a decade now. But, in 2015 and 2016, two companies, Valeant Pharmaceuticals International and Turing Pharmaceuticals, became headliners in an issue that has touched many families and has energized a national debate about the drug industry and especially drug pricing.
Valeant would buy patents for unique, lifesaving drugs, raise their prices steeply and watch the profits roll in. While raising prices is a common industry practice, it all boils down to the degree. Valeant was doubling and tripling its prices of new drugs, while other companies used smaller price hikes imposed over a number of years. Valeant got into trouble because it didn’t follow the industry practice called the rule of three. If you are raising prices, do it quietly, modestly and over time.e immediate response was outrage by the public and some members of Congress. In 2015, drug companies jacked up the prices on their brand-name products an average of 16.2 percent.
In 2015, Turing Pharmaceuticals and its 32-year-old founder and CEO Martin Shkreli, bought a drug named Daraprim and quickly raised its price more than 5,000 percent. Shkreli, a former hedge fund manager, quickly drew the wrath of consumers and has since been called the “bad boy” of Big Pharma. Shkreli’s tactics became a talking point during the 2016 presidential elections, and Bernie Sanders even refused to take his $2,700 campaign donation and turned it over to a health clinic. Mr. Shkreli is now the subject of congressional hearings into skyrocketing drug prices. The Valeant and Turing cases are just part of the recent backdrop in the continuing controversial pharmaceutical industry.
As Time magazine has stated, it’s hard to empathize with the drug industry these days because of the high cost of our prescriptions. We either just emptied our wallets in paying for our latest prescription or some consumers just returned on a Greyhound bus from Canada, where we bought our prescriptions for less. Consistently negative public perceptions of the pharmaceutical industry add to its problems. Big Pharma has ranked negatively in the eyes of the public for well over a decade, and the positive views of the industry dropped from 40 percent in 2014 to 35 percent in 2015.
Big Pharma has been aware that it faces challenges to its marketing, pricing, and sales tactics. One gets the impression that the industry does not try to repair its negative image as much as it calls upon its huge army of lobbyists in Washington, DC to protect its interests. According to the Center for Responsive Politics, Big Pharma had just over 1,000 lobbyists at work in 2016 and has spent about $24 million annually in lobbying expenses over the past several years. Though the public values the drugs the industry makes available for sale, increasingly, the multibillion dollar industry’s social responsibilities and business ethics are being questioned.
The Pharmaceutical Industry
The pharmaceutical industry is one of the healthiest and wealthiest in America. However, astronomical drug prices recently have continued to result in push back against the industry. For example, of 12 cancer drugs released in 2012, 11 of them cost more than $100,000. More and more drugs are being offered at this level of pricing, and the more they get away with it the more it becomes a standard that emboldens the companies to push the envelope on pricing. Anger is percolating about this level of pricing.
The top pharmaceutical companies, according to Fortune’s 2015 sales data, include the familiar names, with the most profitable at the top of the list:
1. Johnson & Johnson
2. Pfizer
3. Merck
4. Gilead Sciences
5. Amgen
6. Abb Vie
7. Eli Lilly
8. Bristol-Meyers Squibb
9. Biogen
10. Celgene
Among this group, only Johnson & Johnson (J&J) was ranked among Fortune’s “most admired companies in the world in 2016.” And, in spite of its relatively high ranking (#15), J&J has increasingly been under the gun in recent years as allegations of questionable marketing of its products have come to light and resulted in huge settlements. For example, in 2013, J&J paid $2.2 billion to settle charges of illegally marketing Risperdal, which was once the company’s top-selling drugs before generic versions hit the market. One of the charges against J&J was that it was encouraging the use of Risperdal for elderly nursing home patients suffering from dementia though such a use had not been approved by health regulators and could prove to be life-threatening. J&J disputed the accusations and said that its settlement was not an admission of wrongdoing or liability.
Depending on the study considered and how expenses are calculated, the pharmaceutical industry spends much more on advertising than on research and development. In spite of its size and success, Big Pharma has been called into question for a number of years now for its questionable marketing, advertising, pricing, and sales techniques. The charges have included questionable direct-to-consumers (DTC) advertising (see Case 5 ) and dubious ethics, and a number of them have resulted in lawsuits. It seems quite amazing, actually, that the pharmaceutical industry has not been more in the spotlight than it has been.
By one estimate, Big Pharma has paid out more than $30 billion during the past decade to resolve government allegations and to settle criminal and civil lawsuits involving illegal marketing practices, Medicaid overcharges, and kickbacks. Dr. Eric Campbell, a medical school professor, has stated that the settlements and fines these companies pay “far outstrip any penalties they pay.” Campbell argues that the pharmaceutical firms view these payments as a cost of doing business and this appears to be the business model the firms are using.
Salesmanship Over Science
An overall criticism of Big Pharma is that the industry has abandoned science for salesmanship. That is, the industry has become more concerned with pushing pills for whatever problem than for developing new and important drugs. An example of this was provided in the aggressive marketing by Novartis of its fourth biggest selling drug. Was this drug a lifesaver? No, it’s Lamisil, a pill for toenail fungus. Yes, toenail fungus can turn a nail yellow, but apparently no one has died of this illness. On the other hand, a few people may have died taking the drug as regulators linked the drug to at least 16 cases of liver failure, including 11 deaths. Novartis claimed most of these patients had preexisting illnesses or were on other drugs.
Many patients taking Lamisil were enticed to the drug by a grotesque cartoon creature named Digger the Dermatophyte, who is a squat, yellowish character with a dumb-guy big city accent. In the TV ads, Digger lifts a toenail, creeps beneath it, and declares, “I’m not leavin’!” One group calculated that Novartis spent $236 million on Lamisil ads over three years, but Novartis denies this figure. In the first run of the commercial, Digger is crushed by a giant Lamisil tablet. Regulators thought the ad so overstated the drug’s benefits that the company had to pull that particular version of the ad. It has been reported that the drug cured the problem in only 38 percent of patients, but Lamisil’s sales increased 19 percent after it. In short, it was alleged that the industry spends a fortune on remedies to cure trivial maladies, while its drug research pipelines are running dry. This has been dubbed “salesmanship over science.” Others have said it represents marketing and profits being considered more important than consumer safety and wellness.
Another way pharmaceutical firms emphasize sales over science was illustrated in when the New York Times revealed that drug giant SmithKline Beecham had secretly compared its own diabetes drug, Avandia, to a competing medicine, Actos, which was produced by Takeda. The company discovered that its own drug was riskier, but the company spent the next 11 years trying to cover up the results. According to the New York Times, sales of Avandia were crucial to the company and the company failed to disclose the research so that it could keep making money.Once again, sales trumped science. After an investigation, the FDA review panel recommended that the drug should be kept on the market.
Promotions to Med Students
Big Pharma starts its promotional techniques while the doctors are still students in medical school. There the med students have in the past received free lunches, pens, notepads, and other gifts that are given by the companies. The companies start early trying to persuade the young doctors-to-be to prescribe their products by inundating them with logo-infested products and other gifts. Some medical students have become fed up with the practice and have resisted the free gifts and have started movements to stop the practice from occurring in the first place.
One med student, Jaya Agrawal, launched a national campaign calling on students to sign a pledge saying they would not accept drug-industry gifts. Medical students on other campuses have organized seminars and lectures on the issue. Agrawal was reminded of how difficult it would be to get everyone to think like her when she moved into an apartment she was planning to share with two other med students and noticed a Big Pharma logo on a clock in three rooms of the apartment.
In recent years, some med schools have banned pharmaceutical reps from giving gifts to their students and some improvements in their graduates being more objective later in terms of prescribing medicines has been evident.
Charges and Lawsuits Span Multiple Issues
Pricing
Though Valeant and Turing have dominated the news recently about skyrocketing drug prices, it is an industry-wide problem. These two companies have given the entire industry a black eye and are inviting increased regulatory scrutiny. Bloomberg Businessweek ran an article recently titled “Big Pharma’s Favorite Prescription: Higher Prices.” Between 2006 and 2013, medication prices rose more than six times the rate of inflation and the increases do not appear to be slowing down. Though many companies are raising prices more slowly, the trend has been toward higher prices at escalating rates.
What is driving prices up? Many companies raise prices just because they can. There are no simple answers. The United States has the highest drug prices in the world, and the high prices are a function of a complex set of circumstances including the complicated interplay between the insurance industry, the Affordable Care Act, Medicare, and Medicaid systems. Medicare is the single largest payer for health care in the United States and it is barred by law from negotiating directly with drug companies. As a result, the United States is a drugmakers’ gold mine. According to recent statistics, the U.S. drug spending was more than twice that of France, Germany, Italy and Britain combined.
Mergers and acquisitions in the drug industry have reduced the number of competitors and this has been an influential factor in drug pricing, especially among generic drugs. During the decade 2002–2013, for example, the number of drug companies making oral digoxin, a heart drug, decreased from eight to three companies. The cost soared 637 percent during this time. The recent price increases of many medicines has climbed so steeply in the last couple years that some analysts see a crisis looming. More and more, insurers, health maintenance organizations, pharmacy association and patient groups are sounding the alarm that prices are becoming unsustainable.
Off-Label Marketing and Prescribing
Another questionable and illegal practice that some companies are charged with involve promoting drugs for uses for which they were not approved of by the FDA or run counter to state consumer protection laws. The result of this is that doctors may be prescribing, and patients may be using, drugs for conditions for which those medicines are not needed, are not appropriate, or might hurt patients.
In a huge settlement, the biotech giant Amgen agreed to pay $762 million for marketing its anemia drug Aranesp for off-label uses. According to the then-acting U.S. attorney, Amgen was “pursuing profits at the expense of patient safety.” A federal prosecutor in this case said that in some cases Amgen sales people were so indoctrinated to sell the drug for off-label uses that many of them didn’t even know that the drug was not approved for the use for which they were selling it.
Another example was the promotion of Paxil. The New York attorney general filed a lawsuit alleging that drug company GlaxoSmithKline (GSK) had covered up results from clinical trials of its drug, Paxil, an antidepressant. It was alleged that the drug was at best ineffective in children and at worst could increase suicidal thoughts. GSK denied the charges. The company was charged with “repeated and persistent fraud” in promoting the drug. In the largest health-care settlement in history, GSK pleaded guilty and paid $3 billion to settle criminal and civil charges of promoting Paxil and another drug, Wellbutrin, for uses not approved by the FDA. Wellbutrin was an approved drug for major depressive disorders but it was being promoted for unapproved uses such as weight loss and sexual dysfunction.
In another case, Glaxo was also accused of using spa treatments, trips to Hawaii, and hunting excursions to charm doctors into writing prescriptions for unapproved uses of certain drugs.
The FDA and state attorneys general have been up in arms about drug companies marketing their products for “off-label” uses and continue to pursue companies for these violations. The anomaly is this: doctors may prescribe drugs for off-label use when they believe they are appropriate, but it is illegal for the drug companies to market or promote the drugs for off-label use. But, the future is uncertain for these types of charges. A U.S. Court of Appeals in 2012 threw out the conviction of a pharmaceutical salesman for marketing drugs for unapproved uses on the grounds that his actions involved free-speech rights. Big Pharma has argued that it should be legally permitted to make truthful statements about its drugs even if the statements are not related to an FDA-approved use of the drug. The FDA plans to fight this ruling and it will be important to watch over the next several years of litigation.
Improper Payments and Bribes
Sometimes the questionable marketing of drugs entails improper payments or bribes. In a landmark case, the Securities and Exchange Commission (SEC) announced that the drug maker Schering-Plough Corporation would pay a $500,000 penalty to settle claims that one of its subsidiaries made improper payments to a Polish charity in a quest to get a Polish government health official to buy the company’s products.
The SEC claimed that Schering-Plough Poland donated about $76,000 to a Polish charity over a three-year period. Chudnow Castle Foundation, the charity, was headed up by a health official in the Polish government. Apparently, this information came to light while regulators were investigating several pharmaceutical companies for compliance with the U.S. Foreign Corrupt Practices Act. The SEC charged that the payments were not accurately shown on the company’s books and that the company’s internal controls failed to prevent or detect them. The SEC said that the charity was legitimate, but that the company made the contributions with the expectation of boosting drug sales. In addition to paying the fine, the company also agreed to hire an independent consultant to review the company’s internal control system and to ensure the firm’s compliance with the Foreign Corrupt Practices Act (FCPA).
Johnson & Johnson is another company that has been pursued for improper payments. In its case, the improper payments were in connection with the sale of medical devices in two foreign countries. Johnson & Johnson turned itself in, and the worldwide chairperson of medical devices and diagnostics took responsibility and retired. In a related case, the company was being investigated for possible bribery in its medical device unit in Shanghai, in which it is alleged that the company bribed the deputy chief of the Chinese state FDA.
Even while it was trying to repair the injury to its image in relation to drug-marketing tactics, it was revealed in 2013 that Glaxo was being investigated for allegations that its sales staff in China was involved in general payments to doctors to prescribe their drugs, some for unauthorized uses. China is one of Glaxo’s most important markets and the problem is complicated by the fact that the health-care system in China is owned and controlled by the state and that it has a tradition of government patronage and gift-giving. Since the China allegations arose, Glaxo’s name continues to pop up with allegations of bribery and corruption, most recently in Yemen in 2016. The company claims it that it is conducting an internal probe into the allegations.
Questionable Payments to Doctors
Few cases more vividly illustrate the questionable marketing tactics of Big Pharma than that of the allegations made against Schering-Plough. According to an investigation by the New York Times, Schering-Plough used the marketing tactic of making payments to doctors in exchange for their commitment to exclusively prescribe the company’s medications. One doctor reported receiving an unsolicited check for $10,000 in the mail. He said it had been made out to him personally in exchange for an enclosed “consulting” agreement in which all he had to do was prescribe the company’s medicines.
“Shadowy” Financial Lures
Interviews with 20 doctors, industry executives, and observers close to the investigation of Schering-Plough and other drug companies revealed a “shadowy system of financial lures” that the companies had been using to convince the physicians to favor their drugs. In the case of Schering-Plough, the tactics included paying doctors large sums of money to prescribe its drug for hepatitis C and to participate in the company’s clinical trials that turned out to be thinly disguised marketing ploys that required very little on the part of the doctors. The company even barred doctors from participating in the program if they did not exhibit loyalty to the company’s drugs.
One doctor, a liver specialist, and eight others who were interviewed, said that the company paid them $1,000–$1,500 per patient for prescribing Intron A, the company’s hepatitis C medicine. The doctors were supposed to gather data, in exchange for the fees, and pass it on to the company. Apparently, many doctors were not diligent in recordkeeping, but the company did little. Another liver disease specialist said that the trials were “merely marketing gimmicks.” According to some doctors, the company would even shut off the money if one of the doctors wrote prescriptions for competing drugs, or even spoke favorably about other competing drugs. Other doctors reported being signed up for consulting services and being paid $10,000, and the only purpose was to keep them loyal to the company’s products.
In response to the allegations against the company, former Schering-Plough CEO Fred Hassan reported that the violations took place before he took office. He went on to outline steps he was taking to get the company on track. This included instituting an “integrity hotline” for employees to report wrongdoing and the creation of a chief compliance officer to report directly to the CEO and the board. Hassan said that compliance has to become “part of the DNA” of a drug company. Another company official said that the company has been “undergoing a company-wide transformation since the arrival of new leadership in mid-2003,” which is a “commitment to quality compliance and business integrity.”
In 2013, Novartis AG was accused by federal prosecutors of paying kickbacks to doctors to get them to prescribe certain of their brand-name drugs. Novartis disputes the charges and defends its payments to doctors as “accepted and customary practice.” Prosecutors claimed that the inducements included lavish dinners, fishing trips off the Florida coast, and outings to expensive restaurants (as well as meals at Hooters) around the country. Though Novartis claimed the speakers’ fees were paid to the doctors for educational purposes, some of the dinners in which the “speaking” was taking place appeared dubious. For example, one dinner was attended only by three people, including the doctor/speaker, at a Smith & Wollensky steakhouse in Washington, DC and the bill came to $2,016, or $672 per person. The lawsuit alleges that Novartis simply wined and dined doctors at high-end restaurants with cosmic prices. In one instance, prosecutors said the company paid a Florida doctor $3,750 for speaking to the same four doctors about a Novartis drug five times in a nine-month period.
As it turns out, most doctors take money from drug and device companies. According to research by NPR, about three quarters of all doctors take at least one payment and in some states such as Nevada that percentage was over 90 percent. Further, a study by ProPublica has found that there is a high correlation between payments received from drug companies and prescribing patterns of doctors. The more doctors receive, the more they prescribe the brand-name medications from the giving company. In spite of the patterns, most doctors still claim they are not prescribing based upon payments received.
Paying Questionable Doctors
Some Big Pharma companies have continued to pay doctors with questionable credentials to oversee their drug trials and contribute to marketing. One representative case was a doctor whose medical license was suspended in 1997 by the Minnesota Board of Medical Practice. The New York Times reported that from 1997 to 2005, this same doctor was hired by several drug firms to conduct multiple drug trials and he was paid for speaking and consulting fees as well. The New York Times’ investigation found that 103 doctors in Minnesota, who had been disciplined by the Minnesota Board of Medical Practice, received a total of $1.7 million in payments for research and marketing services rendered. Though Minnesota was the only state willing to make its records available for inspection, experts say this is a national problem.
Gifts Take Many Forms
Not only do pharmaceutical companies give cash payments to doctors under a variety of justifications, but many payments come in the form of meals, tickets to shows and sporting events, ski and beach vacations disguised as medical education seminars, consulting “jobs” for which the doctors do no work, and other gifts, as part of their marketing strategies. The companies expect something in return. They expect the doctors to prescribe their medicines. It is estimated that there is an army of 88,000 or more pharmaceutical reps, many of them young and beautiful, supplying the doctors and their staffs with gifts and freebies. It is argued that these gifts damage the doctors’ integrity.
An article published in the New England Journal of Medicine reported on a survey of doctors and found that 94 percent of them had some type of relationship with the drug industry. The most frequent drug-industry ties were food and drinks in the workplace (83 percent), drug samples (78 percent), payments for consulting (18 percent), payments for speaking (16 percent), reimbursement for meeting expenses (15 percent), and tickets to cultural or sporting events (7 percent). Some argue that these financial relationships between doctors and companies reflect a conflict of interests making it appear that the drug companies are rewarding the doctors for prescribing their lucrative drugs to patients. Others in the industry say that doctors have a right to make this money because they are providing research and access for the drug companies.
A new requirement, instituted by the Affordable Care Act, is that the Centers for Medicare and Medicaid Services (CMS) must collect information from applicable manufacturers and group purchasing organizations about their financial relationships with doctors and hospitals. The Open Payments Web site allows the public access to their data. Therefore, the public should be able to see what payments are being made by companies to doctors though the data reported occurs on a two-year lag basis as it takes time to collect this information. Whether this effort to provide transparency will make a difference or not remains to be seen.
Big Bucks, Big Pharma
The Media Education Foundation, a nonprofit corporation that produces and distributes educational materials observing the impact and ethics of the media industry, released a hard-hitting film, Big Bucks, Big Pharma: Marketing Disease and Pushing Drugs, that continues to be available in 2016.
According to the Media Education Foundation, the 46-minute film, Big Bucks, Big Pharma pulled back the curtain on the multibillion dollar pharmaceutical industry to expose the insidious ways that illness is used, manipulated, and in some instances created for capital gain. Focusing on the industry’s marketing practices, media scholars and health professionals helped viewers understand the ways in which direct-to-consumer (DTC) pharmaceutical advertising glamorizes and normalizes the use of prescription medication and works in tandem with promotion to doctors. Combined, these industry practices have shaped how both patients and doctors understand and relate to disease and treatment.
Big Pharma is able to ward off most government regulations and actions to control it through the power of its huge lobbying force. According to the Center on Public Integrity, Big Pharma has a stranglehold on Washington. The pharmaceutical industry spends more each year on lobbying than any other industry and that includes the nation’s defense and aerospace industries, and Big Oil. We might call this process Big Pharma doing Big Lobbying. The pharmaceutical lobby has defeated most attempts over the years to restrain drug marketing. In September 2007, Congress passed a sweeping drug safety bill, but before it was passed, it was stripped of provisions that were intended to limit the ability of the industry to market directly to consumers. In addition, in 11 states that considered legislation to expose pharmaceutical gift-giving, the bills were either defeated or stalled.
In 2012, it was revealed both by The New York Times and The Wall Street Journal how successfully Big Pharma had lobbied for its own self-interest and won in the passage of the Affordable Care Act (Obamacare). According to the New York Times, the administration’s unlikely collaboration with the drug industry forced unappealing trade-offs. Of particular importance was the industry’s writing into the proposed law the provision that the Medicare program could not negotiate prices with the drug industry. The result was there would be no lower prices for drugs in the new legislation.
Questions for Discussion
1. What are the ethical issues in this case?
2. Who are the primary stakeholders in these incidents and what are their stakes?
3. Is there any justification for the marketing and pricing tactics described in the case? Which are acceptable and which are questionable?
4. What ethical principles may be violated by the marketing tactics described? Do any of these ethical principles support the companies’ actions?
5. Big Pharma needs enormous sums of money to conduct R&D and to advance its innovations. Do the ends justify the means because our health is at stake?
6. What response do you think physicians should take when approached regarding some of the schemes presented in this case? Are doctors in a conflict of interest situation when taking Big Pharma’s money?
