The rapid creation of effective vaccines that mitigate the effects of COVID-19 has been a triumph for pharmaceutical companies. Vaccine development would not have been possible without the infrastructure, production capacity, and distribution channels that are integral to Big Pharma (the name of large publicly traded pharmaceutical companies). Should we view their pandemic actions as heroic or just another example of aggressive profiteering?
Why are Big Pharma suspicious?
Pharmaceutical companies are generally mistrusted because they have predatory rather than patient-centric profit motives. They rank just above the tobacco and oil and gas industries due to their low levels of public trust. This reputation stems from their high profit margins, massive product liability payouts to injured patients, and regulatory penalties for fraud and misrepresentation of drug benefits. Hefty fines have been paid by most major pharmaceutical companies to settle allegations of criminal wrongdoing, deceptive marketing, illegal promotion of unapproved off-label uses, kickbacks to prescribers and non-disclosure. security data. For example, in 2012, Glaxo Smith Kline paid $956.8 million in criminal fines, $43.1 million in forfeiture, and $2 billion to resolve civil liabilities under the U.S. false statements. The total penalties paid by major US pharmaceutical companies since 2000 exceed $83 billion.
The most egregious recent settlement was that of Purdue Pharma for $8.3 billion. This was due to its major role in fueling the opioid epidemic through its prolonged, misleading and dangerous promotion of OxyContin, thus promoting addiction and overdose deaths.
For many companies that push the boundaries of ethics, flagrant conduct and misrepresentation are just the cost of doing business with fines covered by their huge profits, which are estimated at more than $600 billion in the world. world in 2021.
Drug promotion and direct-to-consumer advertising
Direct-to-consumer marketing (DTC) of prescription drugs is playing an increasing role in product promotion. The United States is one of the few countries that allows it. Canada does not; however, we are exposed to it through advertisements on US television stations that are freely viewed in Canada. Most TV shows now have several drug promotion ads suggesting you talk to your doctor about using their expensive new blood thinner, arthritis drug, psoriasis treatment, irritable bowel syndrome treatment, memory or targeted chemotherapy.
The United States Government Accountability Office (GAO) recently examined the nature of DTC advertising and its effects on drug spending by Medicare beneficiaries. In the three-year period between 2016 and 2018, DTC industry advertising spending topped $18 billion, while Medicare spent $560 billion on pharmaceutical drugs. Half of the ad spend was for three classes of drugs for chronic diseases, namely arthritis, diabetes and depression. Advertised drugs accounted for only about 8% of drugs used, but 57% of Medicare drug costs. Advertising focuses on more recently introduced expensive drugs in an effort to convince patients to ask their doctor to prescribe them preferably.
Although DTP advertising has some benefits in informing patients about new and beneficial therapies, it is also associated with the potential for overuse of more expensive drugs and rejection of less expensive but often sufficient therapies. Advertisers, when directly describing an approved drug, must also describe its many potential side effects. When you hear that you could be seriously harmed by drugs, the advertising usually focuses on happy people doing funny things that distract you from the disturbing negative message. Indeed, studies suggest that listing the many side effects may even be falsely reassuring because your prescribing physician is expected, not always correctly, to be fully aware of these concerns and diligently avoid giving you the drug if you are at risk. The cost of drugs is never discussed, regardless of their price.
Why are drug prices so high?
The traditional answer is that few compounds come to market, the costs of research and development and clinical trials are high, and the profit motive favors invention. However, many drugs produced are simply very similar to existing drugs that have little additional benefit, with large sums of money spent on promotion and marketing – expenditures that do not advance science or benefit for the patient.
Another reason for rising costs is that small companies with a potentially useful drug may receive investment from hedge funds in the greedy expectation of huge profits. The goal is to sell the company to a Big Pharma group that wants to buy a potentially big new drug that is likely to see success soon, rather than having to painstakingly develop its own pipeline. The very high cost of selling to a large pharmaceutical company ensures a very high return on investment multiple, which necessitates a very high cost price of the drug for the consumer.
I am concerned about a recent example in my field where a company with a useful new drug was bought for $13 billion, a very excessive price. Because they produce an “orphan drug”, i.e. a drug with low consumption, they are able to charge an exorbitant amount of money since the market is relatively small. The cost will likely be $50,000 per year for life rather than the more reasonable $5,000 had the development company’s sale price not been unreasonably inflated. Additionally, although researchers managing clinical trials must disclose grants and other funding that may create a conflict of interest, the amount and value of stock or options awarded to researchers is often not clearly or fully disclosed.
Although the highest drug costs are in the United States, the impact of rising costs for existing and new drugs is a growing problem worldwide. The Canadian Institute for Health Information has estimated that in 2021, health care in Canada will cost $308 billion, or about $8,000 per capita. Drug costs accounted for about 13.9% of the total cost, especially since they did not include drug costs by hospitals. The public share of spending is just under 75%, with the balance split between personal spending and insurance spending.
Increased pressure on drug prices also stems from unreasonable and extreme price hikes of some cheap drugs purchased by companies anticipating predatory price increases. An example is the 500% price increase by Mylan in the United States for EpiPens used to treat life-threatening acute allergic reactions. Another cost factor is the large number of biologic drugs used for multiple conditions. Although they are large and expensive to produce, they are heavily marketed and sold at a very high cost and with large profit margins.
Are pharmaceutical companies profiting from COVID-19 therapies?
Pfizer, one of the world’s largest pharmaceutical companies, had annual revenues of about $44 billion before sales of COVID-19 vaccines. Julia Kollewe recently reported in the Guardian that their sales had increased by $37 billion to $81.3 billion for 2021, due to the approximately three billion doses of vaccine produced.
Their friendly CEO Albert Bourla wrote about the challenges of producing and approving the vaccine in record time in his book Moon shot. Very few companies had this ability. Another more effective vaccine is in preparation and will offer more complete protection. Their antiviral drug Paxlovid is expected to save many lives this year and beyond in high-risk infected people. The drug is also expected to generate an additional $22 billion in sales, pushing annual revenue to over $100 billion, an astonishing amount. Prices for vaccine sales to poorer countries were generally close to the cost of production of $3-10 per injection and around $25-30 for wealthier countries. Not a big individual cost to save millions of lives but with incredible profit. Does it reap the benefits of a remarkable moonshot in a free market or profit? It’s apparently both.
Moderna, a much smaller company, is also having a similar banner year. They just reported that vaccine sales in the first three months of 2022 alone generated $5.9 billion in revenue and a quarterly profit of $3.7 billion.
Can Big Pharma do better?
While excessive regulation has a cost for innovation and discovery, there seems little hope that self-regulation and reining in excessive profit-seeking will come from within. Governments should impose a profit cap on new drugs that limits profits. Nor should companies be allowed to buy cheap but very useful drugs in order to raise prices by a large multiple of the cost. Funding of research by government agencies should be viewed as a co-investment with equity participation that will allow fair profit and affordable prices. Direct-to-consumer advertising requires greater FDA oversight in the United States and such ads should be blocked in Canada where DTC advertising is illegal.
Research bias can be further reduced by prohibiting scientists (and their family members) conducting clinical trials from owning stock or holding an equity stake in corporate sponsors. Journals need to more rigorously investigate and enforce conflicts of interest.
Finally, companies making such huge profits need to find their moral compass. They must act ethically, conduct and report studies honestly, and financially support those in need with donations of funds and products.
CS Lewis said “Integrity is doing the right thing even when no one is watching”. For Big Pharma to act with greater integrity, they also need to know that the world is watching.