Big Pharma’s Marketing Tactics Case
“Big Pharma” is the name the business press uses for the gigantic pharmaceutical industry. Most of us are familiar with Big Business, Big Government, and, now, Big Tech (see Case 9). Big Pharma has been around for quite a while, and it continues to be in the news regarding its marketing, advertising, pricing, and sales tactics. The pharmaceutical industry has been under attack by consumers and patient groups for more than a decade.
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 did not follow the industry practice called the rule of three: If you are raising prices, do it quietly, modestly, and over time. The 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 2018, Valeant changed its company name to Bausch Health Companies, Inc. to distance itself from the public outrage associated with the massive price increases introduced by Valeant.
In 2015, Turing Pharmaceuticals and its 32-year-old founder and CEO Martin Shkreli bought a drug named Daraprim, the lifesaving HIV drug, and quickly raised its price more than 5,000 percent. Tablets that once cost $13.50 per pill were jacked up to $750 per tablet, raising the annual cost for some patients to hundreds of thousands of dollars. Shkreli, a former hedge fund manager, quickly drew the wrath of consumers and has since been called the “bad boy” of Big Pharma. Two years later, Shkreli was found guilty of securities fraud stemming from his management of two hedge funds and a separate drug company and was sentenced to seven years in prison. The Valeant and Turing cases are just part of the recent backdrop in the ongoing controversial pharmaceutical industry.
From 2016 to 2021, Purdue Pharma was in the glaring spotlight for its aggressive and questionable marketing of OxyContin and its contributions to the opioid crisis in America. This case was scheduled to be settled in 2021 after the
company declared bankruptcy, and the Sackler family, founders and owners, agreed to personal payments of $4.28 billion and dissolution of the company (see Case 22).
As Time magazine has stated, it is hard to empathize with the drug industry because of the high cost of our prescriptions. Consistently negative public perceptions of the pharmaceutical industry have become standard and have added to its problems. Big Pharma has ranked poorly in the eyes of the public for more than a decade, and by 2019, Big Pharma ranked at the bottom of the Gallup poll on U.S. Industry Rankings of 25 industries in America. This meant it is the most poorly regarded industry. By 2021, Big Pharma’s rankings had improved, but that was primarily due to the role of a couple companies in quickly developing vaccines for the COVID-19 pandemic. Also, Big Tech companies had by then stolen the negative spotlight and were drawing the ire of the public. The two industries swapped places in the nationwide popularity contest.
Putting aside Pharma’s recent popularity because of the COVID-19 vaccine, many of the allegations regarding Big Pharma continued as they had in the past. 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 on its huge army of lobbyists in Washington, D.C., to protect its interests. According to OpenSecrets, Big Pharma ranked at the top of industries in lobbying and in 2021 was spending around $92.3 million on lobbying, far more than any other industry. Though the public values the drugs that the industry makes available for sale, on a continuing basis, the multibillion-dollar industry’s social responsibilities and business ethics continue to be questioned.
The Pharmaceutical Industry
The pharmaceutical industry is one of the healthiest and wealthiest in America.
However, astronomical drug prices have continued to result in pushback against the industry. A 2021 survey conducted by the Rand Corporation, surveying 32 nations, indicated that prescription drug prices in the United States are 2.5 times. higher than in other countries. According to experts, brand-name drugs are the primary driver of the high prices. The prices have been steadily increasing for a while. In total, all countries in the study spend around $800 billion annually with the U.S. portion of that total being around 58 percent.
The top ten pharmaceutical companies in the world, according to revenue data, include the familiar names, with the most profitable at the top of the list:
1. Johnson & Johnson: $56.1 billion
2. Pfizer: $51.75 billion
3. Roche: $49.23 billion
Novartis: $47.45 billion
Merck: $46.84 billion
GlaxoSmithKline: $44.27 billion
Sanofi: $40.46 billion
AbbVie: $33.26 billion
Takeda: $30.52 billion
Shanghai Pharmaceuticals Holding: $26.69
Among this group, only Johnson & Johnson (J&) was ranked among Fortune’s
“most admired companies in the world in 2021.” And, in spite of its relatively high ranking (#15), J&J has continuously experienced various allegations of questionable business practices, which have resulted in large settlements. For example, in addition to large lawsuits, J& has been at the center of scandals and government investigations and has had to issue recalls on some of its drugs and devices. A Huffington Post investigation called J&J “America’s most admired lawbreaker.”
Depending on the study considered and how expenses are calculated the pharmaceutical industry spends much more on marketing and sales 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 dubious marketing, advertising, pricing, and sales techniques. The charges have included questionable direct-to-consumers (DTCA) advertising (see Case 5) and questionable ethics, and a number of them have resulted in lawsuits.
By one estimate, Big Pharma has paid out more than $30 billion during a recent 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, 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.
Sales Over Science
A continuing criticism of Big Pharma is that the industry has abandoned science for sales. That is, the industry has become more concerned with pushing pills 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 is 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. In its defense, Novartis claimed most of these patients had preexisting illnesses or were on other drugs.
One group calculated that Novartis spent $236 million on Lamisil ads over three years, but Novartis denies this figure. In the first run of one commercial, regulators thought the ad so overstated the drug’s benefits that the company had to pull that version of the ad. It was reported that the drug cured the problem in only 38 percent of patients, but Lamisil’s sales increased 19 percent after it. G 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 allegation has been dubbed “salesmanship over science.” Others have said it represents marketing and profits being considered more important than consumer safety and wellness.
Charges and Lawsuits Span Multiple Issues Pricing
Though Valeant and Turing dominated the news for years about skyrocketing drug prices, it is an industry wide problem that does not go away. These two companies gave the entire industry a black eye and have invited increased regulatory scrutiny. Bloomberg Businessweek ran an article that summed up the situation nicely: “Big Pharma’s Favorite Prescription: Higher Prices.”
Between 2007 and 2018, drug corporations raised prices on prescription drugs by 160 percent. In the midst of the coronavirus pandemic, while receiving billions of dollars to develop vaccines, the major pharmaceutical companies raised prices on 800 medicines, hoping no one would notice. But that is nothing new as past history indicates. It is little wonder that lowering drug prices is politically popular and many are hoping for increased regulations governing drug prices. As a result of high prices, one-third of Americans have said they have skipped refilling prescriptions, and one in ten admitted to self-rationing medications in the past. The Lower Drug Costs Now Act has been introduced in Congress, and some think it is long overdue.
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.
In July 2021, President Biden issued an executive order that was designed to promote business competition and lay out a series of steps to lower prescription
drug prices, and to take legal action against Big Pharma companies that have tried to keep generic medicines off the market. What is not in the executive order, however, is any directive that would allow the federal Medicare agency to negotiate prices with the drug companies. Currently, federal law generally bars the agency from negotiating prices though everyone agrees this would be the best solution. •
Unless the law is changed, this option does not appear to be available.
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. The recent price increases of many medicines have climbed so steeply in the last couple years that some analysts see a crisis looming. More and more, insurers, health maintenance organizations, pharmacy associations, 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 were not intended, are not appropriate, or might hurt patients.
A major danger in this unlawful practice is that physicians and consumers may be misled to believe that an off-label use of a prescription drug is safe or effective. • Bis Pharma employs a variety of techniques to illegally promote their drugs for unapproved indications. The most common strategies include:
promoting off-label use to doctors,
providing free samples and encourage off-label use,
offer financial incentives and kickbacks,
teaching and research activities to promote off-label use,
helping doctors receive reimbursements for off-label use,
offering patients gifts or incentives to encourage use, and
reviewing patients charts to see targets of off-label promotions.
The FDA and state attorneys general have been unhappy 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. Meanwhile, issues of the law and practice of off-label prescribing and promotion continues to be debated.
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 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.
In 2020, Alexion Pharmaceuticals agreed to pay $21 million to resolve charges it made payments to foreign government officials, in violation of the U.S. Foreign Corrupt Practices Act, to secure favorable treatment for one of its primary drugs.
Alexion was charged with making payments to government officials to improperly influence them to approve patient prescriptions and to improve the regulatory treatment for their drug.
Questionable Payments to Doctors
Few cases more vividly illustrate the questionable marketing tactics of Big Pharma than that of making payments to doctors. About half of all U.S. doctors accept money or gifts each year from drug and device companies, totaling more than $2 billion. The conflicts of interest created by these payments are clear, but the medical community has resisted doing anything about it. They argue that these payments do no harm to patients and possibly help them.
“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 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 to $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 or spoke favorably about 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.”
As it turns out, most doctors take money from drug and device companies. A ProPublica analysis concluded that Big Pharma companies have paid doctors billions of dollars for consulting, promotional speeches, meals, and much more.
In their study, they found that for 32 of 50 drugs studied, at least 10 percent of the doctors prescribing the drug received payments tied to the drug from the company that made it.
Gifts Take Many Forms
Not only do pharmaceutical companies give cash payments to doctors under a variety of justifications, but many payments also 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 more than 90,000 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.
One survey of doctors 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 website allows the public access to their data. Whether this effort to provide transparency will make a difference or not remains to be seen.
Promotional Gifts to Med Students
In addition to gifts to physicians, Big Pharma starts its promotional techniques while the doctors are still students in medical school. 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, including free lunches, pens, and notepads. 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 former med student in Toronto reported what he learned while he was in med school. He learned that his major textbook on gastroenterology was actually published by the pharmaceutical company AstraZeneca, and the company was donating the textbooks to the med school he attended. He was not pleased with this. Along with another classmate, he started a petition against the pharma-funded material and began questioning whether the industry was too involved in educating future doctors. His concern was that the companies had a financial conflict of interest in helping the students.
To their credit, some states and some med schools have banned pharmaceutical reps from giving gifts to physicians and students, and some improvements in their graduates being more objective later in terms of prescribing medicines has been evident. Some experts believe not enough has been done on this issue and that the time has come for a ban on all gifts to med students and physicians because of the conflict of interest involved.
Big Pharma = Big Lobbying
How is Big Pharma able to ward off most government regulations and actions to control it? The answer is 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.
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.
Congress has been fighting this provision for years but has not been successful in its dealings with Big Pharma because of the industry’s lobbying power. The Medication Prescription Drug Price Negotiation Act of 2015 was assigned to a committee in January 2016. This bill has been stalled in Congress since its introduction in 2011. More recent legislation has been proposed, titled Prescription Drug Pricing Reduction Act of 2019, but it too is stalled in committee. What is clear is that Big Pharma’s behind-the-scenes lobbying has paid big dividends for the industry it has been able to continue its marketing tactics essentially unimpeded.
Is there any justification for the marketing and pricing tactics described in the case? Which tactics are acceptable and which are questionable?
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?