Drug Companies: Even More Corrupt Than Financial Institutions?

In a recent post, HSBC: Too Big to Fail, Too Big to Prosecute, we discussed some of the illegal activities that have become common within our financial institutions. Besides causing recessions and manipulating markets, they also find time to provide financial assistance to drug cartels, terrorist organizations, and designated foes of the United States. With that kind of track record, one might assume that banks were the baddest of the bad in terms of corruption. Perhaps, but it is not necessarily so.

Let us see if a case can be made that the pharmaceutical industry—drug companies—might deserve that honor.

A recent article in The Economist discussed the recently announced health-fraud settlement of $3 billion imposed on GlaxoSmithKline. This is the largest such settlement—thus far— in US history

"Glaxo agreed to plead guilty to three criminal counts: the misbranding of two antidepressants and the failure to tell regulators about safety data for a diabetes drug. Those plea deals included $1 billion in payments. Glaxo also agreed to an additional $2 billion to settle civil charges under the False Claims Act."

"Glaxo allegedly used spa treatments, trips to Hawaii and hunting excursions to coax doctors to write prescriptions for unapproved uses of certain drugs. In the case of Paxil, an antidepressant, Glaxo was said to have promoted a journal article that overstated the drug’s benefits for children."

GlaxoSmithKline was required to pay a fine that was a small part of its profits. It has joined a host of other companies that have made settlements for illegal behavior in recent years. The criminal sanctions seem to have become part of the industry’s cost of doing business. The article provides us with this tally of recent settlements.

The article is overly kind to the drug company to refer to a trip to Hawaii as anything other than a blatant bribe. To get a better picture of how these companies operate let’s turn to a description by Daniel J. Carlat, a psychiatrist who has written a book titled Unhinged: The Trouble with Psychiatry—A Doctor’s Revelations about a Profession in Crisis. The crisis he refers to is the dangerous symbiotic relationship between psychiatry and drug companies. Carlat includes a chapter titled: How Companies Sell Psychiatrists on Their Drugs.

Carlat claims that the success of the drug companies in developing new products that would keep their profit growth strong began to fade about fifteen years ago.

"....in response, companies changed their business strategies. Marketing and sales divisions were beefed up. And marketing gradually morphed into something different, larger, all-pervasive, and, frankly, uglier than anything that had come before it."

Marketing has come to dominate the pharmaceutical industry, dwarfing even R&D. And the target of most of the marketing: physicians.

"It is true that companies spend plenty on R&D—$30 billion in 2007 alone. But they spend twice as much on marketing—close to $60 billion in that same year. Some 90 percent of this marketing money is spent on sales activities directed towards physicians."

The path to profits passes through physicians. Only doctors can prescribe drugs. The marketing arms of the drug companies have become part of the process of clinical testing, publishing of scientific journal articles, getting FDA approval, and convincing doctors to use their specific product.

"In order to provide prescribers with evidence to use their products, companies have brought their marketing department front and center into the research business. When they have trouble finding legitimate independent researchers to do test treatments, they have designed and funded those tests themselves. When they haven’t been able to find academics to write up the results, they have hired ghostwriters, and then paid academics to simply put their names on the articles. And when, heaven forbid, they have conducted studies that haven’t shown their drugs to be effective, they have slipped the studies into file drawers, hoping that nobody would ever find out that they were conducted."

And how does this process work out in practice.

"Unsurprisingly, research sponsored by companies almost always produces positive results for the sponsor’s drug. This has been documented in research on a vast array of treatments, including antidepressants, antipsychotics, birth control pills, arthritis medications, and drugs for Alzheimer’s dementia. A meta-analysis of all such studies found that drug company-sponsored studies were four times more likely to produce a favorable outcome for the sponsor’s drug than studies with other funders."

The medical literature itself is compromised by the tactics of the drug companies. Carlat relates the situation related to Pfizer’s antidepressant Zoloft. Pfizer contracted to have 55 articles on the drug to be ghostwritten and paid psychiatrists to put their names on the articles. This took place in 1998-2000.

"Most astoundingly, these articles outnumbered those written in the old fashioned way, comprising over half—57 percent—of all articles published about Zoloft in the entire medical literature from 1998 to 2000. Thus for at least one antidepressant, the bulk of the medical literature was literally written by the drug company that manufactured the drug, which is about as glaring a manipulation of science as one can imagine."

A physician who is trying to decide what drugs to prescribe faces biased clinical test results, biased scientific literature, and a drug sales force that can provide him/her with gifts and money. The financial equivalent would be the combining of garbage mortgages with a few quality mortgages and selling the batch as if the whole package was of high quality.

All of this is dangerous for consumers, and it is unethical, but it is not illegal. The illegality arises from the fact that doctors are not limited in what they can prescribe. They can choose to use drugs for purposes that are not FDA approved. Drug companies cannot legally market their drugs for such purposes, but they do until they get caught. By the time that happens they will have pocketed more in profits than they would ever have to pay in penalties.

Carlat describes one marketing push by Warner-Lambert (subsequently taken over by Pfizer) on a drug called Neurontin. Neurontin was approved for treatment of epilepsy, but it performed so poorly that it could only be prescribed as a secondary drug for use if primary drugs failed to work. This was not destined to be a large money maker for the company. The information is available because of a whistle blower who eventually brought Pfizer to justice—such as justice is.

Warner-Lambert thought that Neurontin might be effective for a number of conditions such as bipolar disorder, migraine headaches, ADHD.... The problem was that they had no evidence of effectiveness that the FDA considered worthy of its approval.

"....but the executives decided to try to convince doctors to prescribe it for these disorders anyway....This is called ‘off-label’ prescribing."

The whistle blower provided this account of a meeting with an executive of the company:

"....John Ford, a senior executive, exhorted reps to pitch Neurontin to doctors for a long list of disorders, none of them adequately researched. ‘That’s where we need to be, holding their hand and whispering in their ear,’ Ford said, referring to the doctors, ‘Neurontin for pain, Neurontin for monotherapy, Neurontin for bipolar, Neutrontin for everything.’ He went further, encouraging reps to get doctors to ramp the dose up higher than FDA’s recommended maximum of 1,800 mg/day: ‘I don’t want to hear that safety crap either,’ he said."

It is easy to imagine a similar meeting taking place in a mortgage company in say 2004. "Go out there and get me some mortgages signed. I don’t care if they have any money. As long as they are breathing and can put an ‘X’ on a sheet of paper I want you to nail them!"

As with the marketing of subprime mortgages, the marketing of Neurontin to doctors was successful. The requisite articles were ghostwritten, and doctors where provided, if necessary, with the equivalent of bribes in the form of cash, dinners and trips.

"These sleazy techniques worked beautifully. The drug became a blockbuster, earning $2.7 billion in 2003 alone. Almost all of that income was for off-label uses.....Eventually....Pfizer (which had since bought Warner-Lambert) pleaded guilty to criminal charges and agreed to pay $430 million in fines—a pittance in comparison with the billions the drug was earning per year. For Pfizer it was simply another business expense, and a fairly minor one at that."

Carlat tells us that in spite of the fine and admissions of guilt, Neurontin is still being prescribed for off-label uses and is still earning money for Pfizer.

The drug companies, like the large banks, seem to be shielded by a form of "too big to fail" logic. We need drug companies and their products; therefore we hesitate to treat criminal activity as criminal activity. Instead, we issue ineffective monetary fines and are happy to have them promise not to do it again.

In answer to the question imbedded in the title to this piece: financial institutions play fast and loose with our money; drug companies play fast and loose with our lives.