Late last week while returning to India, to my pleasant surprise, I bumped into a longtime overseas friend and his wife working in the pharma industry. Incidentally, they were also traveling in the same flight with a plan to spend their vacation in India.
We both were immensely delighted spotting each other, and were trying to catch up with plethora of subjects at a break-neck speed and mostly with child-like zest. As a result, we were jumping from one topic to another, keeping many loops of discussion unknowingly incomplete.
One such rapid-fire colloquy got almost permanently interrupted with the final boarding announcement. It happened, just when he was referring to busting of some “myths about Big Pharma” by the global CEO of one of the Big Pharma constituents, recently. The article, he said before we got up, was published in the May edition of Forbes Magazine.
As I had missed this curious narrative during my recent relatively long overseas travel commitments, yesterday in Mumbai I did trace that out with the help of our “Google Guru” and went through the content of the article with interest.
‘Debunking Five Big Myths About Big Pharma’:
In the May 19, 2015 issue of Forbes Magazine, I came across an Op-Ed, titled “Debunking the Five Big Myths About Big Pharma”, written by Mr. John Lechleiter, President, Chairman and CEO of Eli Lilly and Company, whom I immensely respect as an icon of the global pharma industry.
The author in his article identified the ‘Five Myths’ as follows:
Myth1: Pharmaceutical companies exaggerate the costs of developing new medicines to justify high prices.
Myth 2: Industry does not develop most new medicines; they come from government and university laboratories.
Myth 3: Prescription medicines are the main driver of health-care cost increases.
Myth 4: Public and private health-care payers must accept and pay whatever prices drug companies charge for medicines.
Myth 5: Government-controlled pricing of medicines in other countries explains their lower health-care costs.
The article is indeed interesting, as it raises more questions than answers. This is mainly because, ‘the debunking of the Five Myths’ was done using the same old fragile arguments much often repeated by the international ‘Big Pharma Trade Associations’ and by some others as well, whom many call privately as their ‘poodles’, although I am not very sure about that.
The reason and time for ‘debunking’:
In the above Op-Ed John Lechleiter forcefully asserts:
“The Big Five Myths’ about this industry routinely poison debates, obscure genuine problems, and distort policy recommendations on healthcare. These myths have been all over the public arena again recently, and it’s time to confront them systematically.”
“The First Big Myth”:
As stated above, the Eli Lilly Chief described the first ‘Big Myth’ of ‘Big Pharma’ as follows:
“Pharmaceutical companies exaggerate the costs of developing new medicines to justify high prices.”
Arguments behind debunking the ‘Big Myth 1’:
The Chief debunked the first ‘Big Myth’ with the following argument:
“In fact: The research and development (R&D) expenditures of this industry are staggering – and since they are matters of public record there is no way and no need to exaggerate them.”
Raises more questions than answers:
Just to illustrate my point, that this article raises more questions than answers, I shall, try to explain the so called ‘debunking’ of this first of the ‘Five Big Myths’ of ‘Big Pharma’, as penned by Lechleiter.
The author seems to have missed the core narrative behind the so-called ‘Myth’ – lock stock and barrel. Whether deliberately or not, I can’t really figure that out.
The reason behind high costs of patented drug:
Even if for the arguments sake, what the author has said is accepted as a gospel truth while ‘debunking Myth 1’, experts’ discourses on the facts behind high costs of patented drugs do not just focus just on the ‘R&D Costs’, it also seriously points towards abnormally high ‘Marketing Costs’, which in many instances several times more than the ‘R&D Costs’.
Some hard facts:
An article of 6 November 2014 of BBC News, titled “Pharmaceutical industry gets high on fat profits” written by Richard Anderson, Business reporter, BBC News highlights:
Drug companies justify the high prices they charge by arguing that their Research and Development (R&D) costs are huge. On average, only three in 10 drugs launched are profitable, with one of those going on to be a blockbuster with US$1bn-plus revenues a year. Many more do not even make it to market.
But as the table below shows, drug companies spend far more on marketing drugs – in some cases twice as much – than on developing them… and besides, profit margins take into account R&D costs.
|World’s largest pharmaceutical firms|
|Company||Total revenue ($bn)||R&D spend ($bn)||Sales and marketing spend($bn)||Profit ($bn)||Profit margin (%)|
|Johnson & Johnson (US)||71.3||8.2||17.5||13.8||19|
|Hoffmann-La Roche (Swiss)||50.3||9.3||9.0||12.0||24|
|Eli Lilly (US)||23.1||5.5||5.7||4.7||20|
The article states that in 2013, US giant Pfizer, the world’s largest drug company by pharmaceutical revenue, made an eye-watering 42 percent profit margin. The same year, five other major pharmaceutical companies made a profit margin of 20 percent or more – Hoffmann-La Roche, AbbVie, GlaxoSmithKline (GSK) and Eli Lilly.
Why does the drug industry spend more on marketing than on R&D?
Thus, one most persistent question that is being raised by the stakeholders is: Why does the drug industry spend more on marketing than on R&D?
Quoting these facts, a November 6, 2014 article of ‘FiercePharma’, titled “New numbers back old meme: Pharma does spend more on marketing than R&D”, also pointed out that even John Lechleiter headed Eli Lilly’s marketing spending clocked US$5.7 billion, compared with US$5.5 billion for R&D. That’s a difference of 7 percent.
High marketing expenditure and increasing marketing malpractices:
Interestingly there appears to be a curious coincidences between fines paid by ‘Big Pharma’ related to alleged marketing malpractices and spiraling marketing expenditure.
As I indicated earlier in my Blog Post of December 29, 2014, the following are a few recent examples of just the last three years to help fathom the enormity of the problem on this issue and also to vindicate the point made above:
- In March 2014, the antitrust regulator of Italy reportedly fined two Swiss drug majors, Novartis and Roche 182.5 million euros (U$ 251 million) for allegedly blocking distribution of Roche’s Avastin cancer drug in favor of a more expensive drug Lucentis that the two companies market jointly for an eye disorder.
- Just before this, in the same month of March 2014, it was reported that a German court had fined 28 million euro (US$ 39 million) to the French pharma major Sanofi and convicted two of its former employees on bribery charges.
- In November 2013, Teva Pharmaceutical reportedly said that an internal investigation turned up suspect practices in countries ranging from Latin America to Russia.
- In May 2013, Sanofi was reportedly fined US$ 52.8 Million by the French competition regulator for trying to limit sales of generic versions of the company’s Plavix.
- In August 2012, Pfizer Inc. was reportedly fined US$ 60.2 million by the US Securities and Exchange Commission to settle a federal investigation on alleged bribing of overseas doctors and other health officials to prescribe medicines.
- In April 2012, a judge in Arkansas, US, reportedly fined Johnson & Johnson and a subsidiary more than US$1.2 billion after a jury found that the companies had minimized or concealed the dangers associated with an antipsychotic drug.
Where does most of the marketing expenditure go?
On February 11, 2015, an article published in the ‘The Washington Post’ titled, “Big pharmaceutical companies are spending far more on marketing than research”, stated:
“Most of this marketing money is directed at the physicians who do the prescribing, rather than consumers.”
The HBO video that had gone viral:
The HBO Video with a dash of characteristic British humor of “John Oliver: Marketing to Doctors (HBO)” captures the essence of the issue. Many readers much have watched this video earlier. Nevertheless it helps understanding the point.
Some people associated with the industry did attempt nitpicking on this video and quite understandably; they did not find many takers.
As deliberated above, I submit with humility that there are ample hard facts, which would debunk even more forcefully, the ‘debunking of the remaining so called four myths’ as was elucidated in the Forbes Magazine article authored by well-respected John Lechleiter, the President, Chairman and CEO of Eli Lilly and Company.
This seemingly well-timed article from the global pharma icon, though with disappointedly fragile content, I reckon, would not be able to evoke the desired response from its target audience. On the contrary, it carries the risk of being construed as no more than a half-hearted attempt of defending the indefensible and in that process reconfirming the truth, camouflaged in the paper as ‘myths’.
By: Tapan J. Ray
Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.