Pharma industry requires striking a right balance between ethical obligations to shareholders and ethical obligations to patients

On September 15, 2012, while delivering his keynote address in a pharmaceutical industry function, Dr. Sam Pitroda, the Chicago based Indian, creator of the telecom revolution in India and the Advisor to the Prime Minister on Public Information, Infrastructure & Innovations, made a profound comment, for all concerned to ponder, as follows:

“Everyone wants to copy the American model of development.  I feel that this model is not scalable, sustainable, desirable and workable.  We have to find an Indian Model of development which focuses on affordability, scalability and sustainability.”

The above comment assumes greater significance, as the U.S. has been the number one pharmaceutical market of the world over a long period of time, although currently growing at a snail’s pace, as compared to the emerging markets of the world or even in absolute numbers.

Being impressed by past success record of America in the pharmaceutical sector, many countries of the world are being influenced to imbibe the U.S. models in various areas of the industry like, R&D, product commercialization process, focus on the “Wall Street” and even the way America walks the talk in fulfilling its various ethical obligations.

As the popular saying goes ‘proof of the pudding is in the eating’, gradual drying-up of the R&D pipeline, significant decline in the pharmaceutical business growth rate with commensurate adverse impact on the “Wall Street” and regularly published media reports on ‘unethical marketing practices’, lead to pertinent questions on the longer-term sustainability of the U.S. model in all these areas.

It appears, prompted by the prevailing reality in the U.S since quite some time, Dr. Pitroda made the above comment in a wider context of the pharmaceutical industry, including very important scalability, sustainability, desirability and workability of the ethical values in the Indian pharmaceutical business operations.

A burning issue:

As stated above, even in areas related to ethical issues in the pharmaceutical industry, global media reports indicate, as Dr. Pitroda commented above, the American model has not been successful to set an example for others, as yet. Thus, here also India will possibly need to find an Indian model that works and is sustainable.

We have been witnessing, for quite some time from now, among many other burning issues, ethical concerns related to the pharmaceutical industry across the world, have been hugely bothering a large section of its stakeholders, solely for the interest of patients and India is no exception to this stark reality.

Such concerns emanate from widely circulated media reports on legal fines levied to large pharmaceutical companies or out of court settlements on such fines due to alleged ‘unethical’ business practices of some large companies in various parts of the world including India.

Civil Society and other stakeholders including governments do allege that the prescription decisions made by the doctors, having received expensive free products and services from the pharmaceutical companies may not entirely or always be in the best interest of the patients.

In a situation like this, overall robust and healthy bottom line of the pharmaceutical industry in general, may be a tad lesser now, calls for a proper balancing act between its ethical obligations to shareholders and the ethical obligations to patients of all class, creed and color together with the civil society, at large.

Unique situation for the patients:

Healthcare sector in general and the pharmaceuticals in particular is unique in many respects. The Department Related Parliamentary Committee on Health and Family Welfare in its 59th Report clearly articulated that:

Medicines apart from their critical role in alleviating human suffering and saving lives, have very sensitive and typical dimensions for a variety of reasons. They are the only commodity for which the consumers have neither a role to play nor are they able to make any informed choices except buying and consuming whatever is prescribed or dispensed to them because of the following reasons:

  • Drug regulators decide which medicines can be marketed
  • Pharmaceutical companies either produce or import drugs that they can profitably sell
  • Doctors decide which drugs and brands to prescribe to their patients
  • Patients are totally dependent on and at the mercy of external entities to protect their interests.

Such a scenario gives rise to a situation where patients, by and large, are compelled to buy medicines at any price, which leads many to conclude that the pharmaceutical industry is ‘recession proof’.

The perspective of the Global Pharmaceutical industry:

The global pharmaceutical industry is primarily research driven, as the low cost generic drugs flow from the patent expiry of innovative drugs. Moreover, the R&D process is arduous, expensive (reportedly costs over US$ 1.8 billion), risky and quite lengthy involving, besides others:

  • Discovery and development process of the New Chemical Entity (NCE) or New Molecular Entity (NME)
  • Pre-clinical trials
  • Clinical trials, Phase I, II and III and IV
  • Stringent marketing approval process

Thus they believe that to foster innovation to meet the unmet needs of patients, the Intellectual Property Rights (IPR) of such products must be strongly protected by the governments of all countries putting in place a robust product patent regime.

Further, the industry strongly argues that to recover high costs of R&D and manufacturing of such products together with making a modest profit, the innovator companies set a product price, which at times may be perceived as too high for the marginalized section of the society, where government intervention is required more than the innovator companies.

Aggressive marketing activities, during the patent life of a product, are essential to gain market access to such drugs for the patients.

In support of the pharmaceutical industry the following argument was put forth in a recent article:

“The underlying goal of every single business is to make money. People single out pharmaceutical companies for making profits, but it’s important to remember that they also create products that save millions of lives.”

Marketing expenditure becoming more productive than R&D investments:

It is indeed interesting to note that expenditure towards marketing by the pharmaceutical companies is becoming more productive than the same towards R&D. This is vindicated by the article titled “R&D and Advertising Efficiencies in the Pharmaceutical Industry”,  published in the International Journal of Applied Economics, 8(1), March 2011.

In this research study the authors stated that although advertising as a percentage of sales has not increased during the past twenty years, its effectiveness in generating sales has improved dramatically by way of the Direct-To-Consumers-Ads (DTCA) strategy, which encouraged patients asking their healthcare providers for brand name drugs rather than cheaper generics. The paper also supports the notion that advertising replaces R&D investments when those investments fail to live up to their promise.

Many experts opine that the above scenario is prevailing today, especially when the global innovator companies are passing through a ‘patent cliff’.

Marketing expenditure far exceeds investments in R&D:

Another article concludes through its research paper titled, “The Cost of Pushing Pills: A New Estimate of Pharmaceutical Promotion Expenditures in the United States” that pharmaceutical companies spend almost twice as much on promotion as they do on R&D, quite contrary to the claim by the industry.

The study endorses the public image of the pharmaceutical industry as a marketing-driven sector when it should invest more for research and development and much less for promotion, that too many a times is not ‘ethical’ in nature, as cited above.

Patients are the ultimate victims:

A relatively recent report on India dated January 11, 2011, published in ‘The Lancet’, which vindicates the fact, in a similar (though not the same) context, that the alleged ‘unholy relationships’ between many pharmaceutical companies and the doctors, as a result of such aggressive and alleged ‘unethical’ marketing practices, has resulted in over-prescribing and irrational use of injection and drugs causing hardships to the patients.

Conclusion:

As stated above, many experts have been arguing since long, based on available data, that the current business models of many pharmaceutical companies are heavily tilted towards their obligation to the shareholders. These thought leaders are increasingly raising their voices to put forth the view that the industry continues to live in a self-made and a fire-walled cocoon, always trying to change others and refusing to change itself, unfortunately, even for the patients’ sake.

Despite the experts making above comments, my personal view is that in this direction, we have been witnessing no better attitude from our own government either to usher in a much desirable and long pending change in the prevailing scenario, solely for the patients, which is indeed even more disappointing.

In a situation like this, to be ‘patient centric’ in a real sense, there is an urgent need for the industry to first walk the talk along with their respective voluntarily codes of ethical marketing practices both in the letter and spirit.

If voluntary mechanism fails to work, a legal or statutory mechanism should be implemented, like what the Department of Pharmaceuticals had articulated in its draft ‘Uniform Code of Pharmaceutical Marketing Practices’, last year.

Thus, I reckon, to enhance its image, the pharmaceutical industry in India, as advised by Dr. Sam Pitroda, should imbibe a transparent, workable, scalable, demonstrable and a sustainable business model to strike a right balance between its ethical obligations to shareholders and ethical obligations to patients of all class, creed and color together with the civil society, at large

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.

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