Pharma Industry Has Many Ethics Issues
Verschoor, Curtis C., Strategic Finance
For many years, the U.S. pharmaceutical drug industry has enjoyed the confidence of all aspects of society, including those most affected by it--the physicians who prescribe the use of specific drugs and patients who are the objects of their intended benefits. Many years ago, these companies were even called "ethical drug companies" by some to differentiate them from the over-the-counter, mass-market pill manufacturer.
In recent years, the rising cost of developing and testing new drugs has resulted in strategic emphasis on creating high-priced "blockbuster" drugs that have the potential for wide usage in treatment of a major disease. Socio-political trends toward smaller government and more widespread industry self-regulation have resulted in more reliance on corporate compliance efforts. Significant advertising directly to the patient about expensive new drugs that may have only limited demonstrated benefit over existing ones could tend to marginalize the impact of the patient's own busy physician. Income tax laws continue to favor employer assumption of the cost of medical care, limiting consumer pressure for lower prices.
An aging population and potential changes in the current lack of financial statement recognition of post-retirement health benefits has led to the realization that managing the constant increases in healthcare costs represents one of the greatest challenges now facing all of American businesses. As part of its review of post-retirement accounting, the Financial Accounting Standards Board (FASB) is considering putting retiree healthcare on the balance sheet. Standard & Poor's estimates that the underfunding of post-retirement benefits other than pensions amounts to nearly double the pension shortfall. Management accountants and financial managers need to give increased attention to minimizing this considerable cost.
Perhaps the major cause of criticism of the pharmaceutical industry is the high--and increasing--cost of drugs. In the U.S., attempts to import drugs or generic equivalents have been thwarted by the industry. Pharma contributions to organizations that help lower-income families pay for their drugs help keep prices high for others and highest for those least able to pay because they don't have an insurance company to negotiate a lower price. The pharma "high price" strategy has led to U.S. consumers paying the highest prices for drugs in the world.
A most disturbing trend affecting drug development noted by a December 20, 2005, New York Times story is the increasing level of fraud in scientific research. Research sponsored by drug companies is the backbone of marketing as well as necessary for gaining FDA approval to put a new drug on the market. Members of the Pharmaceutical Research and Manufacturing Association (PhRMA) spent $38.8 billion for research and development in 2004.
Although The Times reported that much of the uncovered research fraud has been in studies performed in other countries, Merck & Co. has been severely chastised for its admitted failure to include adverse outcomes in the Vioxx study it used to market the drug. In the first Vioxx trial, plaintiff lawyers accused Merck of trading its mission of healing and treating sickness for relentless marketing and pursuit of profits.
Merck was unsuccessful in its bid to convince the Texas jury that it didn't rush a lucrative drug to market and slip shoddy science past the Food and Drug Administration to inflate profits. The jury awarded $229 million in punitive damages (out of the $253 million total) and stated it wanted to punish perceived unethical behavior. The fact that Merck had fought hard for the drug's approval and later withdrew it from the market was apparently sufficient to incriminate it.
Rep. Henry Waxman (D.-Calif.) wrote a description of Merck's marketing of Vioxx, "The Lessons of Vioxx--Drug Safety and Sales," for the June 23, 2005, New England Journal of Medicine (NEJM). …