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PHARMA: The Industry Veteran, on what the Vioxx verdict means

After too long an absence, The Industry Veteran is back to tell us what’s really the problem going on in big Pharma. It’s that short-term thinking has invaded its strategic marketing. I remeber being at a meeting in 1998 where then consultant and now big cheese at United Healthcare Bill Whitely warned pharma clients about becoming so keen on being consumer companies, and I think the Veteran would agree. Here’s the Veteran’s restrained tone (and I’m not kidding this time!)

A recent piece in a UK newsletter got me to thinking about some implications of last week’s Vioxx verdict. The newsletter contends that the core of Big Pharma’s problems began in the 90’s when marketing rather than research began to direct the industry’s course.  I would draw some other implications from the Vioxx scandal.  First, Merck’s malfeasance amply illustrates an argument I have made elsewhere on THCB: the Bush/Right Wing goal of an unregulated market for pharmaceuticals and most other aspects of healthcare remains delusional. Contrary to hosannas from market true believers, sick people either lack the time or the repose to make rational, profit-maximizing choices. Even if they possess such detachment, the asymmetry of information operating against them militates against rational, well informed choices. Moreover, consumers-patients have no idea of the bundled cascade of services or costs that follow from their choice of, say, a doctor or a hospital.   A second lesson of Vioxx is that many other parties must share some blame with Merck for furthering the promiscuous overuse of COX-2 inhibitors. Physicians and their professional societies now proclaim in high dudgeon that they were unduly influenced to overprescribe the COX’s by pharmaceutical sales reps, bountiful sample packs and deceitfully published articles. In fact their current wailing amounts to an admission that clinicians and their organizations failed to fulfill their professional responsibilities. For years the societies and the state licensing boards allowed physicians to complete their continuing medical education requirements by attending company-sponsored events. The manufacturers have been only too happy to relieve physicians of the need for footing the bill to keep up with advances in their  respective disciplines. Now the same physicians and their accomplices self righteously complain that they have been influenced by promotions. Do they honestly expect us to believe or empathize with their purported shock and outrage, expressed with all the sincerity and histrionic skill of WWF wrestlers?The third-party payers also contributed to Vioxx’s 150,000 hearts attacks and 50,000 deaths. These organizations failed to scrutinize the COX-2 studies and placed those drugs on their formularies, often without even the disincentive of higher co-payment requirements. Their coverage of the COX-2’s was not merely a result of deference to physicians’ preferences or consumers’ demands as much as it was an acceptance of bribery. Merck, Pfizer and the other manufacturers offer competing rebates on their products, thereby reducing pharmacy benefit costs for the payer organization. In such cases the HMOs’ formulary committees and their pharmacy benefit managers eagerly swallow the manfacturer’s claims of efficacy and safety.Contrary to Drug Researcher’s arraignment of marketing as the Vioxx culprit, I would claim that Merck and other Big Pharma companies practiced short-term gouging and exploitation that are the very opposite of smart marketing. Over the past 25 years the pharmaceutical industry has  enjoyed extraordinarily high returns on equity, assets and sales, often the highest of any global industry.  The American public has permitted the industry its enormous margins because of an implicit covenant. The pharmaceutical industry’s obligations under the agreement have included the following. (1) The industry must develop products that the public perceives as substantially improving the length and/or quality of life by advancing, each decade, the standard of care in one or another disease condition. Pharma came up short here. The number of new molecular entities that have appreciably advanced the standards of care within the last 10 years has declined considerably. The research paradigm of medicinal chemistry has already “picked the low hanging fruit” and the public correctly perceives that the industry uses a considerable portion of its research budget to develop patent-extending knockoffs.(2)  The industry must promote its products in a restrained, professional manner. This sotto voce element of the agreement went out with the trash in April of 1997 when industry lobbyists prevailed on Congress to permit direct-to-consumer advertising on a virtually unfettered basis. The restraint and scientific rigor befitting a research-driven industry conjoined to the medical establishment soon vanished. Big Pharma’s public face was no longer esoteric or dauntingly technical in a manner to command respect. Instead it began to advertise cholesterol medications with Dr. Seuss ads and southern football coaches. Pain relievers were promoted by ice skating champions and glamorous, middle-aged models doing tai chi in the park. The public can endure such fantasy and hyperbole when it comes to soft drinks or automobiles that sell good times and sex over the intrinsic features of those products. When Pharma stooped to the same lowest-common-denominator, however, its exalted image went out with the empty bottles of Pepsi.(3)  The industry must not price its products beyond the reach of its core customers: the elderly.  Pharma’s lobbying group, the PhRMA, and its lackeys in the media (e.g., the Philadelphia Inquirer) still adamantly contend that Americans must pay double and triple the prices paid by Europeans and others to fund further research. For a while that argument maintained traction but the public now knows that Pharma spends considerably more on SG&A than on research while the total compensation of top executives runs from $30 million to $50 million a year. Of course the concurrent erosion of the wider, employment-based health care system has also helped take the veil off Pharma’s unconscionable pricing. As tiered co-payments became the norm, 28-year old mothers who purchase oral antibiotics for their children must now pay $20 and $30 for the same products that used to cost them only $5 or $10.In short, Pharma has cooked its own golden goose by failing to meet expected standards for product development, by deceptively huckstering its promotions, and by using spurious rationalizations to overcharge its customers. That, ladies and gentlemen, constitutes the opposite of elementary marketing principles. Perhaps I might then differ with Drug Researcher by saying that Pharma has switched from a research-driven industry to one that is driven by bad and unethical marketing.

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ChadjibJoe C.gadflyTim Knight Recent comment authors
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jib
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jib

Score three sarcasm points for the chadster.
Let them be self-administered.

gadfly
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gadfly

//cleared by an agency// As much as I agree with the need, I totally got a whiff of 1984 from that sentence. Anyone remember the Ministry of Truth, lol. 🙂 //believe you have a staph infection// I have a staph infection diagnosed in the ER. Maybe the correct word is “guessed” by the ER, since I didn’t actually have blood tests or anything. //people smarter than you decide before entrusting you with a substance of such power.// Actually, I’m not a fan of antibiotics, and in the past they’ve made me really sick. I was just pointing out that being… Read more »

Chad
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Chad

“Without transparent market information how can anyone make a reasonable decision about anything?” Perhaps you misunderstood what I was saying. You cannot make a reasonable decision without transparent market information. That is why information on products needs to be cleared by an agency of some sort empowered by the people to decide on objective truth. I am sure when the merits of your staph infection are decided a functionary will release the antibiotics to you. I know the wait is disconcerting, and you no doubt believe you have a staph infection, but it is important that people smarter than you… Read more »

gadfly
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gadfly

//It is ridiculous to expect that people can go to trusted doctors or people close to them in their communities and form any sort of reasonable opinion on medical options and care.// Without transparent market information how can anyone make a reasonable decision about anything? Of course the ability to make a decision won’t help me when the EMR puts a point-of-sale guardhouse at every door, and I don’t have the money for a basic antibiotics. While you laugh at that scenario, I’d like to point out that I have a staph infection right now, and I didn’t get antibiotics… Read more »

Chad
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Chad

“Contrary to hosannas from market true believers, sick people either lack the time or the repose to make rational, profit-maximizing choices” I propose we turn over the power to recommend and make available information on health related issues to a central committee. For too long have people had the burden of responsibility when it comes to their own health. It is ridiculous to expect that people can go to trusted doctors or people close to them in their communities and form any sort of reasonable opinion on medical options and care. It is time we established standards and enforce them… Read more »

gadfly
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gadfly

//Simple answer: its tough being the biggest kid on the block. So you have to be extra careful about what you do and how you do it.//
I think it’s tougher than ever in a modern economy, where everyone is basically a dependent of the larger economic system. If you represent the system, and you try to cut off your dependents, then any breach of faith can become a bloody war for survival.

gadfly
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gadfly

// the lessons of ‘asymmetrical warfare’ actually leave the little guy in pretty good standing.// In the fact of warfare yes, but in the “publicity war” no. The little guy would be in better standing with a term like “complementary warfare”, which would imply a fairness in the distribution of power. In the definition you gave me, the little guy sound more scary and threatening because the big guy does not have an adequate response. // in the pharma context, resources// Say, using temporary inflation of stock to buy up other companies? // in the pharma context, resources// Isn’t the… Read more »

jib
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jib

Well said Ron. Except you’ve made my point. For some reason – perhaps because I used the words “Iraq” and “Afghanistan” – in my comment, you’re assuming that I’m coming at this from a particular angle. That’s misperception in action, Ron. It apparently hasn’t occurred to you that its possible that I might not be saying what you think I’m saying. As a matter of fact: you’re dead wrong about where I stand. I actually (with a number of misgivings) support the war in Afghanistan, and to a lesser degree, the war in Iraq. At this point, I suspect withdrawal… Read more »

Ron Greiner
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Ron Greiner

jib, You wrote,//It seems to me that pharma would do well to study the situation in Iraq and Afghanistan very closely and try to see if the parallels make things any clearer.// Please, that means nothing. I have an idea because Liberals never answer a question. You should ask Matthew to explain why he does not write about group health plans terminating cancer patients because they are too sick to work 30 hours per week. He has had plenty of time now to consider a reply so why don’t you get him to write about it. He will listen to… Read more »

jib
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jib

Gadfly: Actually, guerrilla warfare does qualify as a form of asymmetrical warfare, as does terrorism. The two are considered closely related by the people who study such things. The dividing line between the two is an interesting and highly political one, of course, but that is another story … for a different blog. ;> I may be wrong but I think the lessons of ‘asymmetrical warfare’ actually leave the little guy in pretty good standing. According to the logical of the asymmetrical relationship, the big guy will always win the first fight with the massive application of force (the classic… Read more »

Ron Greiner
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Ron Greiner

Matthew, In the real world it’s hard to get an employee group health plan anymore that pays 100% on Rx without it being an HSA qualifying plan. Yes $30 co-pays, but this article didn’t mention PLUS 30% to 50% co-insurance on Rx, which is becoming the norm. Then employees pay with after tax dollars which really increases their costs on drugs. Drugs alone can cost hundreds of dollars per month. You go off topic when you say Americans dying to give Iraq women the right to vote is wrong. We voted on this during the election and the President beat… Read more »

gadfly
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gadfly

Jib –
//The larger and stronger you and your company (or your armed forces) are, the more likely you are to be perceived as threatening.//
Because this is all about perception, as you say, does that mean that as the stereotype of the terrorist is assimilated into the common culture, the little guy will actually be perceived as more of a public threat? (re: sneaky, subversive, etc. vs. the “sense of stability” provided by a huge corporate facade). That analogy could change how juries think. Then warfare will be asymmetric in the Might Makes Right sense again. 🙁

gadfly
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gadfly

Joe C. – Thanks for the links – I’d certainly rather be living in Europe (but I may take Canada at this point), and I will read the articles with interest. However, as a person involved in corporate Asymmetrical Litigation right now, it seems to me that money does win. The Judge had the discretion to not hear you or punish you for your lack of legal training by extending the process if they don’t like clients to represent themselves. However, even if someone needs a lawyer, that’s no guarantee they will get one: some people have no choice but… Read more »

gadfly
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gadfly

//”Aysmmetrical warfare”// Thanks for clarifying the definition – I actually thought it meant something quite different. I thought it meant something like guerilla warfare. Re: the conflict is asymmetrical because the conventional rules don’t work or one side isn’t abiding by the rules. I find the actual meaning somewhat scarier in that it takes the questionable concept of Might Makes Right and turns it into Those Little Guys Aren’t Fighting Fair. Sort of a strategic inversion of moral worldview. That said, I absolutely think that Pharma vs. Wronged Consumer is Asymmetrical Warfare. Also known as the return of the repressed… Read more »

Joe C.
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Joe C.

Gadfly,
It works in Europe. Why is it that some have no problem coveting their health care systems, but not their tort system.
I also don’t ascribe to your premise that whomever has the most money wins. [See http://www.manhattan-institute.org/html/gli_2.htm and http://papers.ssrn.com/sol3/papers.cfm?abstract_id=254512 (full paper can be downloaded)]