The Case Against Big Pharma
Jesse Lutgen was a diabetic with three loves: friends, family, and football. He played video games with his younger cousins, who saw him as a role model, and cheered for the Green Bay Packers every Sunday night. Jesse died on February 7, 2018 at the age of 32 because he couldn’t afford insulin.
The American pharmaceutical industry is unique in the extent to which it exploits the people it claims to protect. The industry abuses the monopoly protections offered by the United States government, extending those monopolies by exploiting loopholes and paying off potential competitors to maintain its pricing power. Moreover, the pharmaceutical industry engineers the overprescription of expensive medications by paying doctors and indoctrinating physician prescribers. And finally, when all else fails, the industry pressures the government to help preserve its profitability and status through anti-consumer legislation.
Pharmaceutical Monopolies
When pharmaceutical companies introduce new drugs to the market, they are usually awarded twenty years of market exclusivity through patent protections that are designed to create incentives for investment in research and development. But many pharmaceutical companies subsequently exploit these rules through two strategies: “evergreening” and “thicketing.” Evergreening is the practice by which companies make minor, clinically insignificant modifications to existing medications in order to obtain new patents that extend protections beyond the initial twenty years. Thicketing, similarly, involves filing many patents on a single medication in order to deter competitors from legally challenging a company’s market exclusivity.
The pharmaceutical company AbbVie, for example, utilized both of those methods to extraordinary effect with its anti-inflammatory drug, Humira. Since Humira’s approval in 2002, AbbVie has allegedly filed 247 patents for Humira, some of which won’t expire until 2039. This strategy has allowed Abbvie to dramatically increase prices, which has earned it $114 billion in revenue since the end of 2016.
While AbbVie is undoubtedly the most famous example of patent exploitation, these methods are common throughout the entire pharmaceutical industry. A 2018 study published in the Journal of Law and Biosciences examined over 60,000 pieces of data from 2005–2015 and found that 78% of all drug patents filed were merely extending protections for existing drugs. And the problem has only worsened with time.
When evergreening and thicketing eventually fail, pharmaceutical companies, desperately clinging to their monopolies, turn to one final manipulation: pay-for-delay settlements. Also known as reverse payments, pay-for-delay arrangements enable manufacturers to pay competitors to delay production of a cheaper generic medication, even after their market exclusivity has elapsed.
While the Supreme Court has ruled that reverse payments are not necessarily illegal, some cases have been successfully prosecuted.
For example, the 2008 lawsuit FTC v. Cephalon, which alleged that Cephalon illegally protected its monopoly on Provigil by paying competitors $300 million to abstain from releasing a generic, forced Cephalon to pay a record $1.2 billion in damages. But for Cephalon’s parent company, Teva, which recorded nearly $20 billion in profit that year, even $1.2 billion is only a drop in the bucket. According to Reuben Guttman, a renowned antitrust lawyer at Guttman, Buschner & Brooks, “[these settlements are] nothing more than the fee for the license to break the law — where the companies can basically calculate the potential for getting caught and put a high-end dollar value on the penalty so they can calculate whether to take the risk.”
Price Gouging
After exploiting as many loopholes as possible to extend and protect their monopolies, pharmaceutical companies abuse their market exclusivity by charging dangerously high prices.
Sovaldi, for example, a drug manufactured by Gilead Sciences, is considered a miracle cure for Hepatitis C. But how can it possibly be considered a “miracle” when it is priced at $84,000 for a typical 12-week regimen? According to researchers at Liverpool University, Sovaldi can be manufactured for $68–136, and adequately priced at $100–250. But it isn’t, and, as Senator Ron Wyden described in his 2018 address after investigating price gouging at Gilead Sciences, “Gilead pursued a calculated scheme for pricing and marketing its Hepatitis C drug based on one primary goal, maximizing revenue, regardless of the human consequences.”
The most notorious case of price gouging is insulin. One single vial of insulin, which costs $10 to manufacture, can cost consumers upwards of $300. As most diabetics require 2–3 vials per month, yearly spending on insulin for the uninsured can exceed $11,000, which is unthinkable for many households in the United States. In fact, a 2022 study from Harvard Medical School revealed that 16.5% of diabetics ration insulin to save money.
Examples of the fatal consequences of rationing insulin are abundant. Jesimya David Scherer was working two jobs to support his dream of becoming an electrician. Josh Wilkerson was saving money for his wedding and new home. Shane Patrick Boyle was a struggling comic book artist visiting his sick mother. Jesse Lutgen played video games with his little cousins, and cheered for the Green Bay Packers every Sunday night. And because they could not afford insulin, each one of them is dead.
In the United States, there are no explicit pricing controls for pharmaceutical products. Instead, legislators hope that competitive pressures will most effectively constrain pharmaceutical pricing. When Big Pharma manipulates its monopoly pricing power, however, there are no effective limitations on prices that consumers must pay for their desperately needed drugs. And while forcing people to buy overpriced medications or die is undeniably unethical, it is also undeniably profitable. In 2020, a group of researchers at Bentley University found that gross profit margins for pharmaceutical companies are 77% on average, compared to only 29.4% for other S&P 500 companies.
Engineering Overprescription
With few controls on Big Pharma’s product pricing, pharmaceutical companies are free to expand their consumer base by driving dangerous levels of drug overprescription. They achieve this by ingratiating themselves with doctors through paid sponsorships and expensive frills, while indoctrinating physicians through biased, state-mandated, education programs.
The company Allergan and Ironwood, for example, spent $29 million on payments to doctors, mostly for meals and promotional events. Nearly half of all doctors who prescribed Allergan and Ironwood’s Irritable Bowel Syndrome drug, Linzess, were paid directly by the company. Those doctors wrote an average of 45% more prescriptions for Linzess.
A study from ProPublica analyzed 50 brand-name drugs for which drug makers made payments to physicians. For 32, at least 10% of doctors writing prescriptions were paid by the manufacturer. For 46, doctors who received payments prescribed more of the drug than those who did not. On average, doctors paid by drug companies wrote 58% more prescriptions for that drug than those who were not paid. Worst of all, 38 of these drugs have yearly costs exceeding $1,000.
While overprescribing prescription laxatives causes few long-term patient injuries, there is a real human toll when considering the opioid crisis. According to research conducted at the Boston Medical Center, prescription opioids are involved in 40% of all overdoses, and between 2013 and 2015, one in twelve physicians received payments from opioid companies. Furthermore, the study found that not only are payments directly correlated to opioid prescriptions, they are also correlated with overdoses.
When pharmaceutical companies pay physicians, people die. And pharmaceutical companies make a lot of payments. In 2021 alone, doctors received $10.88 billion from Big Pharma. One can only imagine that number in terms of lives lost.
Even more insidious in manipulating doctors to overprescribe their medications is Big Pharma’s role in the education of physicians, especially with regard to opioids.
Starting in 2017, state-mandated opioid education programs for doctors have become commonplace. While these courses are treated as a responsible alternative to the opioid epidemic, they actually perpetuate the harm caused through subtle marketing. For example, here is a question taken directly from SCOPE of Pain, one of the online courses:
Mary Williams, a 42-year-old receptionist and mother of three, has a complicated medical record: She’s obese and diabetic, has a history of alcoholism, and smokes a pack a day. Substance abuse problems run in the family. She takes short-acting opioids every few hours for her lower back pain and neuropathy, but she’s still uncomfortable, so she goes back to the clinic. Should the doctor keep prescribing opioids?
According to SCOPE of Pain’s answer key, the correct answer is “yes” because her risk of addiction is only moderate. The course recommends prescribing long-acting opioids, and within a year, she is thriving.
Except that isn’t right. Not only are opioids no more effective for chronic pain than Tylenol, but Mary is exactly the type of person who is at high risk of addiction. Of course, any doctor who takes this course is likely unaware that it is funded by Big Pharma.
Even the continuing-education lectures are funded by pharmaceutical companies. Of the 24 college professors listed by the FDA as teachers for mandated opioid education classes, seven had received a combined $1.6 million between 2013–2016. Others received payment in the hundreds of thousands.
Doctors are told that they are educating themselves on the risks associated with prescribing opioids, but all they are doing is reading advertisements for a product that kills 70,000 people per year.
Lobbying to Affect Legislation
Finally, when all else fails, pharmaceutical companies resort to lobbying the government to tailor legislation and doctor-education to their specific commercial needs.
A report from the bipartisan organization OpenSecrets shows that in 2021, Big Pharma outspent every other industry in political lobbying with $698.5 million. And payments are only accelerating. The likely reason for such high spending is the introduction of the H.R.3 bill, which would cap drug prices at 120% of the average price of those drugs in foreign countries. At least 183 organizations reported lobbying congress on H.R.3.
Every time the government attempts to prevent the pharmaceutical industry from exploiting innocent people, Big Pharma uses its considerable resources to maintain its profits. Maybe congress will eventually manage to legislate drug prices, but the data shows that Pharma will prevent change at all costs.
As an industry that thrives off of people’s misfortunes, the pharmaceutical industry has always prioritized profits before people. However, in the last twenty or so years, the industry has degenerated in every conceivable way. Companies prey on sick, vulnerable people, and force them to either pay ridiculous amounts of money or die. They exploit rules in order to extend their monopolies, artificially raise prices until they financially cripple patients, unfairly influence physicians to write unnecessary prescriptions, and lobby the government so that nothing can change.
The most likely reason for this decline is that the FDA, which should be regulating the pharmaceutical industry, has become captured by the companies it was established to oversee. Commonly observed in the EPA and FTC, regulatory capture is the process by which the regulatory bodies become dominated by the interests of the industries they are supposed to regulate.
An example of regulatory capture can be seen in the 2009 approval trials for AstraZeneca’s antipsychotic medication Seroquel. Expert Wayne Ray of Vanderbilt University showed clear evidence that Seroquel more than doubled risk of cardiac arrest, and more than tripled it when taken in conjunction with certain other medications. Director of Psychiatric Products Thomas Laughren, who had shepherded AstraZeneca through the review process, criticized Ray’s results, even when Ray pointed out a serious statistical error in AstraZeneca’s clinical trial findings. In the end, the FDA overwhelmingly approved Seroquel with no warning label. In 2011, when Seroquel returned to the FDA — this time because of its high death toll — Laughren was already long gone; he had left to privately consult AstraZeneca on the FDA approval process.
This is not an isolated case. Of 16 FDA employees who worked on 28 drug approvals and then changed jobs, 11 of them are now working or consulting for companies they recently regulated.
The reason for this is simple: there is money in Pharma. While FDA salaries are high on average at $129,000, there are barely any jobs that pay more than $170,000. In fact, the highest paid employee in the FDA earns only $400,000. While many would consider this a high-paying job, it’s nothing compared to the money one can earn as a pharmaceutical executive.
Although Pharma doesn’t publish their salary data, CEOs of the largest drug companies typically make upwards of $20 million per year, with the highest-paid CEO earning $135.35 million. Compare that to a top salary $400,000 in the FDA.
Fixes for the FDA are relatively simple. Just pay employees more money. Incentivise people to truly work for the FDA, not just climb the ladder until they can eventually land a job in Pharma; rotate regulators frequently so that no employees get too close to one specific company; increase transparency both internally and externally. While the current transparency initiative is a step in the right direction, it needs to be further expanded.
Especially important is preventing FDA employees from taking jobs at pharmaceutical companies. As of 2020, there have been restrictions on employment after working at the FDA; employees cannot receive payment from a former client for one year after leaving the FDA, they cannot represent clients in front of the government for two years, and they have a lifetime ban on appearing in front of the government when it is related to a case they worked on.
Unfortunately, this isn’t nearly enough to prevent regulatory capture. A more comprehensive plan would prevent FDA employees from receiving payment from former clients for 10–15 years after regulating them.
There is no easy solution. The pharmaceutical industry is gross and predatory. Maybe it will never change. Maybe fixing the FDA is nowhere near enough. And yet steps must be taken. Big Pharma will never become a philanthropic enterprise. With that said, it will be significantly better behaved if the steps above are taken. Reforms will make it more difficult to abuse the patent process and extend their monopolies. They will make it more difficult to engage in predatory pricing. They will make it more difficult to unfairly influence physicians. And they will make it more difficult to game the legislative system. Reforming the FDA will ensure that more medications are more affordable for more Americans. This will be a major step forward in the health of American citizens, and it will go a long way in curbing the abuses of a fundamentally anti-consumer industry.
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