Big Pharma, Big Profiteering

Congress passed the Sherman Antitrust Act in 1890, to prohibit unfair competition and monopolistic business practices. In defense of the act the U.S. Supreme Court has commented, “The purpose of the Sherman Act is to protect the public from the failure of the market.”

James Surowiecki wrote last month in the New Yorker about Martin Shrekli’s outrageous profiteering behavior as CEO of Turing Pharmaceuticals, “Patents are temporary monopolies.” https://www.newyorker.com/magazine/2015/10/12/taking-on-the-drug-profiteers

A group of doctors that banded together recently to protest the outrageous costs of life saving drugs commented in the medical journal Blood, “Charging high prices for drugs that are needed to save lives or improve health is a form of profiteering.”

Patent protection on drugs has opened a huge hole in market efficiency that has been filled with profiteering pharmaceutical companies. Like many in the USA I believe that the pharmaceutical industry is a sick industry, one that has subverted the efficiency of the market, and enriched itself unfairly by engaging in monopolistic practices in the guise of the good of the community. The public desperately needs protection from an industry that uses its proclaimed purpose of community welfare as subterfuge to generate abnormal profits for its shareholders and managers. Big Pharma inhabits the most profitable universe of the five main industrial sectors and the public needs protection from the failure of the market, and the resultant profiteering of the pharmaceutical industry.

 Global annual spending on prescription drugs topped $954 billion in 2011 with the USA accounting for a third of the market with $340 billion in sales. Pharmaceutical companies like others, are sustained by profit, however for over thirty years profit levels in the industry have outstripped profits in other industries by a wide margin, and the gap has been growing. The industry has always maintained there is no contradiction between profit-seeking behavior and satisfying the community’s healthcare needs. The rationalization for abnormal profits through monopolistic behavior afforded by patent protection laws has always been explained away by illustrating the massive research and development costs associated with bringing new drugs to the market. The facts do not support this argument. The U.S. pharmaceutical industry spent 24.4 percent of each dollar of sales on promoting drugs, as compared to 13.4 percent spent on research and development, according to a 2008 study in PLOS Medicine by York University researchers who collected data from the pharmaceutical industry and physicians. The attached diagram shows the disparity between marketing and research spending of the top ten corporations.

The industry has stressed that patent protection and potential profits are the very reason new drugs are brought to the market, drugs which will ultimately benefit the wider community. This is also not true and in The Power of Pills (2006), Joel Lexchin explains that the industry is ignoring many diseases including tuberculosis (8.6 million infections, 1 million deaths annually) and malaria (207 million infections, 627,00 deaths annually) while focusing on blockbusters, drugs that will generate sales of between $500 million to a billion dollars. What this means is that drugs with low potential revenues will not be developed. Lexchin concludes that the industry’s investment rationale for developing new drugs is motivated by profit-seeking as opposed to producing medications that meet the greatest health needs.

With patent protection and abnormal profit comes a great responsibility to act in the best interests of the community – however this is not standard operating procedure of the business. The business is based on the gold rush mentality - a mad dash across the field of research and through the tangled forest of the FDA to see who can stake the first claim to a blockbuster. Perhaps that the entire industry needs to be overhauled and that in exchange for patent protection a company is obligated to spend that portion of profit above normal towards research of major diseases.

Ethics is derived form the Greek word ethos meaning conduct or character and ethics is a code of conduct, based on moral values, acting in accord with what is deemed “right.” Life is a long series of decisions and ethical theory assists in making choices, deciding on a course of action amongst alternatives – ethics is a moral compass, a way though the fog of confusing alternatives. There are a number of different ways of looking at corporations’ decisions to extend their patent protection through a number of different ethical prisms. As a leader of a for-profit institution a leader might consider profit maximization or stakeholder wealth maximization as his duty. Without profit a company cannot survive and service the needs of it stakeholders: its shareholders, employees, customers, suppliers, the government and the community within which it operates. Profit is the blood that keeps the heart of the organization pumping. However in order to have a sustainable business, a lasting enterprise that is valued by the external environment, by customers and the community, the organization has to behave ethically, not only behave within the legal framework as prescribed by its monopolistic patent, but also behave according to a code defined by a higher social order of moral values. From a teleological perspective the leader of a big pharma company might ask, through the prism of utilitarianism, will my behavior provide a profit and contribute the greatest good for the greatest number which includes my stakeholders? Am I obliged to consider this question relative to the rights of my stakeholders at the expense of the broader community? He also might act from a purpose of ethical egoism and decide to try to extend his monopolistic patent to protect his position in the company, as his performance will be adjudged based on the financial results of the company.

Pharmaceutical companies should be held to a higher ethical standard as their profit is derived, not through an efficient market mechanism, but through the monopolistic power extended to them through the judicial court system, with the implied belief that their activities are ultimately going to benefit the welfare of the community. Because of this implied promise to do what is right for the health of the community, pharmaceutical companies have tremendous responsibility to act not just for the benefit of their shareholder, but also to act for the greater good, to reward and thank the community for its granting the industry the privilege of monopolistic protection. It is about time for big pharma to start doing the right thing and for us to force the issue by closing the profiteering loophole.