ETHICS IN PHARMACEUTICAL INDUSTRY: THE HARD TRUTH. Introduction. In this ever-âevolving and highly challenging business world, one major industry ...
ETHICS IN PHARMACEUTICAL INDUSTRY: THE HARD TRUTH Introduction In this ever-‐evolving and highly challenging business world, one major industry that has successfully evolved, transformed and succeeded is the pharmaceutical industry. According to the World Health Organization (WHO) (2015), the global pharmaceutical market is worth US$300 billion a year, a figure that is expected to rise to US$400 billion by 2018. WHO further added that the 10 largest drug companies, predominantly from United States and Europe, make a staggering sales value of more than US$10 billion a year and profit margins of about 30%. The major pharmaceutical companies, also multinational corporations (MNC) from United States are Pfizer, Merck & Co., Eli Lilly & Co. and Abbott Laboratories while Novartis, Sanofi, Roche and AstraZeneca are all European pharmaceutical giants. The Challenge Today, the pharmaceutical industry is way too volatile, much more unpredictable and facing changes that are much more radical than earlier. The worldwide economic recession has profoundly impacted an industry normally resilient to the usual ups and downs of commercial life marketplace. Apart from the costs cutting and restructuring, the industry has had to confront the reality of a fundamentally changing trading environment resulting from an increasingly cost-‐conscious market (BCC Research, 2014). The major challenge for MNCs in this growing industry is coming from the cheaper alternatives, the generic drugs, after they loose the patency rights on their innovations. According to Report Linker (2015), the generic drug industry covers the
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marketing and sale of medication containing the same active ingredients and dosages as brand-‐name drugs manufactured by the pharmaceutical industry. Drugs can be prescribed under their chemical name without specifying a particular pharmaceutical brand or company. The biggest advantage of generic drugs is that they usually cost a fraction of the price of brand-‐name drugs, as much as 80% to 85% less according to the US Food and Drug Administration. Generic drugs are under the same governance as brand-‐name drugs and must adhere to the same standards. When brand-‐name drugs come off patent, the market is opened up to generic versions. Patent protection generally protects a drug’s intellectual property rights for about 20 years, but as the patent is effective from the clinical trial stage, the actual time the drug is on the market can be far less, often between 10 and 14 years. The inventors will aim to recover their investments and maximize their profits through premium pricing of the new drugs, while the patency is still in effect. After the patent expires, pharmaceutical companies come under fierce pricing pressure due to competition from their less-‐expensive generic counterparts.
Looking specifically at the generic drugs market valuation, according to BBC
Research (2014), the global generic drugs market was valued at nearly $270 billion and nearly $301 billion for 2012 and 2013 respectively. They forecast the market to grow to $518.5 billion by 2018, an estimated five-‐year compound annual growth rate (CAGR) of 11.5% from 2013 to 2018. Fierce price competition from generic drugs has put some MNCs in difficult positions due to eroding profit margins. This will have huge impact on the MNCs, with the rising cost of manufacturing, increasing demand for cheaper alternative from governments and ever demanding end users for cheaper and better alternatives.
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Despite loosing the patency rights for most of their multibillion dollars worth of blockbuster-‐patented drugs to low-‐cost generic drugs, many pharmaceutical giants not only have survived the storm, but they have thrived in this testing conditions. Some have started producing their own ‘branded-‐generic’ drugs to stay in competition and many have modified the way they operate their business to maximize their profits by reshaping the markets through new indications, new geographical expansion and various integrations with other firms. Despite the challenges, the MNCs have found ways to adapt and change their business models and approaches. What may not be so apparent are the changes in their business ethics to withstand the heat from the competition. In the process of adaptation, many ethical issues have surfaced. Interactions and Ethics Pharmaceutical representatives who are representing their own pharmaceutical companies, be it sales, marketing or even public relations personnel, interact with various healthcare professionals (HCP), namely doctors, nurses and pharmacists with the intention to promote and introduce their products, increase awareness of their brand over others, generate prescriptions from the HCP thus generate sales for their firms. The intensity and the emphases of their interaction may vary, generally the HCPs are induced to use more of the pharmaceutical product from a particular company for a return in various forms, could be in terms of support for clinical meetings, sponsorship of some sort and even for profit in dispensing market.
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Komesaroff and Kerridge (2002) argued that doctors and the pharmaceutical industry share a number of common interests, whereby both are concerned with effective and responsible use of existing drugs in treatment and care, monitoring of their use, and innovative research. However, the parties have different emphases and focus on different stakeholders. Doctors are interested primarily in patient care and scientific advance, while industry is interested primarily in commercial outcomes, which is the profit. They further added that the primary stakeholder in patient care is the patient, whereas the principal stakeholder in industry is the shareholder. The similarities and differences between participants and their interests create both a need for discourse and the potential for conflict. Doctors constantly interact with pharmaceutical sales representatives, especially for the knowledge of their drugs, at least that is the basic intention. The real issue behind this is that, doctors generally perceive the way they practise medicine are determined by their knowledge and evidence, but it appears that they often fail to recognise commercial influences on therapeutic decisions and underestimate the subtle and pervasive effects of pharmaceutical promotion. It is disquieting that some practitioners rely on pharmaceutical company representatives for much of their drug information (Komesaroff and Kerridge, 2002). This is further worsened by some of the irresponsible and unethical pharmaceutical giants taking advantage of doctor’s vulnerability to bribe them to achieve their commercial goals through changing their prescription and utilization pattern. This is supported by the reports from leading anti-‐corruption organisations such as Transparency International, that have highlighted a rise in global bribery and corruption in
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pharmaceutical industry. Transparency International surveyed 114,000 people across 107 countries and found that more than half of respondents believe corruption has worsened in the last two years. Recent stories regarding an alleged bribery scheme at GlaxoSmithKline’s Chinese operations have only served to intensify the spotlight on this issue (Financier Worldwide, 2013). Financier Worldwide (2013) further argued that, as the pharmaceutical and medical device industries grow at a significant rate, the potential for bribery and corruption allegations increases.This is particularly true given the expansion of firms into emerging markets, many of which rank poorly on the corruption index. While there are arguably enough preventative measures in place to help curtail the impact of rogue individuals without the need for additional regulation, firms must ensure that they maintain compliance. As big pharma pushes into the emerging markets, this is even more important. The effects of being tarnished with allegations of corruption often extend beyond criminal penalties. The Remedies This race for survival of the fittest among pharmaceutical giants is on a high pace and turning ugly when comes to the ethical considerations. The phenomenon “You scratch my back, I scratch yours” is not new in this industry. There is still a huge gap when considering what practices are acceptable and what not, though in some countries receiving perks and incentives as part of a business deal is acceptable, in many other countries are not. In one country it can be classified as the normal act of reciprocation, but in another it becomes bribery. An executive who is rewarded as
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an excellent negotiator in one country can be classified as a corrupt executive in another. To regulate and standardise these norms in the name of business ethics, is a major challenge for authorities especially over firms operating across borders. There are plenty of arguments in existences with regards to governing the ethics in the industry. As argued by Financier Worldwide (2013), the heart of the matter is that, at what point does the promotion of products and general hospitality cross over into inappropriate conduct? Is there a bright yellow line differentiating legal and illegal behaviour or is it simply a matter of the discretion of the enforcement officials? In this context the relationship between pharmaceutical companies and potential customers is indeed a grey area. They further added that although the practice of offering incentives and hospitality is well established within the sector, the European Federation of Pharmaceutical Industries and Associations (EFPIA) is pushing all of its members to do away with promotional products within the framework of the transparent codex it has drafted. The proposal is under discussion at various levels of both the pharmaceutical industry and the European promotional products industry. This, highlights that the remedies are underway, however are still far from reach. Conclusion As clearly put forward by Financier Worldwide (2013), the pharmaceutical sector has been dogged by allegations of bribery and corruption for some time, and GSK and AstraZeneca’s recent troubles in China only magnifies these undelying issues. Though there are arguably enough preventative measures in place to help curtail the
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impact of rogue individuals without the need for additional regulation, pharmaceutical firms must ensure that they maintain compliance requirements, be it internal and even external. As big pharma pushes into the emerging markets, this is even more important. The effects of being tarnished with allegations of corruption often extend beyond criminal penalties. There is an on-‐going conflict of interest in practices; the commercial interest of pharmaceutical giants, greedy healthcare professionals and control seeking governing bodies. The conflict and argument will go on, with the end goal to achieve the right balance between business successes and appropriate ethical norms. References BCC Research. 2011. Generic Drugs: The Global Market. Available at: http://www.bccresearch.com/market-‐research/pharmaceuticals/generic-‐drugs-‐ global-‐market-‐phm009f.html. [Accessed 27 April 2015] BCC Research. 2014. Press Room: BCC Research Publishes a New Report on Global Generic Drugs Market. Available at : http://www.bccresearch.com/pressroom/phm/global-‐generic-‐drugs-‐market-‐grow-‐ $518.5-‐billion-‐2018. [Accessed 27 April 2015] Financier Worldwide. 2013. Bribery and Corruption in the Pharmaceutical Sector. Available at: http://www.financierworldwide.com/bribery-‐and-‐corruption-‐in-‐the-‐ pharmaceutical-‐sector/#.VT4ufL7HjrI. [Accessed 28 April 2015]. Komesaroff.P.A and Kerridge, I.H.,2002. Clinical Ethics: Ethical issues concerning the relationships between medical practitioners and the pharmaceutical industry. Medical Journal of Australia, Vol. 176: 118-‐121. Available at : https://mjainsight.com.au/system/files/issues/176_03_040202/kom10098_fm.pdf. [Accessed 27 April 2015] Report Linker, 2015. Generic Drug Industry Market Research & Statistics. Available at: http://www.reportlinker.com/ci02261/Generic-‐Drug.html. [Accessed 27 April 2015] World Health Organization. 2015. Trade, Foreign Policy, Diplomacy and Health. Available at: http://www.who.int/trade/glossary/story073/en/. [Accessed 27 April 2015] 7
