Glaxo $3 billion fine – Just the cost of doing business

It is being touted as the largest financial penalty of its kind in the U.S. against a pharmaceutical corporation. In July, GlaxoSmithKline agreed to plead guilty to three criminal misdemeanor charges and pay $3 billion in fines to settle claims of inappropriate marketing.

Glaxo admitted encouraging use of the antidepressant drug Paxil for children, even though it was never approved by the FDA for anyone under 18 years of age. The company also withheld information from doctors and patients that Paxil appears to magnify distress and manipulated clinical trials to minimize the number of suicides linked to the pill.

The company was also charged with paying doctors to promote Wellbutrin to treat obesity and sexual dysfunction, when it had only been approved for depression. Doctors were showered with gifts, consulting contracts, speaking fees and sports tickets.

In addition, Glaxo withheld information about the cardiovascular risks of Avandia, a diabetes drug shown to cause heart attacks. It promoted Advair, an inhaled lung drug, to patients with mild asthma, even though it was not FDA approved for this use. The $3 billion fine will also cover a Justice Department investigation of Glaxo’s Medicaid pricing practices for nine of its drugs from 1997 to 2004.

A $3 billion fine may seem huge — until one considers that Glaxo had a net profit of $8.2 billion in 2011 on revenues of $42.6 billion. In anticipation of the lawsuits, the company set aside $3.1 billion back in 2009 to cover legal costs.

They had the money. During the years that Paxil and Wellbutrin were on the market, Glaxo made $27.5 billon just on these and one other antidepressant, according to IMS Health.

Not one Glaxo executive has been prosecuted, despite the fact that a number of deaths resulted from their practices. In fact, it is rare for any health care executives to go to prison for their crimes.

One exception was a case brought against medical device producer Synthes Inc. in 2011, which resulted in jail terms for four executives. However, in June 2012 Johnson & Johnson purchased Synthes for $19.7 billion. In 2009, around the same time that Pfizer was settling a $2.3 billion penalty for illegal drug marketing, the company spent $68 billion to acquire Wyeth Pharmaceuticals.

Apparently, penalties stemming from these illegal marketing practices are just one of the costs of doing business.

Big payoff on direct-to-consumer ads

The advertising and marketing of prescription drugs on television and radio, made legal by the Food and Drug Administration in 1997, has been a source of tremendous profits for many of the major pharmaceuticals. The U.S. and New Zealand are the only two industrialized countries that permit direct-to-consumer (DTC) advertising of prescription drugs.

Recent attempts to get Congress to restrict drug ads, or to give special warnings on new medications during their first two years on the market, got watered down to a provision that gave the FDA the right to review ads before they are aired. The oversight agency can make recommendations for ad changes, but has no authority to require ad agencies to redo commercials.

Congress took this position despite a Congressional Budget Office study released May 26, 2011, that found the average number of prescriptions for new drugs with DTC advertising was nine times greater than prescriptions for new drugs without DTC ads.

According to the Wall Street Journal, in 2006, pharmaceuticals were the tenth biggest advertiser. Television broadcasters and magazine publishers, as well as “Mad” Avenue, have come to rely on this ad income.

A study by two York University researchers estimated that the U.S. pharmaceutical industry spends almost twice as much on advertisement as they do on research and development. Using data collected directly from the industry and from doctors in 2004, the study concluded that 24.4 cents of each sales dollar went to promotion, compared with 13.4 cents for research and development, based on U.S. domestic sales of $235.4 billion. (PLoS Medicine, January 2008)

In 2007alone, drug companies spent more than $5.375 billion on DTC drug advertising. Comparative sales for the 25 biggest spenders that year found returns averaging $13.29 per ad dollar. Pfizer, which invested $98.36 million in ads for its popular anti-cholesterol drug Lipitor, had sales of $5.88 billion or $59.78 per ad dollar spent on the drug.

The “ask-your-doctor” DTC ads are ubiquitous. Turn on your TV at any time and you can’t miss them. The DTC ads push prescription drug use as the primary response to medical conditions that can often be remedied with diet, exercise, stress reduction and other preventative measures that are far cheaper and benefit overall health.

The ads project images of people having fun, engaged in activities, etc., once they take the given drug to cure their ailment. The ads downplay information about potential side effects of the drugs. Required warnings, including dangers of complications such as heart attack, skin rashes, internal bleeding, osteoporosis, depression and even death, are recited quickly and quietly. The focus is on the effectiveness of the advertisement, not on the effectiveness of the drug.

People who see these ads often do ask their doctors to prescribe the drugs, just as the ads suggest. Doctors may not like having their patients ask for these drugs, but they often concede and write the prescription. There is an incentive. According to the Archives of Internal Medicine, 84 percent of U.S. doctors have a financial relationship with a drug or medical-device company. According to ScienceDaily, in 2004, the pharmaceutical industry spent $61,000 per physician to promote their drugs. (January 2008)

Doctors are encouraged through financial incentives from the pharmaceutical companies to oversell the benefits of a drug while downplaying well-established disadvantages. Daniel Carlat, director of the Pew Prescription Project, described receiving $750 per session from a drug company to educate other doctors about the alleged benefits of an antidepressant. (Philadelphia Inquirer, June 26)

Without direct criminal charges being brought against drug company executives, there is little incentive to curb these practices in an industry clearly based on market profits, not patient needs.

To be continued.