Pharmaceutical Industry Sector Overview

Practicing the most stark acts of corporate inhumanity

Pharmaceutical Giants ‘There were times not long ago that drug companies were merely the size of nations. Now, after a frenzied two-year period of pharmaceutical mega-mergers, they are behemoths, which outweigh entire continents. The combined worth of the world’s top five drug companies is twice the combined GNP of all sub-Saharan Africa and their influence on the rules of world trade is many times stronger because they can bring their wealth to bear directly on the levers of western power.’ (Guardian, 26/06/2001)

The pharmaceutical industry is one of the most profitable industries in both the US and Great Britain. Gross Profit margins of some of the leading pharmaceutical companies in recent years has been around 70 to 80 percent [1].

The global drugs market is controlled by corporate behemoths such as Pfizer, Bristol-Myers Squibb, Bayer, Merck & Co, Pharmacia, Novartis, Johnson&Johnson, Abbott Laboratories, American Home Products, Eli Lilly, Schering-Plough, GlaxoSmithKline and Allergan. Their market domination enables them to dictate drug prices . In past years, pharmaceutical prices have risen faster than the rate of inflation. The fact that there is very little price elasticity (the elasticity of demand tells us how much the quantity demanded changes when the price changes) associated with price increases is a major factor contributing to the high profitability of the pharmaceutical industry. A patient will not change the demand for a product with a small change in price when there are no close or available substitutes. Actual manufacturing costs of medicines are relatively low [2].

The big pharmaceutical companies’ profits can be even higher due to limited competition in the pharmaceutical industry caused by strict patent laws [when a company owns a patent for a key drug, profits can mount up since the company faces no competition] and high barriers for small firms [new competitors] to enter the industry. In addition, through a recent and ongoing wave of mergers and acquisitions the big companies intensify the process of consolidation [limiting competition in the so-called free market even further]. Also, more frequently strategic alliances (less costly than mergers and acquisitions) are being formed with small biotech companies in order to reap the (new) economic benefits biotechnology offers. The drug giants cannot keep track of all new developments themselves, but want to keep their pipelines full [3].

References [1] (Industry Analysis, Pharmaceuticals Industry, source: US Business Reporter, date viewed: 17/11/01)

[2] Ibidem

[3] Ibidem

Corporate Crimes

Overpricing Drugs According to industry apologists, high profits in the pharmaceutical industry are justified due to the unusual nature of the industry: research and development costs for new drugs require huge investments and involve relatively great risks as to whether the investment will pay off. Critics however, claim that prices are kept artificially high even after the initial investment has been recovered.

A report (released on 10 July 2001) by the consumer health organisation Families USA refutes the pharmaceutical industry’s claim that high drug prices are needed to sustain research and development. The report documents how drug companies are spending more than twice as much on marketing, advertising, and administration than they do on research and development; that drug company profits, on average higher than any other industry, exceed research and development expenditures; and that drug companies provide lavish compensation packages for their top executives [4].

In addition, money is spent on ‘bribing’ journalists and ‘independent’ researchers. The industry’s most closely guarded secrets, according to Gaia foundation, are their pricing policy and what they are spending on lobbying [5]. PhRMA (Pharmaceutical Research and Manufacturers of America), an US-based organisation that represents all the big drug companies, has one of the biggest lobbying budgets in Washington.

Also, much of the research which end up providing the drug giants’ profits was carried out with public money at universities and in public laboratories. The top ten drug companies in the US are reported to spend on average 20% of their revenues on R&D, of which 40% is paid by the governmental National Institute of Health (Forbes, 27/11/2000). In addition, the Guardian reports that drug companies try to make their R&D budgets look bigger by means of creative accounting. ‘With a little creative accounting, all manners of expenditures have been logged under the R&D title, partly in the pursuit of tax rebates.’ (The Guardian Unlimited, 13/02/2001) [6]

Back to top Immoral Marketing The importance of marketing is huge and growing. It is manifested in the ‘arms race’ of escalating numbers of sales representatives, particularly in the US; the huge pre-launch marketing budgets when companies try to make as big a splash as possible; and the aggressive TV advertising campaigns with which some drugs, such as Claritin and Viagra, have been turned into household names. Global launches are becoming increasingly possible as regulations in the US, Europe and Japan gradually harmonise. Companies spend increasing amounts of time and money developing a global brand name and a consistent message that can be delivered (with minor tweaks) anywhere in the world. Medicines are beginning to resemble any other consumer products.

‘Drug companies in the US have been increasingly using direct-to-consumer (DTC) ads to market their drugs. Many have advertised in general interest magazines and television with the intention that consumers will ask their physician about a particular drug. Drug companies use such marketing techniques to build up brand preference from consumers.’[7] In Europe, DTC advertising is still not allowed, but drug giants try to circumvent this by reaching out to consumers through the Internet.

Back to top Luring doctors Sponsoring doctors (a general practice in the pharmaceutical industry) is considered a very effective way to bring medicines to the public. Although there is drug advertising in the lay media and many drugs are sold without prescription, the majority of drug sales come from doctors’ prescriptions. Doctors are obliged to improve themselves through continued medical education (CME). Drug companies influence the content of medical education (for example, by giving false product information, by deciding on the venues, speakers, topics, and so on). They also ‘seduce’ doctors with gifts, sponsored meetings (including luxurious dinners, cocktail parties and comfortable overnight stays in top of the bill hotels), high payments for conducting research or publishing reports, etc [8].

Doctors are being enticed into, for example, the twisting of trial results or the groundless creation of data. A study conducted by the FDA has revealed that one in five doctors investigated who carry out field research of new drugs, had invented the data they sent to the drug companies, and pocketed the fees. Citing case examples, Dr Braithwaite states: ‘The problem is that most fraud in clinical trials is unlikely even to be detected. Most cases which do come to public attention only do so because of extraordinary carelessness by the criminal physician…’

According to Dr Judith Jones, Director of the Division of Drug Experience at the FDA, if the data obtained by a clinician proves unsatisfactory towards the drug being investigated, it is quite in order for the company to continue trials elsewhere until satisfactory results and testimonials are achieved. Unfavourable results are very rarely published and clinicians are pressured into keeping quiet about such data.

It is very easy for the drug company to arrange appropriate clinical trials by approaching a sympathetic clinician to produce the desired results that would assist the intended application of the drug. The incentive for clinical investigators to fabricate data is enormous. As much as $1000 per subject is paid by American companies, which enables some doctors to earn up to $1 million a year from drug research, and investigating clinicians know all too well that if they don’t produce the desired data, the loss of future work is inevitable [9].

Thirteen of the world’s leading medical journals have recently (September 2001) mounted an outspoken attack on the rich and powerful drug companies, accusing them of distorting the results of scientific research for the sake of profits. The Lancet, the New England Journal of Medicine, the Journal of the American Medical Association and other major journals accused the drug giants of using their money – or the threat of its removal – to tie up academic researchers with legal contracts so that they are unable to report freely and fairly on the results of drug trials [10].

Back to top Kicking the Poor The drug giants are kicking the poor, especially those in poor countries, in several different ways: by refusing to develop drugs needed in the Third World (e.g. drugs combating malaria, tuberculosis, sleeping illness and other tropical diseases) because there is no profit in it; by refusing to allow the manufacture and import of cheap generic drugs (South Africa, India, Brazil, Thailand and Egypt are good cases in point), using the poor as guinea pigs for untried and untested drugs (this is happening on a dangerously large and ever increasing scale), by engaging in biopiracy in the South (transnational corporations “pirating” genetic resources from the developing South) [11].

Back to top No Money, No Cure ‘About 14 million people die each year from infectious diseases, many of which are preventable or treatable, such as acute respiratory infections, diarrhoeal diseases, malaria and tuberculosis. Up to 45% of deaths in Africa and south-east Asia are thought to be due to an infectious disease. The death toll is unacceptably high in developing countries, even as health indicators show improvements in many countries of the world. This health crisis is caused by several inter-linked factors -poverty, and lack of access to health services, water and sanitation being some of them. However, a vital factor in the promotion of public health – and very often a matter of life and death – is the supply of effective and affordable medicines and people’s access to such medicines and treatments.’[12]

Cecilia Oh, legal advisor and researcher with the Third World Network, argues that the TRIPs agreement (supposedly aimed at stimulating innovation/ensure R&D for new drugs) only makes things worse. She claims there has been little evidence to demonstrate that the patent system will ensure investment in R&D for diseases that afflict mainly the poor [13].

‘Of the 1,223 new chemical entities developed in the 21-year period between 1975-1996, only 11 were for the treatment of tropical diseases. The last major new tuberculosis drug was developed 30 years ago, but tuberculosis remains a major cause of death in many developing countries. There is concern that R&D in the pharmaceutical sector is concentrated on products intended for the lucrative developed-country markets, given the increased investments for R&D on drugs for impotence, obesity and baldness, instead of R&D on new and more effective drugs for life-threatening or poverty-related ‘Third World diseases’, including malaria and tuberculosis.’[14]

Back to top Clinical Trials in the South “I had not been exploring Big Pharma for more than a couple of days before I was hearing of the frantic recruitment of third world ‘volunteers’ as cheap guinea pigs. Their role, though they may not ever know this, is to test drugs, not yet approved for testing in the US, which they themselves will never be able to afford even if the tests turn out reasonably safe” –John le Carre

In the US it costs on average $10,000 per patient to conduct a clinical trial, in Russia $3,000, and in the poorest parts of the world, much less. Clinical trials are now a Third World growth industry. The drugs under trial are for western markets. In its May 2000 edition, CenterWatch, a newsletter for the burgeoning clinical trials business, published an exuberant article under the title Latin American Fever in which it said the continent ‘may offer a unique opportunity to reach much larger numbers of study subjects.’ Eli Lilly tested 590 patients in 1994 across Africa, the Middle East and Central and Eastern Europe. This year the company expects to run tests in those regions on 7,309 patients. It is not only the guinea pigs who are at risk. In the rush to market, poorly constructed, weakly monitored trials are releasing untried and untested drugs on the West [15].

Back to top WTO Rules, Lifeblood of the Industry ‘At a time when millions of lives are at risk from newly-virulent diseases, and from the increasing drug resistance to old killers, trade rules threaten to make basic medicines even less affordable to the poor’ –Oxfam

Every year infectious diseases kill two million people in the Third World; over half are children under the age of five, the vast majority too poor to afford proper healthcare. Countless millions more suffer debilitating illnesses, and two billion people lack access to basic health care. The availability of cheap drugs and better healthcare systems would help to reduce these figures. To keep the drug giants happy, and using the threat of trade sanctions, WTO rules (TRIPs) are preventing the availability of cheap generic drugs. GATS (WTO rules governing rules on trade in services) will force healthcare systems into the private sector [16].

Since its inception, TRIPs (allowing the patenting of life forms, undermining poor countries’ rights to their natural resources and traditional knowledge, selling out the environment by undermining the Biosafety Protocol, preventing poor countries from developing their own pharmaceutical industry, and from importing cheap drugs to fight public health disasters, etc.) has been highly controversial. The US, the big pharmaceutical companies, the WTO and World Intellectual Property Organisation (WIPO) aggressively pressured poor countries to ensure their compliance with TRIPs.

For example, the pharmaceutical industry used TRIPs to destroy the home-grown pharmaceutical industries in India, Thailand, Egypt and Brazil [17].

In the face of so many people suffering and dying preventable deaths, it is very cynical to note that it’s all about money. As Pfizer CEO McKinnell puts it: “No one believes the provision of cut-price or even free Aids drugs in Africa will seriously dent drug company profits. But surrendering intellectual property in one part of the world would undermine the system of commercial incentives vital for the development of tomorrows medicines.” [18] However, as has been notified earlier, this reasoning is based on loose ground, and obviously highly immoral from a human perspective.

Poor countries and civil society groups have long been fighting TRIPs (the South African lawsuit described below highlighted this struggle and brought it to the general public) and only recently their fight –supported by mounting public pressure- seem to have led somewhere. During the WTO summit in Doha, Qatar (November 2001), the WTO members finally acknowledged that the TRIPs agreement ‘does not and should not prevent members from taking measures to protect public health.’ By some this was heralded as a victory, others remain very skeptical.

The fact is that the Doha Declaration only confirmed the existing agreement which already says that WTO rules on patents do not prevent member states from providing more affordable generic medicines for their peoples. Nothing new here. The only so-called gain is that the WTO members adopted a strong political statement confirming this. But what is the value of a political statement?

Where statements are very vaguely formulated (as they are, leaving much space for pharmaceutical giants to explain the content of words according to their own needs), where legal enforceability is nearly absent and two highly unequal parties oppose each other (pharmaceutical giants, the economic heavyweights versus poor countries), the chance that the practical outcome of the Doha declaration is meaningful is very small.

Walden Bello (Focus on the Global South) and Anuradha Mittal (Food First) point out that ‘there is no commitment to change the wording of the TRIPs agreement to accommodate developing countries’ overriding of patents for public health purposes.’[19] Another critical point is that there was little attention for other problems (see above) with the TRIPs agreement.

TRIPs was drafted by PhRMA, an aggressive Washington lobbying organisation that represents the big drug giants.“Our combined strength enabled us to establish a global private sector-government network which laid the foundation for what became TRIPs” –Edmund Pratt, CEO Pfizer

“Industry has identified a major problem in international trade. It crafted a solution, reduced it to a concrete proposal and sold it to our own and other governments … The industries and traders of world commerce have simultaneously played the role of patients, the diagnosticians and the physicians” –James Enyart, Monsanto [20]

Back to top South Africa In March 2001, 39 of the world’s largest drugs companies took action against South Africa to stop the use of generic drugs. At issue was South Africa’s right to import and manufacture cheap generic drugs. The drug companies were asking the Pretoria High Court to invalidate a South Africa law (Medicines and Related Substances Control Amendment Act) that permits the import and manufacture of cheap generic drugs. The case was expected to last one week. On the second day the case was postponed for six weeks. During the period the case was scheduled to be heard, i.e. one week, drugs companies would have sold $2.2 billion of drugs, making a profit of $560 million. By the end of the week 5,000 sick South Africans would have died. 5,000 sick South Africans would have paid the price of corporate greed [21].

Africa accounts for 1% of the industry’s profits. The case against South Africa is thus not about profit, the drug giants could easily lose South Africa and not notice the difference. The fear is that a precedent will be set. The UN is preparing to challenge the approach to generic drugs adopted by the pharmaceutical industry and backed by WTO. The UN is backing the call by Oxfam and MSF that cheap generic drugs should be made available to developing countries. The UN is ready to back states such as Brazil, Thailand and India where national laws allow them to override drug patents in cases of dire emergency. Kofi Annan has praised Brazil, where reported Aids deaths have been reduced by a quarter.

Following the adjournment of the South African drugs case several corporations announced discounts on their drugs, but this has been dismissed for what it is, empty gestures delivered under pressure. The world’s drugs companies occasionally provide cheap drugs to the Third World. These are drugs long superceded, drugs it is cheaper to dump on the Third World than to store or dispose of [22]. Donations and projects offered by drug companies are meaningless and can only be considered PR stunts, as long as the drug giants keep overpricing drugs (e.g. via patent law enforcement) beyond the reach of millions of poor people and keep ignoring poor people’s needs.

‘WTO trade rules (TRIPs) obviously clash with International Humanitarian Law.’

Back to top The Latest Scandal: Anthrax ‘The anthrax crisis in the United States has thrown into sharp contrast the double standard world of the ‘haves’ and ‘have-nots’. In the wealthy corner we have America and Canada who threatened drugs manufacturer Bayer that unless it reduced the price of its anthrax antibiotic drug Cipro , it would change its laws, override Bayer’s patent [valid until 2003] and get other companies to make cheap copies of the drug. Tommy Thompson, US Secretary of Health and Human Services, said “They are going to either meet our price-or else we’re going to go to Congress and ask for some support to go in and do some other business.” [23]

Not surprisingly Bayer [who had initially threatened to sue the Canadian government for breach of patent] caved in and will now sell America and Canada cheaper Cipro at the knock down wholesale price of 95 cent a pill – instead of the original $4.50 [24]. Merck & Co, GlaxoSmithKline and American Home Products are also vying for a government contract to produce the smallpox vaccine. ‘A powerful government like the US can break laws whenever it wants. However, the US government refers to the ‘emergency’ clause in the TRIPs agreement to legitimate its acts with regard to anthrax. Anthrax is causing an emergency situation in the US (note: 4 people have been killed) and therefore TRIPs does not apply! Every day infectious diseases like HIV/AIDS kill 30,000 in the developing world.’[25]

Number of people in Africa infected with AIDS:
25 millionNumber of people in Africa who have died of AIDS:
17 million

Number of people who have died of anthrax in America (at the time of writing):

Back to top Industry-Government Alliance As mentioned above, the pharmaceutical industry is not generally affected by economic conditions. ‘Rather, the industry has a tendency to be impacted by regulatory bodies and laws.’[26] Therefore, the pharmaceutical industry goes out of its way to influence politicians and policymakers. In the US, health care reforms are currently cited by the industry as the most important factor determining its future. The nation’s multibillion-dollar pharmaceutical industry appears comfortably situated with new President Bush.

Dr. E.M. Kolassa, an associate professor of pharmacy at the University of Mississippi and an industry consultant, said drug firms are more comfortable with a Bush administration than they would have been with Gore, who accused them of, among other things, price fixing. Drug prices, increasing at a rate that outstrips inflation, emerged as a major issue during the presidential campaign because many senior citizens have trouble paying for their medicine. Gore scored political points by criticising industry profits and the high price of drugs. After heavily financing his election campaign, the concerns of the nation’s big drug companies appear to be somewhat alleviated. Bush has surrounded himself with advisers with ties to the pharmaceutical industry [27].

The pharmaceutical industry needs regulation (such as TRIPs) that facilitates and sustains its practices. However, regulation that can hinder its practices, such as laws protecting the environment, must be eliminated. Or at least watered down to an absolute minimum. The pharmaceutical industry in the US claims to be ‘particularly concerned’ with four areas of environmental policy: Clean Air Act regulations, pollution prevention, guidelines and limitations for wastewater discharges, and environmental assessments [28]. The industry aims at the development of standards [read: exceptional provisions] that relate specifically to pharmaceutical manufacturing. In addition, the industry emphasises voluntariness and flexibility [read: freedom of obligations and lax regulation].

In the United Kingdom the pharmaceutical industry can count on the government’s support as well. In a foreword to the PICTF final report (PICTF = a high level partnership between the UK government and its pharma industry) PM Blair praises the industry: “A successful pharmaceutical industry is a prime example of what is needed in a successful knowledge economy. The UK’s pharmaceutical industry has an outstanding tradition and has contributed very substantially to our economy and to the welfare of our citizens.” Blair commits himself to the containment and progression of the business-friendly environment in the UK. He concludes: “A key feature in maintaining the UK’s attractiveness will be effective partnership at the highest levels between Government and industry.” [29]

The pharmaceutical industry enjoys more privileges/freedom in the US (than in the EU). There are more price regulations (e.g., some medicines must be supplied at a fixed price) and the approval process for new medicines to enter the market is longer in the EU. As a result, the period in which corporations can pick the fruits of their patent rights is shortened. In addition, advertising codes are stricter in the EU, preventing corporations from aggressively promoting their products directly to consumers (DTC). All these issues impinge on the profitability of the drug giants which therefore threaten to move all or part of their business to the US. The European Commission (as well as the UK government) is actively working to prevent this by relaxing regulation.

Back to top Outlook With business-friends Bush and Blair in power, the outlook for the industry is promising. Also, the ‘emergency situation’ since the eleventh of September will open up new business opportunities. The acclaimed ‘dawn of international bioterrorism’ is challenging companies, and governments have found new space (away from public scrutiny; taking advantage of the public and media being distracted) to push through their corporate allies’ needs. In the European Union, national governments and the European Commission will continue to ease the path for pharmaceutical corporations (e.g. by pushing for the euro and a completion of the EU-single market) because they don’t want corporations to move to the US. Corporations can exploit this US-EU rivalry.

The industry can further take advantage of an ageing population in the West depending on a substantial amount of medicine. The over 65 consume three times as many drugs (per head) as younger segments of the population. In addition, the industry expects to benefit from new opportunities opened up by e-commerce, the internet and biotechnology. More than ever, big pharma relies on biotechnology innovation as a key driver of product design. [The drug industry is particularly counting on the scientific revolution known as genomics. The term refers to efforts to exploit the oceans of scientific information now pouring into gene databases around the world.]

Consolidations will definitely keep marking the pharmaceutical industry, creating even bigger behemoths. The forthcoming expiry of key drug patents (and the arrival of cheaper generics) may cut into the profits of the drug giants, but will not cause any substantial losses. The industry hopes that new products will boost the industry. For the sake of all those people suffering because of the practices of the drug giants, let’s hope that major setbacks will rock the industry in the near future. With regard to the PR battle, the pharmaceutical industry might be on the losing end, as their scandalous acts are being increasingly exposed!

Back to top

References [4] The report by Families USA is available on their web site: [5] The Gaia Foundation for Sustainable Development: [6] The Guardian Unlimited, February 13, 2001, ‘USA: The Pharmaceutical Industry Stalks the Corridors of Power’, by Julia Borger

[7] (Industry Analysis, Pharmaceuticals Industry, source: US Business Reporter, date viewed: 17/11/01)

[8] See: for various stories on corporate crimes in the pharmaceutical industry (source: Campaign Against Fraudulent Medical Research, CAFMR, date viewed: 03/10/01)

[9] Ibidem

[10] ‘Drug firms accused of distorting research’, the Guardian, 10 September 2001

[11] (excellent report on the pharma industry, date viewed: 20/11/01)

[12] Ibidem

[13] (source: Third World Network, date viewed: 15/11/01)

[14] Ibidem

[15] (excellent report on the pharma industry, date viewed: 20/11/01)

[16] Ibidem

[17] Ibidem

[18] McKinnell, CEO Pfizer, one of the world’s biggest drug companies

[19] Walden Bello, Focus on the Global South, and Anuradha Mittal, Food First, on the ‘Meaning of Doha’ (source: Food First, Institute for Food and Development Policy, date viewed: 20/11/01)

[20] James Enyart of Monsanto, quoted in: Vandana Shiva, “Who are the real pirates?”, Third World Resurgence, Third World Network, Malaysia, No. 63, November 1995, pp. 16-17.

[21] (excellent report on the pharma industry, date viewed: 20/11/01)

[22] Ibidem

[23] SchNEWS on the Anthrax Scandal:Published in Brighton by Justice? – Brighton’s Direct Action collective ISSUE 328, FRIDAY 26th October 2001 SchNEWS: [24] Ibidem

[25] Ibidem

[26] (Industry Analysis, Pharmaceuticals Industry, source: US Business Reporter, date viewed: 17/11/01)

[27] 0,1032,500302038-500483068-503321934-0,00.html (Business: ANALYSIS: Drug industry welcomes Bush administration, 21 January 2001, source: The Nando Times, date viewed: 17/11/01)

[28] (Industry Analysis, Pharmaceuticals Industry, source: US Business Reporter, date viewed: 17/11/01)

[29] Read about PICTF at:

Resources/Further Reading

An excellent report on the pharmaceutical industry (April 2001):

Another report well worth reading (by Families USA):

Oxfam report ‘Cut the Cost’:

‘The health crisis in developing countries’, (2001)
by Cecilia Oh, Third World Network, a solid story on the adverse effects of TRIPs for developing countries:

SchNEWS on the Anthrax Scandal:
Published in Brighton by Justice? – Brighton’s Direct Action collective

ISSUE 328, FRIDAY 26th October 2001. SchNEWS:

Analysis of the Final Ministerial Declaration of the 4th Ministerial Conference of the WTO in Doha (November 2001) by the World Development Movement (WDM):

A Sector Overview from the industry’s perspective, by the US Business Reporter:
(Company profiles can also be found on this website)