MARKET FORCES Case study 1

CONSUMER POWER Drug marketing

The drug industry
The laws of supply and demand rank high with the pharmaceutical companies,
Their sanctity is invoked on every occasion citizens and their government act
to regulate corporate promotion of drugs. Co-editor Troth Wells looks at how
the free market is distorted by the companies themselves.

Earlier this year British newspaper readers were confronted by a striking advertisement. It showed an elderly man and woman – the image of everybody’s older friends and relatives – wearing expressions of dismay, horrified at the thought that they might now have to pay for bills which are currently free on the National Health Service.

‘What do you mean, our medicines are coming off the NHS?’ ask the couple, and how can we not share their concern? The advertisement was placed by the Association of the British Pharmaceutical Industry as part of a million-pound campaign against the government’s attempt to slice £80 million $90 million) off the NHS bill by encouraging doctors to prescribe cheaper generic instead of brand name drugs in a few cases.

In its emotive wording the advert glosses over the fact that the old couple will still get free medicine – it will just have a different generic name (see box).

The reason for the strong resistance to the government’s move is that the pharmaceutical companies dislike interference in their business. Although it is rare for them to appeal directly to the public as with this advertisement, they frequently lobby governments to safeguard their interests and manipulate doctors through promotion to increase sales of drugs. And this activity usually works directly against the consumer.

The drug manufacturers are a force to be reckoned with. Twenty-five companies based mainly in the US and Europe dominate 44 per cent of the world market. This may not sound like gross monopoly control but drugs are divided into sectors like antibiotics, vitamins and anti-arthritics. Each sector is dominated by only a few companies. Major drug firms are multinational multifaceted concerns, with pharmaceutical production as just one of their activities. For instance pharmaceutical sales in 1979 for the German company Hoechst totalled $2,300 million but this represented only 16 per cent of their total turnover. Having many strings to their bow enables business giants to suffer losses in any one field of operations and undercut competitors when they need to. A local company in Canada decided to compete with the Swiss giant Roche in the diazepam (tranquilliser) market. The Roche product is better known as Valium. In order to quell the upstart, Roche gave away $2.5 million worth of Valium to doctors and hospitals. The rival retreated.

Costs and profits in the industry are high. A new drug can take $50 million to develop, so it must sell in millions to recoup the expensive research outlay. For although medicines may be intended to promote health, any idea that companies making drugs operate differently from those producing cars, oil or military equipment should be forgotten. The ethics and commercial objectives are the same: expansion, security and above all market control.

The monopoly power of the drug giants is exercised through protecting their brand-name products with patents. through high prices and intense promotion. None of this helps the consumer. The top companies - among them Bayer, Upjohn, Hoffman Ia Roche and Glaxo - fight hard to make their drug the one that is used, sometimes spending up to 20 per cent of the sales turnover on promotion. And when one of them produces something new which sells, the others quickly climb aboard the bandwagon with a ‘me too’ drug. So there is a mushrooming of virtually identical products.

Brand-name drugs from the major US and European companies dominate the Third World markets, so that often it is the poorest people in the poorest countries who end up buying the most expensive medicines, even though cheaper alternatives exist. In Mexico the best-selling variety of the antibacterial drug cotrimoxazole is Roche’s Bactrim. Just 20 tablets, enough for a short course of treatment, cost Pesos 138.60 (over $5) in 1978. For this amount of money a family could have bought enough black beans for their basic diet for a fortnight. Cotrimoxazole is also available locally at less than half the price. But Mexicans are persuaded to buy over one million packs of Bactrim each year.

How is this done? By skilful advertising which promises health and a better life to people living in poverty, and by shaping doctors’ prescribing habits.

Product launches are often accompanied by conferences which the companies claim are important for spreading scientific information. But of course they are also pleasant perks for the medics who come away with a special regard for the company’s product. Dista/Lilly spent an estimated quarter of a million pounds bringing in doctors to a Paris beanocum-symposium for their product Opren. Leading physicians are often retained as company advisors. ‘An impartial outsider at the top of his field’ was how Dista/Lilly billed Professor Derek Willoughby of London’s St Bartholomew’s Hospital during the Opren launch. He was in fact a paid consultant to Dista’s American parent company, Eli Lilly.

Britain’s 25,000 general practitioners each have about £5,000 ($5,500) worth of promotional persuasion spent on them a year. But at least they can find independent information to counter the onslaught. In the developing countries doctors have virtually nothing other than what a drug company chooses to tell them about a product. And the promotion techniques maybe crude. Doctors in the Philippines have been offered gifts of cars, refrigerators or cash as incentives for prescribing one company’s brand exclusively.

Making sure that doctors prescribe their products is important to the companies. But making sure that governments don’t act against their interests is vital,

In Britain the relationship between industry and officialdom reached a new intimacy when Dr John Griffin, medicines division head at the Department of Health, switched jobs to become director of the industry lobbying organisation, the Association of the British Pharmaceutical Industry. He was a good catch, taking with him to the private sector unrivalled knowledge of government regulations and a wealth of ministerial contacts.

The pharmaceutical industry flexes its political muscles on Western governments, but it is in the developing countries that some of the fiercest lobbying takes place. Although Third World countries (excluding China) consume only about 15 per cent of world’s pharmaceuticals, the potential for growth is much greater there than in the West. For instance in Bangladesh the market was growing by 20 per cent a year in the early 1980s. So when that country began to question the sale and promotion of drugs, the industry rolled up its sleeves in preparation for a tussle.

Bangladesh, like many Third World countries, spends 40 per cent of its total health budget on drugs. This compares with just 10 per cent in Britain. Why? One reason is that in such a poor country drugs like vaccines have a tremendous role to play. But Bangladesh’s drug bill was not primarily buying vaccines and essential drugs. In 1982 an expert committee found that of total drug expenditure ‘nearly one third was spent on unnecessary and useless medicines such as vitamin mixtures, tonics and cough mixtures’.

Pills and potions like tonics bring in the money. They are cheap to make and easy to sell. In India you can choose from more than 1,000 vitamin preparations: these accounted for $653 million sales in 1979/80 while lifesaving drug sales took up only $252 million.

No wonder then that the drug companies took exception to Bangladesh’s bold step in 1982 of enacting the Drug Ordinance. This called for some 1,700 inessential and dangerous drugs to be thrown out of the Bangladesh medicine cabinet, leaving still over 2,500 more beneficial preparations behind.

The Bangladesh action was part of a growing worldwide outrage at the way the biggest pharmaceutical companies were managing the markets in developing countries. At the World Health Organisation in 1978 and 1982 member governments had voted in favour of an Action Programme on Essential Drugs, which suggests that Third World countries in particular should restrict the import, manufacture and sale of all drugs to a limited list of about 225 - those ‘essential’ drugs which treat the most common and fatal diseases.

Now the Bangladesh market in itself is small, worth only about $70 million compared to 1979 world pharmaceutical sales for just one company (Merck) of $2,004 million. In fact any multinational could pull out with hardly a blip on its sales graph. But the Drug Ordinance had them worried. For a wholesale revolt by other Third World countries would definitely dent sales figures.

So seriously did the American Pharmaceutical Manufacturers’ Association view the ban that their president Lewis Engman buttonholed the Bangladesh head of state, General Ershad, when he visited New York. There was a buzz of diplomatic activity in Bangladesh itself as Western ambassadors strove to have the policy amended if not rescinded. When this had little effect, the multinationals turned their attack onto the members of the Expert Committee which had been instrumental in getting the Ordinance enacted. The American Embassy even imported its own ‘expert scientific committee’ to discuss the policy with the Bangladesh government. The experts included representatives from drug companies Squibb, Wyeth and Smith Kline Beckman.

The Bangladesh policy has survived despite some tinkering with the details. After an initial outcry about loss of business the eight foreign pharmaceutical companies are soldiering on. Their income has remained about the same - $44.8 million in 1981 and $44 million in 1983 after the policy came in.

What they object to is being told what to do. ‘Attempts should not be made to disrupt the laws of demand and supply through government dictum’ was how the Bangladesh Pharmaceutical Association phrased it. And yet we have seen that the industry does not suffer when a government acts responsibly on behalf of its poorer citizens. What is clear is that the business creed of ‘demand and supply’ is a nonsense in an impoverished country like Bangladesh. People who have little money and education are easy prey to advertising gimmicks. Manipulation of consumers, doctors and governments to ensure sales hardly constitutes the notion of a ‘free market’. And it distracts people from solving the basic problems of sanitation and nutrition which are the surest ways of improving people’s health.

The Bangladesh initiative has cheered people and groups all over the world who are trying, through networks like Health Action International (see action) to ensure that the promotion, sale and use of drugs is in the public’s interest.

One step along this path came in May 1984, when the World Health Assembly announced a meeting of experts to look at the way drugs were sold, and at the question of a marketing code similar to that operating for baby food sales. The Surgeon-General of the US promptly responded that his government ‘will oppose any move in WHO’ to introduce a pharmaceuticals marketing code. And since the US contributes one quarter of WHO’s budget such threats have to be taken seriously.

Consumers in the market places of the Third World need special protection. Cavalier promotion and use of dangerous or non-essential medicines is clearly not in their interests. Bangladesh has taken a brave step in trying to rationalise its drug market. It is not easy to stand up to the considerable power of big business - as the British government with its far less sweeping measures has also discovered.