Understanding Big Pharma:
The US pharmaceutical industry is the 2nd most profitable industry in the country. The nature of the industry follows an oligopoly form; with the big players yield much influence, hence lending to its name, “Big Pharma”. By 2010, Big Pharma has a staggering 526 lobbyists and gives an estimated $19 billion worth of gifts to physicians annually.
Understanding Business ethics:
The definition of ethics is given by as follows, “Ethics are moral principles that govern a person’s behavior or the conducting of an activity.” (Lawrence & Webber, 2008) Basically, they are the issues of identifying right and wrong in our daily life, serving as a moral compass. Then what are business ethics? Business ethics is the application of general ethical ideas towards business behavior (Lawrence & Webber, 2008).
Due to the diversity in the modern world, different organizations and industries have different perspectives towards business ethics. Hence, with respect to business ethics, this report will review the application and implication in Big Pharma’s marketing tactics.
Understanding the stakeholders of Pharmaceutical industry:
1. Consumers.
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They will be directly affected by the marketing practices by Big Pharma, as the immediate users of its products. Usually, consumers have a strong voice in determining the companies’ profits. However, it is different in the pharmaceutical landscape, due to their expertise in its product knowledge. As such, consumers are often at the losing end.
2. Community
With the pharmaceutical being a burgeoning industry in the society, concerns from public will naturally grow. Based on a recent poll, public perceptions towards Big Pharma are largely negative, indicating their low level of trustworthiness. Consumers, which form part of the community, can also be represented through interest groups or watchdogs.
3. Industry representatives
In the case of Big Pharma, it is common to find lobbyists working on their behalf to safeguard their business interests, specifically towards the government. By gathering a huge lobbying force, Big Pharma has consolidated their influence within and beyond the industry. A testament of their effectiveness would be their repeated ability to defeat attempts to restrict drug marketing.
4. Government & Regulators
The pharmaceutical industry is one that can potentially affect the lives of general public, thus the government has taken a heightened interest in it. Therefore, they have tried to balance the interest of the society by having an agency, Food and Drug Administration (FDA), which regulates the legality of drugs produced. On a legislative level, the government also attempts to tighten the business conducts by Big Pharma by passing bills and laws.
5. Media
The range of media tools in today’s world can serve as a double-edged sword for Big Pharma. At one end, the controversial marketing practices by Big Pharma provides fodder for magazines and newspaper for reporting purposes, contributing to a negative public image. On the other end, Big Pharma has regularly tapped into media to advertise their products such as the TV advertisements by Novartis to market Lamisil, an overrated drug.
6. Intermediaries
This consists of medical students and physicians, which is seen as the “middleman” in the pharmaceutical industry. Hence, they form a crucial link between Big Pharma and its consumers. It is no surprise that Big Pharma would spend a great deal of time and money on them. In other words, getting a tight grip on them would mean business to Big Pharma indirectly.
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7. Stockholders & Investors
The primary concern of stockholders is the profitability of their respective companies. At times, they are also concerned with its’ reputation. Since the marketing practices by Big Pharma have been a contentious issue, this is an aspect that they might want to exercise their opinions.
8. Employees
At one glance, the employees working for Big Pharma do not seem to be influential stakeholders, as they do not have much say in the running of the company. However, an ethical dilemma might happen if their ethical principles do not fall in line with those of Big Pharma. This will possibly result in the scenario of whistle blowing.
Ethical issue #1: Direct to consumer (DTC) marketing: “Salesmanship v Science?”
As with any business organization, the primary objective of Big Pharma is to maximize profits based on their product offerings. However, here lies an ethical question, “To what extent should Big Pharma achieve their business objectives at the expense of its consumers?” The answers to this question are definitely debatable, however an answer is certain, that various business models in different industries would have opposing measurement scales in this regard.
In the case of pharmaceutical industry, it is very costly to produce an approved drug for sale. Firstly, much of R&D expenditure dollars will be wasted in the early stages of research, as it is not easy to find the cure for medical ailments immediately. Secondly, the formulated drug has to go through clinical trials before the regulatory agencies (i.e.: FDA) decide to approve it, which can be a lengthy process. Hence, the only way for companies to recoup their expenditure is through an aggressive brand of marketing of the approved drugs, with Big Pharma leading the way.
Then, what are acceptable marketing practices by Big Pharma that is acceptable within ethical reasoning? The nature of this industry is that it holds a noble responsibility to inform and educate its consumers about the kind of drugs that will contribute to the health of mankind. Therefore, marketing is more than maximizing profits, as consumers lack expert knowledge on drugs.
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Presently, the marketing tactics by Big Pharma is disappointing by ethical standards. Take the Novartis TV advertisements for its drug; Lamisil, for instance. Despite the hype in its advertisement, the focus was not on the intended use of the product. In fact, the drug is used to treat toenail fungus, a non-serious ailment. Therefore, it is surprising to note that the product was 4th best selling drug in its shelves, thus showing a lack of understanding on the consumer’s part. This shows the miscommunication between Big Pharma and its consumers.
Furthermore, Big Pharma aggressive marketing escalates this situation. This can be explained by their belief that spending more marketing dollars will generate more revenue to cover its expenditure. This is definitely not fair and ethical to its consumers, who should make an informed decision when purchasing a product, especially a drug.
Therefore, taking into consideration the business model of Big Pharma, the general rule is that DTC marketing, consumers should always make known the imperatives of the drug (e.g.: users, side effects) first, above anything else. This point is also supported by s3(9) Singapore Association of Pharmaceutical Industries (SAPI) code of marketing practices, which states, “…all such information should be accurate, fair and not misleading”. In doing so, it will avoid the current scenario where Big Pharma has caused a knowledge handicap on its consumers, an ethical misconduct.
Ethical issue #2: Intermediaries outreach: More than just promotional tools and gifts?
Another avenue for Big Pharma to maximize its profits is through its spokespersons of their product offerings; the intermediaries. Hence, it is important to maintain a close relationship with them. But, how should Big Pharma conduct when it comes to giving gifts to this group of stakeholders?
On the surface, the promotional tools such as pens and notepads given to medical students do not seem excessive in value. However, by doing this on a constant basis, it can be seen as a marketing ploy by Big Pharma to slowly pressure them into gaining acceptance. The readily acceptance of the gifts is due to the overarching monetary influence of Big Pharma has upon the industry.
This ingrains the wrong ethical values in them, as they might perceive that accepting gifts from Big Pharma is an industry norm. As reflected in the case, this has a profound effect on them as many who go on to become physicians have cultivated an industry-wide behavior of accepting larger and controversial gifts from Big Pharma, leading to more ethical debates. Through making more inroads with the impact of its gifts, it slowly allows Big Pharma to exert more influence on them and it becomes harder for physicians to say no to them.
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As such, physicians are faced with an ethical dilemma, which is the conflict of interest between self-interests and patient’s welfare. The job of physicians should be prescribing the most appropriate medicines to the best interest of its patients. However, this line of opinion has been blurred by the influence Big Pharma has over them, thus at times physicians have no choice but to prescribe the medicines based on its links with Big Pharma.
This ethical dilemma can be well reflected in the case of Pfizer, where physicians were induced by lavish sponsorship for personal expenditures to prescribe Neurontin for the cure of maladies, which was not approved by FDA. Henceforth, if physicians were to adopt the approach of whistle blowing, they might face the possibility of losing the financial incentives they have been receiving, and this can be a rude awakening for them.
Based on business grounds, the need for Big Pharma to reach out to the intermediaries is understandable and reasonable, but the morality and monetary values of such gifts has come into question. While gifts such as sponsorships and free lunches appear to be normal, there are several others that involve serious allegations of ethical misconduct such as improper payments and kickbacks. Clearly, this is not in line with the marketing practices set by SAPI. As stated in section 6(1), “no gifts or financial inducement should be offered to healthcare professions for the purpose of sales promotions”. It also states the following as well, “Payments in cash or cash equivalents must not be offered to healthcare professionals either directly or indirectly”.
Looking at the outreach conducted by Big Pharma, it is clear that their intention is to leverage on their financial power to exert undue influence upon the intermediaries for its own business gains. Therefore, this aspect of outreach should be curb to provide a fair state of mind for the intermediaries in order for them to make an equitable decision for their patients, not losing the high level of trust and integrity that is placed upon them.
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Ethical issue #3: Violation of legal principles and responsibilities
The pharmaceutical industry has been plagued with the issue of violating its legal obligations, but does such acts constitute an unethical business behavior? In order to understand this, it is important to consider the relationship between laws and ethics. Laws are attempts made by the government to formally regulate the proper behavior in different spectrum of life. (Lawrence & Webber, 2008) Whereas ethics are guidelines to what is right and wrong. As such, ethics cannot be laws and it merely offers to cover the aspect the laws do not explicitly apply. The following is a non-exhaustive list of examples on how Big Pharma has flout its legal responsibilities, as stated by the case:
* Medicaid program: lists false wholesale prices in order to obtain more dollars for its drugs from the U.S government * Illegally promoting drugs that are not ready for approval for public consumption through its physicians * Alleged cases of covering up the negative results from clinical trials for various drugs such as Paxil and Avandia. * Questionable marketing of drugs which involves giving improper payments and bribes * Repeated offences of the abovementioned and other similar crimes
From the given examples, three inferences can be drawn with regards to ethical reasoning. Firstly, it can be inferred that the motivations by Big Pharma to commit such white-collar crimes is purely based on business grounds, leveraging on this to gain excessive profits. It is hard to give an alternative explanation to this, as all of these crimes committed by Big Pharma seem to have a strong business element to it. Secondly, it is apparent these crimes will adversely affect two of its most important group of stakeholders; consumers and intermediaries.
The severity of these crimes is lethal, especially the non-disclosure of vital information of drugs by Big Pharma at the expense of generating sales revenue. This is scandalous and places the consumers’ health at stake. Last, but not least, it is clear that Big Pharma is intentionally flouting its legal responsibilities, which is the most blatant of all. This allows Big Pharma to achieve its business objectives and the fine that they received as a result, is a small price to pay. This can be seen by their willingness (i.e.: Pfizer, Schering-Plough) to pay up the fines. Therefore, from an ethical perspective, the breaking of law by Big Pharma does not justify its means to the end of generating profits when they are constantly putting their business interests first as opposed to those of its consumers and other stakeholders.
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Assessment of Big Pharma’s marketing tactics with business ethics
The general idea of Big Pharma’s marketing tactics is that it has aligned its marketing tactics to be profit-centric and the rest of the key performance indicators (KPI) such as consumer satisfaction and quality control matters for little. Due to the overwhelming influence Big Pharma has upon the industry; they often ignore the primary interests of their stakeholders, specifically consumers and intermediaries. Their disregard for the law as well as the interests of the stakeholders has placed themselves in a negative light in the eyes of the public, which is why most people called Big Pharma as a group of pharmaceutical companies that is shifty and greedy.
Such reputation does not make good PR headlines yet the marketing practices by Big Pharma has generate tons of profits for them, which possibly explains their nonchalance about it. However, a word of caution is the power of consumers should not be underestimated and it is not known how long more they will tolerate such aggressive marketing tactics. As such, Big Pharma is potentially facing a consumer backlash and might affect their profits. As the saying goes, “Short-term gain, long-term pain”.
In conclusion, with reference to the application and implication of Big Pharma’s marketing tactics, they exhibit poor business ethics and do not actively inculcate ethical values into their marketing practices and channels since they believe it is pointless to do anything that does not generate revenues and profits in return immediately.
References
1. Lawrence & Webber (2008), Business & Society (12th edition), McGraw Hill International Edition, Page 27 (Stakeholders), 90 (Ethics & Business Ethics), 107 (Whistle-blowing), 117-119 (Marketing Ethics), 130-131 (Ethics & Laws)
2. SAPI code of marketing practices, http://www.sapi.org.sg/mktg.htm, accessed from Feb 6 2012.
3. “Drugs: Why drugs costs so much?” MedicineNet, http://www.medicinenet.com/script/main/art.asp?articlekey=18892, accessed from Feb 6 2012.
4. “Big Pharma Spends More on Advertising Than Research and Development, Study Finds.” Science Daily (January 2008), http://www.sciencedaily.com/releases/2008/01/080105140107.htm, accessed from Feb 6 2012.
5. “Pharmaceutical Fraud: How Big Pharma’s Marketing and Profits Come before Consumer Safety and Wellness.” Naturalnews. http://www.naturalnews.com/z020345.html, accessed from Feb 7 2012.
6. “Pfizer Broke the Law by Promoting Dugs for Unapproved Uses,” Bloomberg (November 2009), http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a4yV1nYxCGoA, accessed from Feb 7 2012
7. Pharmaceutical industry, http://en.wikipedia.org/wiki/Pharmaceutical_industry, accessed from Feb 8 2012.
8. Pharmaceutical marketing, http://en.wikipedia.org/wiki/Pharmaceutical_marketing, accessed from Feb 8 2012.
