Big Pharma takes it all

The COVID-19 pandemic is a global crisis with devastating effects on people’s lives. Disadvantaged people everywhere, but especially in low- and middle-income countries, have been particularly hard-hit. Controlling a pandemic requires coordinated international efforts. No one is safe until everybody is safe. This Public Eye report demonstrates how Big Pharma has once again rolled out its 10 key strategies to cash in, relying on massive amounts of public funding while redeeming its bad reputation.

The current pandemic is a global health crisis of unprecedented scale with devastating economic and social impacts on people. These are felt everywhere, but nowhere harder than in low- and middle-income countries (LMICs). A pandemic, by definition, cannot be controlled nationally; it requires a sustained, consistent and coordinated international effort. What we are witnessing instead is an increasingly inequitable and unequal access to COVID-19 technologies (diagnostics, vaccines, treatments), which is likely to boomerang back on HICs, including Switzerland, in the form of multiple, more contagious coronavirus variants.

The Public Eye report “Big Pharma takes it all” unmasks as hypocritical the pledges of governments and pharmaceutical companies to collaborate, be transparent, and foster accessibility: in short, their pledge to behave differ­ently this time. It demonstrates how Big Pharma has once again implemented its 10 key strategies, long since exposed by Public Eye and other civil society organisations, to cash in during the COVID-19 pandemic.

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  • 1) Determine R & D priorities by potential profits alone

    Fact(s): In 2003, we witnessed the Severe Acute Respiratory Syndrom (SARS) global health crisis, caused by a coronavirus very similar to COVID-19. When the present pandemic hit, 17 years later, there was still neither a vaccine prototype nor any treatment candidate ready to handle COVID-19.

    Explanation: In the current system, pharmaceutical companies determine their research & development (R & D) priorities by potential profit rather than public health needs. Following this logic of profit-maximisation, Big Pharma develops drugs primarily for those who can pay, predominantly in high-income countries (HICs), rather than for neglected populations predominantly in low- and middle-income countries (LMICs). In addition, drugs for chronic diseases, such as cancer or diabetes, that can be prescribed repeatedly and over long periods of time are far more profitable than antibiotics or vaccines against infectious diseases.

    Consequence(s): Until recently, there were increasingly fewer companies engaged in low-profit products such as vaccines. The global COVID-19 pandemic has suddenly presented them with potentially enormous profits.

  • 2) Abuse patents to lock up knowledge, inflate prices and limit supply

    Fact(s): By spring 2020, it was already obvious that limits to the capacity to produce patented vaccines would create significant bottlenecks in supplying all countries in need. However, despite warnings from public health experts and massive subsidies, HICs deemed pharma monopolies as politically inviolable, leading to global scarcity, panic hoarding and the inequitable global distribution of COVID-19 vaccines.

    Explanation: Governments grant patents for inventions that are novel, non-obvious and useful. The patent should compensate individuals or companies for the investment required to develop the invention while also benefitting society. Patent holders can prevent others from making, using, importing, or selling their invention. Other exclusive rights, such as trade secrets (know-how) and data protection, also prevent others from making or using the invention. All of these intellectual property rights are enshrined in the World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), adopted in 1995. In terms of public health, this system has resulted in the gradual globalisation of flawed and socially unsustainable incentives that leave unprofitable health needs unmet. It also creates huge challenges to accessing existing treatments because pharmaceutical companies abuse their monopoly power to price drugs at a level many people cannot afford. This is particularly disastrous in LMICs, where people pay out-of-pocket rather than through insurances or social security. But HICs are also increasingly struggling because of the great strain that overpriced medicines place on their national health budgets, which has led to rationing decisions. Through patent monopolies, Big Pharma can block generic competition and scaling-up of global supplies for at least 20 years.

    Consequence(s): In a situation of desperation, where governments are stock piling COVID-19-vaccines, Big Pharma’s strategy of keeping their know-how locked up has created supply shortages that have enabled them to set the price they want. It also imposes discriminatory access on LMICs.

  • 3) Direct the system towards the needs of high-income countries

    Fact(s): COVID-19 vaccines and treatments are expensive. As usual, Big Pharma favoured HICs in this pandemic to secure bilateral pre-order deals at excessive prices, as they did during the H1N1 (swine flu) crisis, even though this results in public budgets being squeezed.

    Explanation: Medicines are developed first and foremost to meet prevailing health problems in HICs because prices can be significantly marked up and because the largest pharmaceutical companies are located in a few HICs – USA, Switzerland, EU, Japan – and China. The largest pharmaceutical market is the US with more than US$500 billion in sales in 2019, followed by China, Japan, Germany and France. Simultaneously, medicines for infectious and tropical diseases that predominantly affect people in LMICs are neglected.

    The result: As at the end of January, only 4 % of the 108 million people vaccinated lived in LMICs, the vast majority in India. Almost 130 countries with a combined population of 2.5 billion were yet to administer any vaccine. HICs, including Switzerland, have bought enough doses to vaccinate their population several times over, while many LMICs may have to wait until 2024 to reach herd immunity. Unfortunately, COVAX, the multilateral scheme aimed at an equal distribution, is likely to fail due to HIC lack of solidarity and Big Pharma monopolies.

  • 4) Avoid public accountability

    Fact(s): Secrecy is another cornerstone of today’s pharmaceutical business model. Reaping financial benefits while avoiding public accountability allows them to systematically squeeze health systems and maximise corporate profits.

    Explanation: The lack of regulation around transparency has created a huge power imbalance between payers, such as governments and health insurers, and Big Pharma. The ramifications of this opacity are felt in three ways. Firstly, price setting and the rebates granted by pharmaceutical companies remain secret, which strengthens their bargaining power at the expense of payers, who have no accurate information for comparisons. Secondly, public funding contributions to the innovation of medicines remain unaccounted for, and, according to independent sources, pharmaceutical companies hugely inflate their R & D cost estimates to justify their high prices. Thirdly, conducting an independent analysis of clinical studies is impossible as up to 50% of those completed are never published.

    Consequence(s): Data transparency in clinical research and R & D costs has always been extremely important. But the absence of transparency in a pandemic of this size has unprecedented implications. At a time when the world is focused on tracking progress in finding a treatment and vaccine for COVID-19, it is more essential than ever to lift the veil of secrecy.

  • 5) Design clinical trials for self-interest

    Fact(s): Pharmaceutical companies exert strong control over the R & D process, in particular the testing of products in clinical trials, and have a strong incentive to shape trials and evidence so as to gain fast marketing approval and reap the longest possible patent monopoly. Although speed is expected in times of emergency, the COVID-19 trials were not designed to provide all the evidence necessary.

    Explanation: Clinical trials are designed to allow pharma to get quick approval based on ‘low-hanging fruit’: modest targets or proxy indicators (e.g. progression free survival in cancer) are set, rather than proof that a drug is effective for hard out-comes such as overall survival. Furthermore, a market approval does not require proof that a drug brings any added therapeutic value – increasingly, the pharmaceutical industry just has to show that its product is not worse than the existing standard treatment, which “lowers the bar a long way, and makes them easier to do”. Many studies have shown that industry-sponsored trials are more likely to exaggerate benefits and hide disadvantageous results than those funded by other sponsors.

    Consequence(s): The lack of transparency in clinical trial design and results renders impossible an independent scrutiny of the research and testing conducted by the pharmaceutical companies, and may put people at risk. It can also lead to a waste of public resources, as seen during the Tamiflu-scandal when governments bought and stockpiled a drug based on the manipulated and selective publication of positive results. COVID-19 vaccines and treatments may see history repeating itself; renowned experts have stated that, despite the urgency, trials could have been better and more ambitiously designed to answer all the relevant questions.

  • 6) Socialise risks, privatise profits

    Fact(s): Big Pharma argues that risks and profits go together; high profit margins compensate for the high risks taken in the complex R & D of new drugs. However, Big Pharma is making every legal, political and technical effort to systematically minimise and externalise business risks through publicly funded R & D in order to maximise their profits.

    Explanation: Public funding has always been crucial for pharmaceutical innovation. Conservative estimates state that, on average, 30% of the annual global R & D investments that lead to pharmaceutical innovation and profit comes from public funding, a ratio that varies significantly according to the type of medicines (e.g. 65 % for neglected tropical diseases). Every single drug approved by the FDA between 2010 and 2016 involved science funded with tax dollars. Big Pharma also minimises internal R & D risks by focusing on minor innovations that allow them to extend their monopoly position, or by acquiring smaller companies that have taken the greatest, early stage R & D risks. Major innovations emerge from public and biotech companies, not from Big Pharma’s labs. Profits, however, flow back to Big Pharma.

    Consequence(s): This systemic and very costly imbalance has increased during the current pandemic. The outsourcing of risks and the privatisation of profits is detrimental to the public in multiple ways. The full effects of this damaging dynamic might only be seen in a few years.

  • 7) Embrace public investment, reject public returns

    Fact(s): The absolute necessity of public funding in developing new drugs has never been clearer than in the current pandemic. However, when this reality is ignored in price setting mechanisms, citizens end up paying twice: they heavily subsidise Big Pharma through their taxes, and they are forced to contribute to excessive profits through grossly inflated and underregulated prices.

    Explanation: Non-profit initiatives and governments have tried to correct some of the market failures created by the profit-maximising logic of pharmaceutical companies that leads to existential health needs being unmet, such as the development of vaccines, antibiotics and drugs for neglected tropical disease. Since governments have decided to delegate a basic component of the human right to health to the private sector, they must, at the very least, be active regulators. Governments must actively shape the pharmaceutical system and the development of new drugs, for example through attaching access conditionalities to public funding.

    Consequence(s): Host governments have both protected Big Pharma and chosen to be at their mercy. They have missed opportunities to regain the upper hand by attaching conditions for access and affordability condition to their public funds.

  • 8) Impose unjustifiable, unchallengeable prices

    Fact(s): Regulatory authorities and payers have little power to negotiate prices that would make essential medicines universally affordable because Big Pharma is free to manipulate a system with few legal requirements for transparency. This is no different for COVID-19 vaccines and treatments.

    Explanation: The structural power imbalance allows pharmaceutical companies to play ‘divide and rule’ with countries and payers; they demand confidentiality clauses and secret rebates in their deals while trying to reassure each country that they are getting the best deal. The lack of transparency on R & D and production costs makes it impossible to determine a ‘fair price’. Experts estimate R & D costs at 15 to 40-times less than that claimed by pharmaceutical companies. Big Pharma’s argument that high prices are necessary to compensate for risk and investment is hollow in light of the increasing evidence of the importance of public funding and significantly lower, real R & D costs. So companies are now pushing a ‘value-based pricing strategy’. But how can we evaluate the price of a human life saved by a vaccine or a medicine? And who decides what constitutes ‘value’? And what ‘value’ should be prioritised over another? Health is unlike all other consumer goods, rendering this argument cynical and baseless.

    Consequence(s): Companies and regulatory authorities use the price of existing standards of care as a benchmark to determine the price of new medicines, leading to continuous price increases. The pandemic could have been used to stop this vicious circle and set a new precedent. However, HICs, in particular the host countries of Big Pharma such as Switzerland, blocked this very effectively.

  • 9) Financialise innovation

    Fact(s): Over the last 20 years, the pharmaceutical sector has come to resemble the investment industry: it increasingly operates as a private equity fund that invests in financial activities and takeovers rather than the development and manufacturing of drugs. The underlying business model of Big Pharma has shifted from producing and selling products to buying up competitors and biotechnology companies in order to replenish their pipelines while paying out excessive shareholder dividends.

    Explanation: The increasing financialization of the economy, which includes non-financial companies such as pharmaceutical corporations, has empowered financial agents and institutional investors. Rather than investing in fixed capital or R & D, there has been increased interest in intangible assets such as intellectual property rights (IPRs). Pharmaceutical companies acquire other firms and their IPRs, paying premiums in expectation of the future income they hope to generate once an IPR-protected drug is approved.

    Consequence(s): There is a concentration of a few companies with growing market power that generate income from owning and monopolising intellectual property rather than developing, producing and selling innovative drugs. Not only is it indefensible to create artificial scarcity and profits for the sole purpose of maximising shareholder value, but the current system makes pharmaceutical companies vulnerable to financial cycles and is threatening the stable development and supply of essential medicines for public health.

  • 10) Lobby pervasively

    Fact(s): The pharmaceutical industry has the highest rate of investment in lobbying activities in the US, which is by far the most lucrative drug market. Of the 40 senators and representatives who received the most contributions from pharmaceutical companies, 39 belonged to committees with jurisdiction over health-related legislative matters. Swiss pharma Roche and Novartis also spend significant amounts on lobbying activities in the US. In Switzerland, where lobbying activities are omnipresent and weakly regulated, the powerful pharmaceutical industry is fighting hard against any attempt to lower drug prices, which are among the highest in the world.

    Explanation: Big Pharma has successfully entwined itself in pharmaceutical-related policy areas by framing the debate, providing “expertise”, shaping trade deals and funnelling public cash and privileges to maximize its profits. Lobbying and political campaign financing are among those strategies deployed to systematically influence political processes and decisions, which in many countries are opaque and weakly regulated. This creates serious conflicts of interest and leads to corporate capture, meaning the long-term influence on political processes, structures, and decisions by individuals, groups and organisations to their advantage and to the detriment of the public interest. Corporate capture includes legal and illegal activities as well as direct in indirect means and describes a systemic and lasting influence.

    Consequence(s): The financial reliance on industry as a customer, or multiple roles such as a parliamentarian sitting on a pharmaceutical advisory board do not necessarily translate into harmful or illegal practices. However, they create serious conflicts of interest which should be made transparent, discussed publicly and avoided through appropriate and binding regulation.