What’s Really Behind GSK’s New Business Model?

Maria Bradshaw
18
440

GSK has recently announced that it will cease paying doctors for promoting its drugs and sponsoring them to attend conferences and sever the link between pay for its sales representatives and the numbers of prescriptions physicians write.

Commentary from the critics of GSK have attributed the changes they are making to pressure from the government or the requirements of recently enacted legislation. My assessment of the situation is that this could not be further from the truth.

In my view, the key to GSK’s actions is in a small paragraph from the Chair of the Board in their most recent annual report which reads “Operating in a responsible and ethical way is essential for the commercial success of GSK.”

From a business perspective there are very clear reasons why GSK is doing this and why other pharmaceutical companies will follow suit. My reading of GSK’s annual report leaves me in no doubt that they are changing their business model because it is likely to increase their profitability – not because they are being forced to. I do not think GSK is concerned to any great extent about legislative change because it, along with the other players in the pharmaceutical industry, has considerable power not only to influence US legislation but to control the legislation of other countries.

Consider the Trans Pacific Partnership Agreement (TPPA) currently being negotiated between eleven Asian and Pacific-rim countries, including the United States. Key to this agreement are:

• the protection of patents by US pharmaceutical companies which would see member countries’ domestic legislation controlled or overturned
• provisions for pharma to sue governments for millions in damages for undermining the value of their investments by purchasing generic drugs; and
• compensation for drug companies if the market approval process for medicines extended beyond a drug’s patent term.

The proposed Article 15 of TPPA would specifically prevent countries enacting law that was unanimously agreed by all parties in their Parliaments.

Across the countries represented, the unprecedented secrecy under which these negotiations have taken place has been strongly criticized. This secrecy does not extend to the pharmaceutical industry however. The Dominion Post in New Zealand reports that a politician with top-level United States security clearance was barred from viewing the draft text as was US Senate finance subcommittee on trade chairman Ron Wyden who sits on the committee that oversees America’s intelligence agencies but that “more than 600 representatives of pharmaceutical and film corporations are given access because they are deemed to be US Government ‘advisers’’’

Surely, you may be thinking, if the pharmaceutical industry had this power the first thing it would do is to dismantle the regulatory process, removing the need to obtain very expensive approval before marketing its drugs. Not so. Strong regulation serves a very important function in any industry that of providing a strong barrier to entry for new competitors. Michael Porter of Harvard Business School, a world leading authority on company strategy and competitiveness, identifies barriers to entry for new companies as one of the keys to industry profitability.

The cost of the drug approval process is a significant barrier to the establishment of new drug companies and therefore a deterrent to the entry of new competitors to the market, something that works in the favour of pharmaceutical companies. Far better to control regulators like the FDA than to abolish them, and that’s exactly what Big Pharma have done. The regulatory process also serves the interests of pharmaceutical companies by giving the consumer a sense of security that drugs have been through an independent quality control process.

Removal of the regulatory regime could see a flood of new pharmaceutical companies enter the market, increasing competition and reducing profits. The goal of pharma is to control regulation, not to abolish it and there is ample evidence that they have been successful in achieving control of regulatory policy and practice internationally.

In my view, the key driver of GSK’s shift away from providing incentives to doctors and to their sales reps for influencing prescribing practice is that these practices threaten their profitability.

The only distribution channel (the path through which goods and services travel from the vendor to the consumer) for prescription drugs is the medical profession, and the actions of the pharmaceutical industry have undermined confidence in the honesty and integrity of this channel. Low levels of trust in the medical profession result in reduced profitability for Big Pharma.

Americans are turning to complementary and alternative medicine because they feel the current healthcare system is failing them for many reasons. These, according to an analysis of the CAM market include “cost prohibitive prescriptions, impersonal & dismissive physicians, a heavy reliance on drugs, misdiagnosis, and conflicting views regarding the maintenance of wellness.”

GSK’s recent prosecutions and fines have undermined their reputation but in practice this is unlikely to have much impact on sales. Governments not consumers are their customers and government purchasing agents are interested in the quality and price of drugs not in whether the company who produces them behaves ethically or not. While patients may question the class of drugs they are prescribed there is no evidence they are aware of who manufactures the particular brand of drug they are prescribed or reject prescriptions because of the manufacturers reputation.

More relevant to sales is the impact GSK’s actions may have had on public confidence in the medical profession who are the pharmaceutical company’s distribution channel. Prescribing behavior is the biggest driver of pharmaceutical sales. Loss of confidence in doctors represents a huge threat to profitability.

While in the past, increasing sales through providing incentives to doctors to prescribe has been a successful strategy, revelations about the prevalence and quantum of incentives to doctors has damaged public confidence in the integrity of the medical profession to the extent that GSK and its rivals have seriously harmed their own distribution channel.

We have seen this happen in other industries. A Deloitte survey of retirement advisers found that 20% of respondents didn’t trust advisors to provide objective advice and were concerned that they were motivated to guide them towards investments benefitting the provider rather than the client. The survey found that 83% of those who have a high level of trust in advisors sought their advice, compared with only 32% of those who have a low level of trust.

Given that doctors are the sole distribution channel for drugs, it is in the interests of pharma to ensure they are trusted by consumers and are not perceived as compromising their commitment to patient care as a result of their relationship with the pharmaceutical industry. Stopping payments to doctors and funding for medical conferences and severing the ties between sales rep remumeration and prescribing rates will be key to convincing consumers of the independence of doctors.

Marketing guru Kotler believes that strong brands are the only route to sustained, above-average profitability and that great brands present emotional benefits, not just rational benefits. Great brands work more on emotions than on product attributes and benefits and show social responsibility care and concern for people and society.

There is a niche in the market for a pharmaceutical company to become the leader in ethical practice. Branding is about perception rather than reality and it is not necessary for GSK to be ethical in reality but to create the perception of being so.

The recently announced changes in GSK’s business practices are, in my view, aimed at increasing confidence in the medical profession and positioning GSK as the ethical player in the pharmaceutical industry, they have nothing to do with requirements imposed by government.

Previous articleMy Recovery from ‘Schizophrenia’ through Psychotherapy and Writing
Next articleNIMH Mad Libs
Maria Bradshaw
DelusionNZ: Maria Bradshaw lost her only child to SSRI induced suicide in 2008. Co-founder and CEO of CASPER (Community Action on Suicide Prevention Education & Research), Maria promotes a social model of suicide prevention focused on strengthening community cohesion, addressing the social drivers of suicide and providing communities with the knowledge and tools required to reclaim suicide prevention from mental health professionals. Maria has an MBA from Auckland University and particular interests in sociological and indigenous models of suicide prevention, prescription drug induced suicide, pharmacovigilance and alternatives to psychiatric interventions for emotional distress. Maria has researched and written a number of papers challenging the medical model of suicide prevention.

18 COMMENTS

  1. I have always been of the opinion that Big Pharma companies, not only GSK, are happy paying these fines as a “cost of doing business” so I don’t believe for a second that the real motivation behind GSK’s change is that suddenly its executives have become more ethical.

    Other than the reasons that you give, let me offer another one from my own knowledge of the corporate world (although not specific to Big Pharma): executives at these companies might be afraid that it is only a matter of time before any of them goes to jail because of the cumulative evidence that these practices were happening with the executives’ knowledge. So I think it is all part of a plan, ratified by the attorneys, to shield the executives themselves from legal liability. If something fishy happens in the future, these executives can point to the “new ethical ways of doing business” to excuse themselves of particular employees “gone rogue”.

  2. pHARMa should never have killed Maria’s son. They’ve unleashed one of the most powerful pHARMacovigilantes ever to walk Earth. This is a GREAT piece that brings together all of the right pieces to show just how pervasive undue corporate influence is in domestic and international policy and politics.

  3. In 2004 Pfizer agreed to pay $430 million to resolve criminal and civil liabilities in connection with its “illegal and fraudulent promotion of unapproved uses” of Neurontin. Just earlier this month, the U.S. Supreme court upheld a $142 million award to the Kaiser Foundation Health Plan for Pfizer’s marketing Neurontin for unapproved uses. The court also allowed two additional lawsuits against Pfizer to proceed. A key factor in the court’s decision was an analysis by Meredith Rosenthal of the Harvard School of Public Health which suggested that marketing Neurontin for unapproved uses “caused physicians to write 43 million off-label prescriptions.”

    GSK can see the writing on the wall; the practices that pharmaceutical companies used to build their empire can’t be used in the future to maintain it. I agree with your analysis of why GSK is making the announced changes. And I agree it has nothing to do with turning over a new leaf and trying to set a new ethical business model because it is the right, honorable and moral thing to do. It’s just the right business move to make at this time.

    If it was being done for moral, ethical reasons, GSK should have done this ten years or longer ago.

  4. Excellent piece Maria. I agree that GSK, (and others are sure to follow this) is doing this to protect its brand image and to make sure their profitability remains high. And if it appears ethical, all the better.

    And as I said in another comment, we need to now move on towards banning advertising pharmaceuticals, and allowing companies to publicize their own cherry picked results of studies. We need to ban allowing pharmaceutical reps promoting these drugs in medical establishments like hospitals and medical establishments.

    All studies of these drugs need to be longitudinal double blind studies done by completely neutral parties and all results need to be published In journals untainted by pharmaceutical company money.

    Rebranding to appear more ethical is simply window dressing. A nice start (even its done for sheer profitability), but there’s a long way to go.

  5. I don’t believe any of the pharmaceutical companies are changing tack because lowered trust in physicians could threaten their revenue streams. I think they have discovered a far more potent and trustworthy avenues to ensure continued profitability: patient advocacy organizations and direct-to-consumer marketing.

    Basically, Pharma has identified that patients more readily treat their physicians as legalized street-level contacts who will get them what they need based on what the patients tell the doctors they need.

    Control the information that patients get, and you control their decision to prescribe and treat their condition(s) as they believe will be in their best interests.

    Basically, physicians are being passed over for all the perks and epaulettes that used to be slathered all over them by the drug companies because (and my apologies for the crassness of my subsequent analogy) they are aged-out sex trade workers as far as the drug company pimps are concerned.

    I think the change is tack is not about chamfering up a tarnished physician reputation, but rather a savvy recognition that it is far more likely physicians will not hold their prescribing monopoly for too much longer in any case.

  6. GwynOlwyn, I would agree that marketing/advertising as well as misinformation campaigns by groups such as NAMI are much easier ways to insure profitability. Patients come to doctors demanding Seroquel for anxiety and Wellbutrin for depression because of commercials and the idea that these drugs fix chemical imbalances. The doctors are simply willing middlemen between Pharma and the consumer. It’s not like they will stop prescribing.

  7. I presume you meant nation-centric and not ethnocentric. I live in a ethnically diverse nation myself (Canada).

    Correct me if I am wrong, but in the emerging markets of which you speak such as India, my understanding is that the list of prescription-only drugs is not equivalent to that found in Canada or the US. Over the counter medication (that require prescription in established markets) is readily available and that would suggest that consumers get their information predominantly from pharmacists in those circumstances and not physicians.

    As for China, I am wondering whether numerous GSK scandals involving the bribery of Chinese physicians is well publicized within the PRC. In other words, how much could we reliably suggest that GSK manoeuvres that are highly publicized in the Western press to improve physician reputation have any traction whatsoever within the PRC?

    I think it is selling the Pharma consortium well short of its marketing goals to suggest that it has no intention of broadening the groups who will be prescribing medication in future. Will physicians still prescribe? Yes. But so too will a host of other health care practitioners in both emerging and established markets.

    I am not suggesting that physicians are not still a formidable lobbying group in all market areas around the globe, but I think it behooves those who might have patient interests at heart to recognize that Pharma can just as easily by-pass that power structure as bolster it.

  8. Maria

    You have done a penetrating analysis of how monopoly capitalism works within the pharmaceutical industry.

    This only reaffirms for me why we will never have equal and universal access to safe and compassionate medical care as long as the profit motive is the guiding principle underlying the development of medicine and science.

    For those who criticize having too much regulation (of a genuine nature) as somehow holding back the advance of new discoveries, you either ignore or can’t see that the capitalist law of value and the “expand or die” nature of the current system has an underlying logic of its own that must put profit before people and life itself.

    These Big Pharma CEO’s are not by nature “bad people”; they act badly because they are mere instruments of this law of value. If they don’t the follow capitalist logic, or do it well enough, they will soon be replaced by new leadership when the profit margin of their corporation falls below acceptable levels and they fear being eaten up by their rivals. This is the true essence of “survival of the fittest.”

    We will all remain victims until we understand how this system really works, and then rise up and do something about it. Maria, thanks for the lesson in corporate economics.

    Richard

    • I have had nothing but harsh words for Big Pharma companies and their executives. But you forget that the capitalism under which these companies operate is not the capitalism that those of us, believers in free markets, defend.

      Big Pharma, just as Big Oil, the big defense contractors or Wall Street banks, operate under the model of crony capitalism, “corporate welfare”, oligopolistic capitalism or however you want to call it. Free markets are about companies/players competing under the same rules, fairly. Some companies win, some lose. It has been a long time that Big Pharma companies do not operate under this model (Maria had an excellent piece about the matter). Big Pharma companies lobby so that legislators write the rules in a way that favors them, and that includes the whole drug approval process which makes effective competition non existent. It is impossible for a startup company to become the next GSK on its own the way Facebook went from a Harvard dorm to become a company valued at 100 billion dollars in 10 years, or 20 years. The number of Big Pharma companies is fixed. Even a company like Genentech was absorbed by Roche. So the toxic, heavily regulated, environment under which not only Big Pharma companies, but also the private insurance companies, operate is hardly the best representative of the free markets that I defend and that gave us the personal computer or the internet out of pretty much nothing.

      A different question is whether capitalism of any kind is the best model for all areas of life that involve economic activity. The answer is clearly no, as higher education shows: the best universities are private but nonprofit. Also nobody ever thought of having an army made up only of mercenaries (so that soldiers have allegiance not to their country but to the best payer).

      Higher education also provides a very good argument against public nonprofit institutions: Europe is full of mediocre public universities, its top two (Oxford and Cambridge) being effectively run as their American private nonprofit counterparts.

      The question of what’s the best model for healthcare is something I myself struggle a lot. On one hand it is human nature that no significant medical breakthroughs would happen in the future if all areas of healthcare are carried out by government bureaucrats. It is also clear that the oligopolistic, corporate welfare model doesn’t cut it either. Probably the best model would be something along the lines of what happens in higher education, but that would also mean that a lot of the restrictions that favor existing players would need to be lifted. Imagine a world in which the only people who could attend Harvard are Massachusetts residents. That is the world of the private insurance market since companies cannot compete across state lines. Why? Precisely because existing rules favor existing players!

      So a change in the regulatory framework of Big Pharma is surely in order, but not capitalism!

      • Cannotsay

        The idea and practice of so-called “Free Market” capitalism (with an emphasis on the word “free”) is infinitely more utopian than any concept or practice of socialism and communism.

        There is nothing “free” in the market place except for those who have the capital and power to become players in capitalist economics; and ultimately some of those players will eventually be crushed. Those of us who are mere observers to this process will continue to be tossed around like so much refuge in the storm of their inevitable periods of boom and busts.

        Your vision of a much earlier stage of capitalism comprised of so-called “freely” competing entrepreneurs is thoroughly utopian. We now live in the era of “monopoly” capitalism. You can’t turn the historical clock backwards try as you may.

        And if you could, the law of value in capitalist economics (expand or die and eat up your competition before they eat you up) has an internal logic that would only lead back to a monopoly form within a relatively short period of time.

        Large corporations and the class of people who run and benefit from them eventually control the whole political system; they make and enforce all the rules under the guise of there being some sort of democracy.

        “On one hand it is human nature that no significant medical breakthroughs would happen in the future if all areas of healthcare are carried out by government bureaucrats.”

        You are correct about the role of “government bureaucrats” as impediments to progress, but very wrong about human nature.

        Human nature is not something set in stone; it is a very malleable process that historically responds to and develops within the social context that nurtures it.

        There are millions of people in the world that would love the opportunity (if provided the necessary resources) to invent things and discover important advances in science to help human kind eliminate unnecessary suffering. They are not, and would not have be motivated by the desire to be rich and powerful.

        The current system we live under actually holds back this process of discovery because all these necessary resources are only available to a select few, and their ideas are geared to what may be profitable in the market place; not necessarily what will benefit all of humanity.

        So I say, “regulating Big Pharma” is like asking Dracula to suck water instead of blood. Why do we need to have a “Big Pharma” anyway, and why do we even need insurance companies that siphon off 20 to 30% of the profits thereby raising healthcare costs by almost a third?

        Richard

        • Hi Richard,

          I have provided an area where plain old vanilla capitalism still delivers: high tech. There are others: hard science itself for instance. If you take a look at the institutions/countries that produce the highest number of Nobel, Fields Medal prize winners it is also obvious that an overwhelming majority of them are wealthy institutions/countries that pay very well their scientists/professors in comparison with the universities/countries that produce mediocre work.

          With respect to human nature, we do have the empirical evidence that people do need incentives to produce good work. The historical experiment has been done so many times that it is surprising that there are still believers in government imposed equalization. A few examples,

          – Germany. Prior to WWII, there was no significant difference between the East and the West. 40 years / 2 generations later, the capitalist West became the envy of Europe while the communist East became so impoverished that even today, 20 years after the fall of the Wall, it remains a very impoverished part of Germany. This experiment is significant because we are talking about exactly the same people -from a historical background-, exactly the same culture and, for whatever it is worth, exactly the same genetics. Still, the part of Germany that was ruled by capitalism flourished in every aspect, the part that was ruled by a utopian egalitarianism was poor. When you don’t provide incentives for innovation, it just doesn’t happen. Most people, do not innovate for innovation’s sake because unless you are born wealthy, you have to make a living first. It’s only after your life needs have been covered that you can think about innovating. And by definition you cannot provide everybody a “wealthy lifestyle”.

          – Korean peninsula, it’s exactly the same story as with Germany.

          – China. It avoided the destiny of the Soviet Union only after it embraced capitalism. This is an interesting historical experiment: a capitalistic society with a totalitarian one party rule political system. Too early to tell how successful this model is for society, but it is not early to tell that capitalism raised more people out of poverty in China than any other policy you can think of.

          – Even Bono, the U2 singer and icon of the left, has bought this vision http://www.theguardian.com/commentisfree/poll/2013/aug/13/aid-bono .

          – Countries with socialized medicine. They don’t produce significant medical innovation; even the NY Times recognizes this fact: http://www.nytimes.com/2006/10/05/business/05scene.html?_r=0 “Poor U.S. Scores in Health Care Don’t Measure Nobels and Innovation”

          The challenge is to keep medical innovation going (outside psychiatry, since if it were up to me, psychiatry would be completely deprived of public funds) and help people who don’t have insurance. What is clear though is that if the “single payer, socialized medicine” model were to be adopted, medical innovation would come to a halt. Again, the evidence is too overwhelming to ignore it.

  9. Cannotsay

    Thanks for your thoughtful response; a response that contains many contradictory thoughts.

    You say, “With respect to human nature, we do have the empirical evidence that people do need incentives to produce good work.”

    Of course, we all need incentives in life to accomplish many things BUT that does not mean it must be, or should be, an incentive to be rich or well off.

    Millions of people around the world do wonderful things for other people every day without being financially rewarded for their good deeds. You cannot deny this, or deny the fact that that many great inventions were discovered by human ingenuity and curiosity attempting to solve a problem confronting one’s daily existence and the need to produce and maintain the necessities of life. Some were even discovered by shear curiosity alone.

    You say, “It’s only after your life needs have been covered that you can think about innovating.”

    Yes, yes, yes.! Think about the millions and millions of creative minds throughout the world that cannot be accessed at this historical stage in our history because one half of humanity is not sure where their next meal is coming from.

    Imagine what could be discovered and how far we could advance as a species if we could create a world where those basic needs were available for all so that every one had the opportunity to be both a “thinker and a doer,” and people were actually motivated to do both.

    Discovery that occurs only from financial incentive is narrowly limited to only what will be profitable in the market place, NOT necessarily what human kind needs to advance its interests as a species.

    Cannotsay, you have no argument with me regarding East Germany. This was NOT a genuine socialist system that should be promoted as some kind of model. And I most definitely would put North Korea in the same category – socialist in NAME only. And “Bono” and the “mainstream left” are not icons of mine.

    As for your comments about China – China is a tinderbox waiting to explode. Their complete reversal of socialism and embracement of capitalism has created a very polarized society where those who have become “rich” or more well off are ONLY concentrated in Chinese cities. China still has an enormous section of the population (the overwhelming majority of the population) living in the countryside. They have not benefited from the socialist reversal, in fact, their standard of living has greatly suffered. This polarization will only get worse in the future and the writings of Mao, ironically, are becoming very popular again.

    A single payer or “socialized” system of medical care is NOT a “cure all” or a final solution to the enormous problems facing our society. While I believe it would be a temporary advance over what we have now, if it did not come with other major systemic changes in society then it would have many of the limitations you point out.

    In the end, Cannotsay, your defense of capitalism, a system that really only works for a minority of society, is a “lesser of evils” type analysis.

    Biological Psychiatry is ultimately a creation of the capitalist system and it will not be completely eliminated until there is a major system change. I believe that humanity can do way better than this; dare to think beyond the here and now.

    Richard

    • Thanks for the interesting discussion Richard.

      Yes, I concede that capitalism is the lesser evil, just as Winston Churchill said that democracy is the worst of all political systems, with the exception of everyone else known to man!

      Until anything better pops up, and I fail to see what such a system would look like, representative democracy with individual rights on the political front combined with capitalism on the economic front has been shown to be superior to any other societal model ever experimented with. We also know the things that do not work.

      You praise the single payer universal system for medicine -medicare for all as Dennis Kucinich calls it-, but people should be told that if the US were to adopt such a model as its primary source of healthcare, innovation would come to a halt. As the NY Times article cogently indicates, the Western countries that have such a model do not produce any meaningful innovation. These countries have been living out of the innovations produced in the United States during the last 30 years. When it comes to medical innovation, the US is the last stand on Earth. If the US were to fall on this matter, that’s it. Besides, the most likely result would not be “medicare for all” but “medicare for 90% of the people, something like the pre Obamacare situation for the remaining 10%”. One of the advantages of the size of the United States is that if the 10% wealthiest decided to create a medical system for themselves parallel to “medicare for all”, that’s still 30 million people, which is close to the population of a country like Poland.

      With respect to innovation, the historical record is very clear that it requires that those making the innovations are given the means to live comfortable to do so. Be it through capitalism or, as during the case of the European Enlightenment, patronage by wealthy aristocrats and the like. Even in the Soviet Union, which was known for its excellence in basic science that didn’t require significant capital investments, those who did mathematics, physics or chemistry at the professional level lived significantly better than the rest of the population in spite of communism, which is why many in the Soviet Union, as well as in Eastern Europe, saw a career in science as a way to make a better living that what their average comrades did.

      With respect to biological psychiatry being a byproduct of capitalism, I beg to differ. The historical record is also very clear that psychiatry grew as the role of religion in society weakened.

      Psychiatry is the secular alternative to the social control mechanisms that existed when our societies were more religious. We have become more secular but it doesn’t mean that human beings do not have an insidious impulse to impose their notions of normality on everybody else. The DSM is being use these days by secularists as a sort of “sacred text” so that everything that is not in the DSM is, by definition, normal.

      The best example of this is homosexuality. Homosexuality was once a “mental illness” (we all agree that it was wrong to consider it a mental illness, in fact I do not give legitimacy to any of the DSM labels). Homosexuality was then dropped from the DSM via a referendum (and that referendum only got 55% of the vote). Since then, gay rights activists have used the exclusion of the DSM of homosexuality as “proof” that homosexuality is “normal” in legal briefs to push for the legalization of gay marriage.

      Capitalism is only tapping the market of a society that increasingly sees psychiatry, and its chemical “cures”, as the source of “meaning” and “social control”. It is no accident that the countries of the European Union with the highest rates of involuntary commitment (Finland, Norway with 200 per 100000) are also the most secular countries in Europe. They also have the highest rates of suicide.

      Bob Whitaker gave this talk to a reduced group about how eugenic thought (the “fit” vs the “unfit”) still pervades society and psychiatry in particular https://www.youtube.com/watch?v=H4vL2CBdDr4 . Capitalism has nothing to do with that.