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Pfizer Inc. (PFE), Novartis AG (ADR) (NVS), GlaxoSmithKline plc (ADR) (GSK) & Big Pharma’s Kickback Conundrum

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Big pharma is a controversial industry. Along with tobacco companies, they are some of the most vilified businesses in the world. On one hand, large pharmaceutical companies invest heavily in producing breakthrough medicines. Since 2000, the 31 main companies of the sector spent a combined $550 billion on research & development, creating 400 new medicines in the process.

On the other hand, these companies have attempted to stop generic versions of HIV drugs from being made, used off-label marketing to promote the use of their drugs for unintended purposes, and repeatedly given doctors and pharmacies kickbacks in exchange for heavier promotions of their brands.


Catch-22

For investors, it’s a classical ethical conundrum – although big pharmaceutical companies achieve their exceptional breakthroughs through heavy investments and the expectation of profits, should they be allowed to bend the rules to achieve higher top line growth?

The industry’s supporters believe that drug companies are entitled to their profits, and that higher sales translate into higher investments in research. Meanwhile, opponents believe that the drug industry has gone too far, needlessly endangering patients through the aggressive promotion of drugs for unapproved uses.

Pfizer Inc. (NYSE:PFE)

Let’s take a look at three major lawsuits over the past four years, involving Pfizer Inc. (NYSE:PFE), GlaxoSmithKline plc (ADR) (NYSE:GSK) and Novartis AG (ADR) (NYSE:NVS), and evaluate the implications of these cases.


Pfizer (2009)

In 2009, Pfizer Inc. (NYSE:PFE) agreed to pay the U.S. government a $2.3 billion fine as a result of the off-label marketing of its arthritis drug Bextra for unapproved uses. The company was also required to pay $1.3 billion in criminal fines. Over the decade leading up to its historic settlement, the company had been fined by the U.S. government three previous times for similar reasons.

Pfizer Inc. (NYSE:PFE) was also found guilty of giving inappropriate kickbacks to doctors, such as resort packages and other expensive perks, for prescribing its drugs for their off-label uses. Although doctors and physicians are allowed to prescribe drugs for unapproved off-label use, companies are forbidden from advertising their off-label uses. This strategy of giving doctors kickbacks can turn poorly selling products into best-selling ones.

Pfizer Inc. (NYSE:PFE)‘s Bextra was originally approved by the FDA for the treatment of arthritis and arthritis-related menstrual cramps. However, it was also used as an off-label treatment for acute, non-arthritis related pain. In 2005, however, the FDA recommended that Pfizer Inc. (NYSE:PFE) withdraw Bextra from the market, citing the increased risk of heart attack and stroke.

In addition to Bextra, Pfizer Inc. (NYSE:PFE) also encouraged doctors to promote the anti-psychotic drug Geodon for the unapproved off-label treatment of depression, anxiety, ADHD, obsessive compulsive disorder, autism and post-traumatic stress disorder. In other words, it became a panacea for mental disorders.

Pfizer’s antibiotic Zyvox, epilepsy treatment Lyrica and several other drugs were also used for off-label purposes. At the end of the settlement, Pfizer was found guilty of improperly marketing 13 different drugs.


GlaxoSmithKline (2012)

Pfizer’s massive $2.3 billion fine held the dubious record of the largest U.S. healthcare settlement for three years, before GlaxoSmithKline plc (ADR) (NYSE:GSK) was hit with a $3.0 billion fine for the same bad behavior.

Between 1998 and 2007, GlaxoSmithKline used the same off-label tactics as Pfizer to promote Paxil and Wellbutrin, two of its best-selling products for adult depression, for unapproved uses. Paxil was administered to treat depression in children, while Wellbutrin was used to treat sexual dysfunction, substance addictions and ADHD. GlaxoSmithKline plc (ADR) (NYSE:GSK) also encouraged doctors to promote asthma medication Advair to mild asthma sufferers, although the drug was only approved for more serious cases.

Meanwhile, epilepsy medication Lamictal was given used to treat psychiatric conditions and neuropathic pain, while post-operative nausea drug Zofran was used to treat morning sickness in pregnant women. GlaxoSmithKline plc (ADR) (NYSE:GSK) also neglected to report negative safety data from its diabetes drug Avandia to the FDA, which was later found to increase the risk of congestive heart failure.

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