Are big pharma like the mafia?
I have recently read Peter Gøtzsche’s book, “Deadly Medicines and Organised Crime: How big pharma has corrupted healthcare”. It’s a rant about how the pharmaceutical industry are evil and a form of “organised crime”. No, I’m not exaggerating, he actually does say that.
I have written a review of the book for EMWA's journal, Medical Writing, which I’ll share with you another day, but for now I wanted to write about one aspect of the book: the comparison between the pharmaceutical industry and organised crime.
Gøtzsche attempts to convince us that the pharmaceutical industry is like an organised crime gang by quoting a number of cases where pharmaceutical companies have been fined for various kinds of wrongdoing. I’ve put the data he presents into the table below. I haven’t checked his numbers, so I don’t know if they’re accurate, but let’s accept for the sake of argument that they are. I’ve added the market capitalisation figures myself (mostly from here), for reasons that will soon become apparent.
| Company | Fine | Year | Market capitalisation ($ billion) | Fine as % of market cap |
|---|---|---|---|---|
| Pfizer | $2.3bn | 2009 | 204 | 1.1% |
| Novartis | $423m | 2010 | 173 | 0.2% |
| Sanofi-Aventis | $95m | 2009 | 148 | 0.1% |
| GSK | $3bn | 2011 | 113 | 2.7% |
| AstraZeneca | $520m | 2010 | 62 | 0.8% |
| Roche | 0 | N/A | 166 | 0% |
| J&J | $1.1bn | 2012 | 248 | 0.4% |
| Merck | $670m | 2007 | 142 | 0.5% |
| Eli Lilly | $1.4bn | 2009 | 65 | 2.2% |
| Abbott | $1.5bn | 2012 | 58 | 2.6% |
Looks pretty damning, doesn’t it? All those companies, except Roche, have had to pay huge fines for various crimes in the last 7 years. The fines are a median of 0.66% of their market capitalisation, and a mean of 1.1%. Surely that’s proof enough that the pharmaceutical industry is a kind of organised crime?
Not so fast.
As Gøtzsche, as an experienced researcher, really ought to know, data are pretty much meaningless without a control group. How do those numbers compare with other companies?
Well, doing a detailed study of that is beyond the amount of work that’s feasible for a quick blogpost, but I did take a look at the top 5 companies listed on the FTSE 100 by way of a comparison (as per the Wikipedia page, giving rankings as of March 2013). Well, since one of those is GSK, I took the other 5 of the top 6. Now, if none of those companies has had to pay multimillion dollar fines, then I guess we would feel pretty safe concluding that pharma are just like organised crime, wouldn’t we?
So what do we find?
The top company is Royal Dutch Shell. They were fined $5 billion in 2012 for an oil spill in Nigeria. And that’s hardly the only time they’ve been in trouble.
Next on the list is HSBC. Remember when they were in the news for money laundering last year? They got fined $4.2 billion for that.
Then we have BP. Another oil company, another expensive oil spill. They were fined $4.5 billion for their role in the gulf of Mexico fiasco, and there is an ongoing court case which may more than double that fine.
Vodafone comes next. They got caught fiddling their taxes in India, for which they were fined about $200 million in 2012. They’ve been in trouble with the Spanish authorities too, though with a paltry €43.5 million fine, that’s barely worth mentioning.
The last on our list of companies is British American Tobacco. They actually don’t seem to have been in too much trouble in the last couple of years, but oh boy, have they made up for that in the past. They were one of 4 tobacco companies who were stung for an eye-watering $200 billion in a 1998 lawsuit in the states. I don’t know what their share of that was, so let’s guess that it’s a quarter of the total at $50 billion.
Let’s put all that into another table:
| Company | Fine | Year | Market capitalisation ($ billion) | Fine as % of market cap |
|---|---|---|---|---|
| Royal Dutch Shell | $5 bn | 2012 | 220 | 3.7% |
| HSBC | $4.2 bn | 2012 | 210 | 3.3% |
| BP | $4.5 bn | 2012 | 139 | 5.3% |
| Vodafone Group | $200 m | 2012 | 135 | 0.2% |
| British American Tobacco | $50 bn | 1998 | 112 | 72% |
Here, the median fine as a percent of market capitalisation is 3.7% and the mean is 17%. Even allowing for the fact that the mean is massively hoiked upwards by British American Tobacco, it’s clear that the pharmaceutical industry have been pretty well behaved in comparison, if we judge a company’s bad behaviour by the size of the fines they receive. It’s also worth noting that, apart from the rather exceptional case of British American Tobacco, all those fines occurred in 2012. Gøtzsche had to go back further than that to find evidence of wrongdoing for many of the pharma companies.
Now, I will admit this is a quick and dirty analysis, but I hope you get my point. Claiming that multimillion dollar fines prove that the pharmaceutical industry act like organised crime is meaningless unless you have something to compare it with.
It’s a sad fact that many large companies fall foul of the law more often than we’d like. I’m not condoning this, but I’m pointing out that it is not something specific to the pharmaceutical industry: it is a general feature of large businesses.
Personally, I would love to see a world in which businesses of all kinds, pharmaceutical and otherwise, were less likely to do wrong. I suspect that fines are not particularly effective as a deterrent, as they penalise shareholders, not the individuals responsible. Holding individual directors to account, either with fines or even jail terms, would I expect help to focus minds in the boardroom on ethics a little more.
Clearly, there is a problem with the way business is conducted, and it would be foolish to pretend otherwise. But it would be equally foolish to pretend that corporate law-breaking is unique to the pharmaceutical industry.
Interesting blog, Adam. Of course, selecting the companies on market size rather by size of fines avoids an obvious trap of comparison and, one could argue, would even bias the percentage fine figure downwards since it biases denominators upwards. Stiil, five, as you point out, is a very small sample. On the other hand, five is a lot better than nothing at all!
Yes, 5 is a disappointingly tiny sample. I wish I'd had the time to complete the exercise for the entire FTSE100, then it might have been a more meaningful comparison. But at least it's a start.
It's an interesting question about how choosing the 5 biggest companies biases the sample. It may well bias the % fines downwards as you suggest. On the other hand, it's also possible that the bigger companies are more likely to misbehave than smaller ones. If anyone feels like repeating the exercise for the bottom few companies of the FTSE100, that would no doubt be interesting.
I'm entirely sympathetic to your objecting to these popular and poorly argued criticisms of big pharma, but I don't think all kinds of fines should be lumped together. One would need to know what they were fined for---that goes for the pharma groups as well as the others you list. Were people endangered, or was it some technical violation? (I know, for ex. that BP was fined an absurd amount for the BP spill, but I also wonder why J & J wasn't flat out shut down for all the mold).
Interesting point, Mayo. As I said above, my analysis was entirely "quick and dirty", and your suggestion could be one way of making it a bit more sophisticated.
However, I suspect it's probably quite hard in practice to draw the line between a "technical violation" and something that endangers people. For example, from the pharma side, one of the things that got Pfizer into trouble was promotion for off-label uses. You could argue that was a "technical violation", or you could argue that someone could be harmed if as a result they are prescribed a drug for which the risks outweighed the benefits. And from the other side, you could argue that HSBC's failure to control money laundering was purely a technical violation, but on the other hand if it made life easier for criminal gangs to carry on their business, it's quite possible those gangs went on to harm people.
Probably not an easy one.
I really don't understand why you should think that the fact that other big companies behave badly is any sort of justification for misbehaviour by Pfizer etc.
That makes as much sense as trying to defend yourself against a murder charge by saying 'look at all those other murders, even worse than mine'.
I'm puzzled about which part of my post made you think I thought it was a justification, David? Did you read the part where I said "I'm not condoning this" or the part where I said I'd like to see directors of misbehaving pharma companies end up in jail?
My point was not that corporate lawbreaking is OK, just that it's really not specific to the pharma industry: it is a general feature of big business.