Dianthus Medical Blog Archive

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.

CompanyFineYearMarket capitalisation ($ billion)Fine as % of market cap
Eli Lilly$1.4bn2009652.2%

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:

CompanyFineYearMarket capitalisation ($ billion)Fine as % of market cap
Royal Dutch Shell$5 bn20122203.7%
HSBC$4.2 bn20122103.3%
BP$4.5 bn20121395.3%
Vodafone Group$200 m20121350.2%
British American Tobacco$50 bn199811272%

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.

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