A Trojan horse?

The US pharmaceutical industry's trade 'breakthrough'
John Merson

Why does US trade representative Bob Zoellick believe the free trade deal with Australia is a 'breakthrough' for the US pharmaceutical industry?

In trying to understand the trade-offs that lie behind the US-Australia free trade agreement, it is necessary to look not just at the short-term winners and losers, but at the longer term endgames that are involved. In this respect, far more insight can be gained by what is said to justify the deal on the US side than can be understood from our side. The concessions the US seemed to be making in relation to national content rules for TV, for example, left many media analysts breathing a sigh of relief. They were so relieved, many failed to look more carefully at what the US negotiators were really interested in. Their attention was focused on the rules governing non-broadcast digital media. Presently, this is a relatively insignificant aspect of commercial media in Australia, but in the next decade it could well eclipse television, as large numbers of people move to online entertainment and information services. It is this market that the US wants dominance in, and the free trade deal seems to be providing the perfect vehicle for US corporations to dominate this emerging market in Australia.

In terms of the Pharmaceutical Benefits Scheme (PBS), there is some confusion about what the US is getting out of the deal. Mark Vaile and the Australian government have assured us that there are to be no significant changes to our public health scheme as a consequence. The US negotiator, Bob Zoellick, in his response to questioning by the US Congress, talked about the proposed deal as a 'breakthrough' for US pharmaceutical interests1. Something does not gel in this. We are assured that all the US got was the ability to challenge the rejection of new drugs that might be covered by our PBS, through the creation of a new intergovernmental committee involving US representatives to review the decision of the PBAC (Pharmaceutical Benefits Advisory Committee). In reality, PBS support will ultimately not be decided by the committee, for the buck will ultimately stop with the minister for health and treasury officials, who, on the basis of costs/benefits, will decide the price support that will be given. Why, then, is this a 'breakthrough', and what might be the endgame involved here?

It is important to understand certain assumptions that the US government and its pharmaceutical industry lobby hold, and the key assumption is that the US essentially subsidises the rest of the world's drug development costs. For this reason, US citizens have to suffer paying many times the cost for drugs that Australia and other countries benefit from at significantly reduced rates. Big pharmaceutical companies have convinced the US department of trade and the negotiating teams involved in the deals that this is unfair, and that the citizens of other countries should be contributing equally to the cost of developing the drugs from which they benefit. Given that the US leads the world in patenting and developing new pharmaceutical products, this seems a legitimate claim, especially as the industry in the US claims that the costs of getting a new drug on the market can be anything from US$300 to US$500 million. It might well seem that we are getting a free ride on the back of US consumers.

The truth is more complex. Firstly, the scientific research and development costs involved in developing new drugs, including the complex raft of necessary clinical trials, really only represent 15 per cent of the US costs. The largest proportion of the costs, 30 to 40 per cent, is spent on advertising and marketing. Secondly, the driving interest of new drug development is not primarily the health of citizens. Rather, the driver is primarily a concern to ensure that the balance of drugs in use are 'branded'; that is, covered by patents, for which there is little market competition. It is these branded drugs that provide the pharmaceutical industry with its very large profit margins. However, as industry insiders are now openly admitting, the process of keeping the right balance of 'branded' and cheaper 'generic' drugs (those outside patent protection) is a constant political, public relations and marketing battle. It is here that the major costs are incurred, and it is a pretty dirty business as well. As David Healy (1999:212) argues: "Companies act to control not only the supply of products to a market, but also the flow of ideas to the ideas market and to regulate the demand that comes from the market". In other words the strategy is to be able to create new ailments for which they have the pharmaceutical solution.

Nowhere has this been more obvious than in the case of mood disorders. Take for example the recent effort to launch a drug for the treatment of GAD (General Anxiety Disorder) by the British-based pharmaceutical giant Glaxo Smith Kline, which endeavoured to establish GAD as a major and 'popular' disorder. In April 2001, the US media was awash with stories of a new epidemic that was reported to affect at least 10 million Americans. Jack Gorman, a psychiatrist at Columbia University, appeared on numerous chat shows talking up the seriousness of the condition. Mental health advocacy groups, representing patient groups such as Freedom from Fear, put out press releases and video clips that saturated the electronic media. Sonja Burkett was trapped in her home for two years until she was finally diagnosed. One woman told the Chicago Tribune: "People with GAD spend nearly 40 hours per week, or a full time job, worrying ... the thing about GAD is that worry can be a full-time job. So if you add that up with what I was doing, which was being a full-time achiever, I was exhausted, constantly exhausted" (Koerner 2002).

This was the prelude to what has, since Prozac, become a familiar marketing approach of Cohn and Wolf, the drug-maker's PR firm. The first stage is a disease awareness campaign, often in conjunction with the funding of drug trials and involving leading medical specialists, which, in turn, becomes part of lifting public awareness. Jack Gorman, for instance, is a consultant to Glaxo Smith Kline which on 16 April 2001 had its failing antidepressant, Paxil, approved by the US Food and Drug Administration (FDA) as a treatment for GAD. Such extensions of the life of the older SSRI (serotonin reuptake inhibitors) drugs has become increasingly common, given their lack of specificity. For example, Prozac is now being repackaged as Sasafem, a treatment for menstrual-related mood problems. Jack Gorman, like a number of high profile academic psychiatrists, has also been a consultant to at least thirteen other pharmaceutical firms associated with the release of new drugs. Brendan Koerner (2002:58-63), in his expose of this practice, cites Leon Mosher, a San Diego psychiatrist and former official at the National Institute of Mental Health, who summarised the strategy used by the pharmaceutical industry as a series of well-managed steps:

Typically, a corporate-sponsored 'disease awareness' campaign focuses on a mild psychiatric condition with a large pool of potential sufferers. Companies fund studies that prove the drug's efficacy in treating the affliction, a necessary step in obtaining FDA approval for a new use, or 'indication'. Prominent doctors are enlisted to publicly affirm the malady's ubiquity. Public relations firms launch campaigns to promote the new disease, using dramatic statistics from corporate- sponsored studies. Finally, patient groups are recruited to serve as the 'public face' for the condition, supplying quotes and compelling human stories for the media; many of the groups are heavily subsidized by drug makers, and some operate directly out of the offices of drug company's PR firms.

It is this type of process that the consumers of pharmaceutical products are paying for when the US industry argues that the rest of the world should help pay for the 'development' costs of new pharmaceutical products.

Yet the problems go deeper. To get either older drugs re-defined to treat new conditions, or new drugs for well established conditions, it is critical that the clinical trials are represented favourably in the peer-reviewed medical literature. It is this data which will be used to convince drug regulatory agencies around the world of the drug's virtue and efficacy, and which underpins the basis for evidence-based medical treatment.

The publication of such research in the leading professional journals provides independent scientific evidence which can legitimate or seal the fate of a new compound. Thus, the management of the final papers and their submission to leading medical journals tends to be kept in the hands of the company researchers. This has in recent years led to major conflicts between academic and industry research cultures, and has led the editors of a group of international medical journals (including the New England Journal of Medicine, The Lancet, Annals of Internal Medicine, and the Journal of the American Medical Association or JAMA) to try to place limits on industry control over the writing and publishing of clinical trials. This has in large part been due to an increasing practice of refusing to publish research that is negative or, where negative findings were found, to understate the risks (Horton 2004).

A study by Bodenheimer (2000), published in the New England Journal of Medicine, found that 96 per cent of medical journal authors whose findings were favourable to the product had financial ties to the manufacturer. Choudhry et al. (2002) in a further study published in JAMA reported that 87 per cent of the authors who wrote treatment practise guidelines in all fields of medicine had financial ties with the pharmaceutical industry.

The extent to which the influence of the pharmaceutical industry's commercial interests has compromised the integrity of the peer review process has been raised by Vera Sharav (2002:10) in relation to an editorial in JAMA in 2001, where Dr Michael Wofle, a member of the FDA advisory panel, was asked to review a new arthritis drug, Celebrex. The report he received via the journal seemed to suggest that the new drug was a significant improvement on existing treatments, and he commented to that effect. However, when he finally reviewed in detail the actual research evidence, as a member of the FDA panel, he found that it offered no proven advantages. On further inquiry it was found that all 16 of the authors of the study, which included faculty members of eight medical schools, were employees or paid consultants of the manufacturer Pharmacia.

Marcia Angell (2000), chief editor of the New England Journal of Medicine, in an editorial entitled "Is Academic Medicine for Sale?", argued that corporate influence in medicine had reached well beyond that of the individual physician/researcher to determining what research is done, how it is done, and the way it is reported. More importantly, she argues that under corporate influence more research is done comparing trivial differences between one drug and another, with less research being done to gain knowledge about the causes of disease. Conflicts of interest increasingly abound in relation to both the reporting or non-reporting of adverse findings. The former editor of the British Journal of Psychiatry was found to be publishing favourable reviews of drugs produced by a corporation which was paying him an annual fee of 2000 pounds (Sharav 2002:4). In an editorial in the British Medical Journal, Richard Smith (2001:588) makes the following observation of his craft:

We editors of medical journals worry that we sometimes publish where the declared authors have not participated in the design of the study, had no access to the raw data, and had little to do with the interpretation of the data. Instead the sponsors of the study - often pharmaceutical companies - have designed the study and analysed and interpreted the data. Readers and editors are thus being deceived.

Marcia Angell has also observed in relation to this problem that "not even the principal author sees all the data", and Robert Temple, director of medical policy at the FDA's Centre for Drug Evaluation and Research, has observed of the crisis: "One of the things I learned a long time ago is that the person who writes the rough draft has lost control. What the journals have to figure out is, if that is the way it's done, should it be explained that way?"2

There is a second strategy to increase the sale of branded drugs being adopted by the pharmaceutical industry in the US in the name of 'evidence based medicine', which may well be the pushed form in Australia. It's called the Texas Medical Algorithm (TMA) project and was begun under George Bush's tenure as governor of Texas and involved generous contributions to his re-election campaign. The TMA project was begun in 1995 and involves patients in state mental institutions and prisons being prescribed a sequence of highly expensive branded drugs, as opposed to cheaper, safer and equally effective generic drugs. It is a specifically mandated procedure, which all doctors working in state institutions have to follow. It was established by a coalition of 12 of the world's largest and most powerful pharmaceutical companies, in conjunction with a number of consultant medical researchers. It has led to a phenomenal increase in the cost of drugs provided through Medicaid that are subsidised by state taxes. Its promotion throughout the US has involved the payment of massive donations to political parties, health bureaucrats, and influential figures in the psychiatric and medical community. It has also led to a fundamental corruption of normal regulatory process, which were designed to protect the public interest and those committed to state institutions. Not only has health been potentially sacrificed in the interests of promoting corporate profit by such practices, it is also virtually bankrupting the Medicaid program in an ever-growing number of US states that have adopted the program. Allan Jones, a whistle blower working as an investigator for the Commonwealth of Pennsylvania's Office of Inspector General's Bureau of Special Investigations, has estimated that this collusion will cost the American taxpayers an additional US$3.7 billion for new drug regimes to treat schizophrenia alone, with no medical or health advantage to the patients involved (Jones 2003).

The primary objective of the pharmaceutical corporation involved is to see that the newer drugs they are developing are adopted, even when they do not necessarily represent a significant improvement on what already exists. For it is only through these patent protected drugs that they can recover the massive costs involved in marketing and manipulating the scientific outcomes of drug trials, and even the invention and promotion of new illnesses for which the drug provides the cure (Healy 2003). These trends have become so widespread there is a real concern that such commercial manipulation challenges the very foundation of biomedical science and research (Krimsky 2004).

It is in the context of these commercial imperatives that the pharmaceutical industry's pressure on the US Congress and the department of trade's negotiating position becomes clearer. What is being hoped for in relation to the free trade agreement with Australia is the establishing of a bridgehead via which it might gain some influence over the Australian government's decision-making processes for drugs subsidised under the PBS, and, in turn, gain the potential to expand that influence.

How might this be possible? Firstly, it is necessary to understand the institutional mechanism by which a drug is accepted as one that will be subsidised under the PBS scheme. This involves the workings of four independent bodies. A new branded drug must first gain approval from the Therapeutic Goods Association (TGA), which decides what is desirable or useful and allowed to be on the market in Australia. However, for a drug to be prescribed broadly by doctors, it needs to get on the PBS, which will mean that the price paid by patients is significantly subsidised. But to even be considered for the PBS, the drug must first be assessed by the PBAC (Pharmaceutical Benefits Advisory Committee), which evaluates whether a new drug is actually a significant therapeutic advance on the existing generic drugs presently available to treat a known condition. The pharmaceutical company would need to provide clear evidence of greater efficacy and significantly fewer side effects. For example, in the case of drugs prescribed for the treatment of ADHD (Attention Deficit Hyperactivity Disorder), the PBS only covers the generic product Dexedrine, while Ritalin, the most commonly prescribed drug in the US, is not supported on the PBS and is therefore prohibitively expensive. PBAC judgements are often controversial as the evidence must come from peer reviewed research literature, where evidence is often not as clear cut as the pharmaceutical industry would like us to believe. However, even when there is clear evidence that a new drug is a breakthrough, the PBAC can only recommend to the minister for health that it should be included on PBS. It must now get through the PBPA (Pharmaceutical Benefits Pricing Authority), which is the body that defines what price the Australian government is prepared pay for the benefit of its use. This is a vexed issue for the pharmaceutical industry and its efforts to get new branded drugs on the market at prices that cover both development and marketing costs. The Australian PBPA is, more often then not, unprepared to pay the exorbitant prices US industry wants to charge, and which the US medical insurance industry has been prepared to accepted. For this reason, many drugs available in the US are simply not available here, as the price offered by the PBPA is regarded as unacceptable. But even when an agreement on price is reached, there is the final blocking point of treasury, which is at liberty to block any agreement that might threaten to blow out the PBS and health budget.

In the context of this complex system of checks and balances, it is reasonable to suppose that the US pharmaceutical industry would regard any avenue of appeal as a blessing. But, given that the new intergovernmental committee is only able to review recommendations at one stage in this process, that of the PBAC, this could hardly be considered as a 'breakthrough'. So, either Bob Zoellick is hyping up a pretty trivial point to make the deal look more significant, or we are missing something. Without manufacturing a conspiracy theory, Australia needs to thoroughly consider all the possible outcomes. One only has to look at the way in which the Texas Medical Algorithm project was introduced in the US and the consequences for the cost structure of psychiatric treatment to realise what is at stake. The agreement to establish a joint US-Australian intergovernmental committee could well be the Trojan horse that ushers in a new era of political influence buying and manipulation in relation to the PBS. If the 'free trade' deal goes through, in the near future we could see American style illness awareness media campaigns and industry funded proxy consumer/patient groups demanding the latest miracle drugs be made available through the PBS. Guess who will be paying for this.

John Merson is a senior lecturer in the School of History and Philosophy of Science at the University of New South Wales. His recent publications on public health issues include Stress: the Science and Politics of a Global Crisis, ABC Books, 2000, and "Epistemic Capture: Industry and Government in the Setting of Medical Research Priorities", paper presented at 28th International Congress on Law and Mental Health, Sydney, 29 September 2003.


1. Sydney Morning Herald, 10 March 2004, p. 5.

2. "Medical Journals Try to Curb Drug Companies' Influences on Research", in International Herald Tribune, 6 August 2001, p. 3.


Angell, M (2000) "Is academic medicine for sale?" New England Journal of Medicine, 342: 1516-1518.

Bodenheimer, T (2000) "Uneasy alliance - clinical investigators and the pharmaceutical industry", New England Journal of Medicine, 342: 1539-1544.

Healy, D (1999) The Antidepressant Era, Harvard University Press, Cambridge, MA.

Healy, D (2003) Let Them Eat Prozac, Lorimer, Toronto.

Horton, R. (2004) "The dawn of McScience" The New York Review of Books, 51:4, 11.4.04.

Jones, A. (2003) "Betrayal: The Texas Medication Algorithm Project" by Patricia Ranald and Louise Southalan

See also:

Suggested citation
Merson, John, 'A Trojan horse?', Evatt Journal, Vol. 4, No. 2, June 2004.<http://evatt.org.au/papers/trojan-horse.html>