A More Transparent PhRMA?

January 1, 2002
Jill Wechsler, Pharm Exec's Washington Correspondent

Jill Wechsler is Pharm Exec's Washington Corespondent

Pharmaceutical Executive

Pharmaceutical Executive, Pharmaceutical Executive-01-01-2002,

If you support the pharmaceutical industry, you will applaud Alan Holmer and the Pharmaceutical Research and Manufacturers of America he presides over. You might disagree with some of the details. But mud you will not sling, nor buy every critic's case against this protector of the industry.

If you support the pharmaceutical industry, you will applaud Alan Holmer and the Pharmaceutical Research and Manufacturers of America he presides over. You might disagree with some of the details. But mud you will not sling, nor buy every critic's case against this protector of the industry.

What you may do, however, is temper acknow-ledgement of PhRMA's successes with reflections about the face it puts on industry. PhRMA, the industry's chief presence in Washington, DC, works hard to neutralize the assaults from industry's most hardened detractors, with "rapid response" to any public criticism. It has also taken the first steps toward improving the industry's image through an expensive television ad campaign. (See "Credit for Cures," page 35.)

Still, ordinary people often see little to cheer in the association's legal and legislative victories. That makes the next step in public relations-establishing a dialogue-problematic at best.

In advancing industry's proprietary interests, PhRMA often runs at odds with its other purpose: to improve the industry's image. That inherent polarity can only grow more evident as the US war on terrorism thrusts the association and its members into an ever more public role. To win the public trust, PhRMA will need maturity to balance spin control with greater transparency about its decisions and motives.

This report examines the performance of Holmer and PhRMA since his assumption of its presidency in 1996 and shares the views of interested parties inside and outside the organization. Holmer makes no bones about PhRMA's role: "We do one thing-advocacy," he says, detailing the impressive array of resources the association now brings to bear on lobbying and promotion. Holmer and other PhRMA staffers address their latest initiatives in patent protection, international trade, public opinion, and bioterrorism.

But the report also offers a mirror in which PhRMA and its members may see themselves as others see them. Often, that amounts to the lowest common denominator of pharma company practices. Even those who admire the industry for its lifesaving accomplishments feel betrayed when companies appear to commit ignoble acts in pursuit of profit. To the extent that PhRMA promotes unity among companies, its reputation rises and falls upon their individual behavior.

PhRMA has four priorities: legal, regulatory, membership, and "grass roots" support. Most of its efforts focus on the United States, but it participates on the international level with the European Federation of Pharmaceutical Industries and Associations (EFPIA), International Federation of Pharmaceutical Manufacturers Associations (IFPMA), and other national associations. It also keeps offices in Taipei, Tokyo, Brussels, and Amman (Jordan), helping US member companies deal with local regulators and legal challenges.

Alan Holmer

Under Holmer, PhRMA's presence has also spread to US state legislatures in key jurisdictions. It has lawsuits against state Medicaid formularies and other restrictive legislation in Maine, Florida, and Michigan as well as against the Centers for Medicare & Medicaid Services over a Vermont proposal. (See "PhRMA Expands to State Level," page 34.) Compared with most other industry associations, and in contrast to its global operations, PhRMA's state activities are relatively decentralized.

That may be one reason the association has the ability to take up multiple issues and to handle multiple hearings, markups, and lobbying strategies simultaneously. Although its overall legislative "batting average" is difficult to measure, its periodic home runs make the headlines.

Ultimately, PhRMA works to preserve "market solutions" in healthcare and to free companies from government red tape. Yet it also fights to sustain government protection for their intellectual property, product exclusivity, and favored trade barriers. From the industry's perspective, enforcing patents combines with free pricing and profits for the best of all possible worlds.

Demand for PhRMA's efforts has grown apace with its infrastructure during Holmer's five-year tenure. (See PE, "Advancing Industry Advocacy," September 1996.) Although industry mergers and attrition have compacted its ranks-from 62 members in 1993 to 36 now-the association has expanded dramatically in most other ways. It had only two lobbyists on staff in 1996; now there are seventeen. Meanwhile, total staff grew from 78 to 124 as the organization beefed up other functions such as public relations, patient activism, and policy development.

In December, Genentech announced its withdrawal from PhRMA, causing some comment about dissension in the ranks. PhRMA says the biotech company left because of its link to Roche, which is still a member, and because it has less interest in international issues than most, as it outlicenses products overseas. But rising dues are clearly a factor. PhRMA dues are linked to company size; as Gen-entech has grown, so has its assessment. And it has differed with PhRMA over Medicare drug benefit policy.

On the other hand, Berlex Laboratories, Abbott, and Allergan have returned to full membership. Under Holmer, PhRMA has also expanded its number of research associate members. The latest to join is Human Genome Sciences. And Biogen and Otsuka have moved from associate to full-member status.

Getting Noticed

PhRMA's real growth has not escaped the attention of its fans or its critics. In 2001, Fortune ranked it 24th among Washington's most powerful lobbying organizations-up from 39th in 1997. PhRMA stands out on that list for its relatively narrow base; all other groups in the top 25, such as AARP and NRA, have broad, grass-roots memberships.

Industry "watchdogs" see vast sums of money as the secret to that special standing. In the last five years, PhRMA's overall budget has swelled from about $24 million to $60 million. Add to that the advertising campaign that grew "substantially"-PhRMA refuses to say how much-in 2001 from $22 million in 2000. No one disputes the available figures. But the Center for Responsive Politics and Public Citizen-influential though openly biased voices in the popular discourse-pile on a few more numbers.

Noting that the industry's "deep pockets" extend far beyond PhRMA, the critics focus on estimates of industrywide investment in advocacy. CRP claims a 57 percent rise in industry political campaign contributions from 1995 to 1999, with a significant swing from nearly even party affiliation to a two-thirds split favoring Republicans over Democrats.

Public Citizen's Congress Watch chimes in with an estimated $262 million it says the industry spent on "political persuasion" in 1999-2000. That would consist of $177 million for lobbying, $65 million for "issue advertising," and $20 million on campaign contributions. Implying a cozy legislative relationship, PCCW also claims the industry hired 625 lobbyists, including 21 former members of Congress and 295 former Congressional and federal employees.

Those claims and figures, whatever their accuracy or implication, enjoy wide distribution. A popular book, Pill Wars, supplies them to consumers dealing with medical costs. The website opensecrets.org publishes even more detailed data on individual company lobbyists and contributions.

Numbers War

Disputes about data lie at the heart of many issues between PhRMA and industry critics. How much do companies spend on R&D? It depends on whether you believe Tufts University and Boston Consulting Group (around $800 million) or Public Citizen ($110 million). That, in turn, depends on whose accounting procedure you accept.

Do companies spend more on marketing than on research? Same answer: It depends on how you define those functions, especially in the area of product development, where the two are intertwined.

Public Citizen leaves widely used items out of its R&D assessment, such as the cost of capital lost to spending on research infrastructure. Tufts and BCG, which PhRMA cites, include items open to some inspection, if not automatic skepticism, such as postmarketing studies. Critics have longed charged that those studies are really market research or influence marketing in the guise of science. Admittedly, in many cases, even seasoned observers sometimes find it difficult to see the difference. Perhaps it is possible that the best studies serve both science and marketing. Assuming PhRMA could capture people's attention long enough, no doubt it could make a convincing argument for the Tufts/BCG interpretation.

Public Citizen also claims that the industry spends 39 percent of sales on marketing. But William Trombetta of St. Joseph's University makes quick work of Public Citizen's logic, calling it a "numbers game" and asking, "Since when do you lump together marketing and administration? Administration refers to and includes 'general, services, and administration.' In the auditor's book, that's overhead, not marketing expenditures. Even if marketing were totally eliminated, administration expenses would remain-in any kind of enterprise."

Turning to the numbers and citing last year's US drug sales of $150 billion, Trombetta adds, "No matter what source you use, marketing expenses-DTC, journal advertising, detailing, sampling, meetings, and events-add up to about $15 billion." By that accounting, marketing as a percentage of industry sales was 10 percent, not 39 percent.

Yet Trombetta believes even that figure is artificially high: "It includes sampling, accounted for at retail value. But the samples are free, so that figure must be adjusted downward. According to IMS, about 800 million samples were given out last year, with an estimated retail value of about $8 billion. So subtracting that from the $15 billion in marketing costs takes the actual marketing spend down to $7.5 billion, or about 5-6 percent of total sales. That is about par relative to other industries."

To make that case widely, however, PhRMA and its members need a bridge to the masses-one they don't yet have. Industry has only begun to speak to people; to most, it appears to be a long way from listening. People tend to pay attention only when they play an equal part in the conversation.

Style and Substance

It may seem unfair to place the chief responsibility for the industry's public image at PhRMA's door. Yet that image may also be an important measure of the association's relative success. From the essentially invisible, elitist organization of a decade ago, this baby has come a long way.

Holmer's own increased visibility symbolizes the change. Not only does he seem much more comfortable on the Today Show than his predecessors, he obviously relishes his personal role in advancing industry's cause. Like many supporters, he sees hope for his own family in the miracles pharmaceuticals can effect.

But events outside the industry also shine a clearer light on PhRMA. As the US health system spends a greater portion of its budget on medicines, despite that component having the largest portion of uninsured patients , PhRMA will become the lightening rod in a gathering storm. States, employers, and insurers will put ever greater pressure on industry as they struggle to solve their own financial crises.

When the public turns its eye on any industry, company, or association, the old barriers inevitably break down. Pharma companies have already become more transparent in their strategies, decision making, and activities. Logically, the walls around PhRMA must also fall.

Counter-bioterrorism, in the wake of September 11, and the subsequent anthrax scare have focused even more attention on the industry, PhRMA, and its lobbying efforts. To coordinate the association's initiative, it appointed Michael Friedman, MD, a 30-year veteran of the Public Health Service and former FDA commissioner as its chief medical officer for biomedical preparedness. (See "The War On Bioterrorism," page 36.)

With the US government spending billions on vaccines and other medical stockpiles, the current crisis may be a major opportunity for the industry to gain more recognition and resources. But it could also lead to a significant change in how industry does business. It will certainly make companies-and PhRMA-even more transparent.

Meanwhile, international issues must continue to occupy much of PhRMA's attention. Last year, slipping out of character, PhRMA's lobbyists were caught flat-footed by some narrowly defeated Congressional moves to legalize reimportation of US-manufactured pharmaceuticals. It has also played catch-up on the issues of drug pricing and supply in the developing world.

Both the national and international fronts have brought some embarrassment to the association and its members. Despite "alliance building" with patient groups and extensive grass-roots lobbying, key states push on with their industry-restricting legislation-even states like Florida where traditionally friendly Republicans rule.

In such circumstances, PhRMA's purported unity often disappears. After the failure of a PhRMA-coordinated lawsuit to protect patents on AIDS medicines in South Africa, companies broke ranks, with individual plans to supply the medicines "at cost." In Florida a single company, Pfizer, negotiated its own price-saving disease-management program with the governor and legislature while PhRMA fought the entire package.

Although critics charge that the industry opposes a Medicare drug benefit, PhRMA has tried to steer the legislation rather than impede it. It favors a "bipartisan" version that preserves the market's role in insuring prescription coverage. Yet there again, it must deal with some disunity in the ranks as individual companies such as Merck tout their own ideas. Still, Holmer believes that pharma companies agree on the basics and want to see a bill pass, though it may be stalled indefinitely as Congress deals with the anti-terrorism campaign.

Victory Garden

Some of PhRMA's struggles seem like carry-overs from a worn-out past. Perhaps the clearest example of that is its anti-generics crusade. Despite years of FDA admonitions to the contrary-and the easily documented fact that many PhRMA members market their own line of generics-PhRMA literature still warns consumers about the alleged inferiority and dangers of generic substitutes.

At the same time, some of the worst press to hit the industry comes from successful lawsuits and legal remedies to stifle generic competition through various forms of patent extension. To the public, the picture emerges of an industry willing to protect profits at all costs -even when it means withholding needed medicines from patients.

Such legalistic manipulations also undermine the industry's chief defense of profit making: that it fuels innovation. Companies may appear more concerned with protecting what they have than with creating something new.

Holmer argues that the facts speak against that perception. "Generics do not have a lot to complain about," he says. "They went from 18 percent of the market [in unit sales] in 1984 to 47 percent in 2000, and it's projected that by 2005 they will be at 55 or 57 percent. Yes, you will have complaints about specific products, but in the vast majority of cases, the generic is able to do a good job of penetrating the market."

Other issues of industry interest may need more attention than they're getting from PhRMA and its members. As a whole, the industry appears to be sitting out the immediate debate over the use of stem cells and therapeutic cloning in the United States-as well as the wider but related matter of science education and the teaching of evolutionary theory in the US public schools.

Inattention to such concerns may have grave consequences. Those could include lost research opportunities, a scientifically illiterate populace, and a dearth of qualified scientists educated in the United States. An industry that bases its entire existence on science can ill afford to remain on the sidelines as others dominate the debate.

PhRMA can and does work both sides of the aisle in Congress, but it owes most of its philosophical and political base to the conservative cause. On an economic basis, that makes perfect sense for an industry association. But in matters of science and religion, allegiance to anti-progressive forces can prove stifling.

Next Big Step

On all fronts, the "new PhRMA" faces change that demands a "newer" PhRMA. It must now go on from speaking for the industry to listening on its behalf. That will require measuring its performance less in legislative coups and more in consensus building.

Bearing collective responsibility for an industry as complex, dynamic, and controversial as pharmaceuticals will never be a lark. PhRMA has taken a brave step into the arc-lit stage of public opinion. That it shows some tendency to overcontrol the process only marks its early progress down that path.

Openness should guide PhRMA's future exchanges with all its constituents. The association has much more to gain by increasing its transparency than by impeding it.

Under Holmer and his group, PhRMA has traveled a tremendous distance toward true public dialogue. In its position, it should have the best ears in the business. May it use them well.

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