The term, "Big Pharma," commonly describes large pharmaceutical corporations like Pfizer, Merck, GlaxoSmithKline and other large- and mega-cap companies. They pour billions of dollars into research to cure the world's diseases. Why, then, is Big Pharma essentially a four-letter word in the eyes of so many people?
Surveys show that the public ranks Big Pharma near the bottom of their list of favorite industries. Pharmaceutical companies only ranked higher than the oil and gas, chemical and tobacco industries. That's it! Why would an industry with the mission of curing disease rank so low?

Not About the Public Good
At least that is the perception. People read accounts of lawsuits involving Big Pharma. They know that the pharmaceutical industry spends a lot of money sending sales representatives to doctors' offices to convince them to use their products.

They may even see studies such as the one published in the New England Journal of Medicine that showed that 94% of all doctors had a relationship of some kind with the pharmaceutical industry, and an average of four out of five of these relationships included receiving food in the workplace. Another study found that 28% of all doctors reported receiving some kind of payment from pharmaceutical companies, often as speakers on behalf of a certain drug.

The lawsuits are even worse. Take the $3-billion fine against GlaxoSmithKline, the largest fine ever imposed to a pharmaceutical company by the U.S. Department of Justice. GlaxoSmithKline illegally marketed Paxil and Wellbutrin, antidepressant drugs, while withholding data describing the health risks of Avandia, a diabetes drug.

Although it was the largest pharmaceutical fine in history, it amounted to an insignificant punishment for GlaxoSmithKline, accounting for only 11% of associated revenue. Critics argue that lawsuits like these do not deter companies from unlawful or unethical practices.

Vioxx Scandal
Leaving even larger public relations damage in its wake, in 2004, Big Pharma company, Merck, announced a recall of the popular anti-pain medication, Vioxx. The FDA found that Vioxx put patients at a significantly greater risk for heart attack and stroke. Later reviews found that as many as 55,000 deaths might have occurred because of Vioxx.

Fines later cost Merck more than $900 million. An additional $4.85-billion judgment followed in 2007 because of a class action lawsuit. Nonetheless, this was no more than a short-term hit to the company, which has since recovered. In 2011, Merck reported gross revenues of $31 billion.

Bristol Myers Squibb
Bristol Myers Squibb paid $515 million in fines after it was discovered that the company marketed its antipsychotic drug, Abilify, to treat conditions the drug is not approved to treat.

In addition, Bristol Myers Squibb sent sales teams to nursing homes to promote the drug, although they knew it had potentially fatal side effects on the elderly. The government also accused the company of paying medical professionals as well as pharmacists to dispense the product by offering them kickbacks and vacations.

Clean up Your Act
The pharmaceutical industry's representatives argue that they are working hard to enact policies and take actions that will restore the industry's reputation. A revised voluntary code put in place in 2009 by the Pharmaceutical Research and Manufacturers of America (PhRMA) no longer permits mugs, pens, tablets or other non-educational "reminder" gifts to be dispensed by pharmaceutical companies. When the code was announced, 32 of the 34 member companies of the trade organization signed on.

PhRMA points out that member companies spent a collective $49.5 billion in research and development. This makes the pharmaceutical industry one of the most research-intensive industries in the United States. In contrast, the entire industry spent $11.3 billion on marketing and promotion in 2008, including $4.4 billion for direct to consumer advertising, such as commercials and Internet or magazine ads.

Others point to the Physician Payment Sunshine Act, which is legislation that requires pharmaceutical companies to report any gift or compensation of more than $10. This includes food, speaking fees and most other transfers. It does not include, however, drug samples earmarked for patients.

The Bottom Line
It costs about $1.3 billion to bring a drug to market. Many drugs never gain Food and Drug Administration approval. For that reason, Big Pharma companies have to market aggressively or hike prices of drugs in order to stay in business. Others argue that, much like the oil and gas industry, Big Pharma, as a whole, isn't hurting for money. Engaging in criminal practices, they say, is not only bad for patients, but it's bad for stockholders and the roughly 300,000 industry employees who have lost their jobs since 2000.

Related Articles
  1. Home & Auto

    Luxury Cars with the Best Resale Value

    Autos rarely appreciate in value. But if you want a set of wheels that'll least hold its value over time, these cars can go the distance.
  2. Stock Analysis

    How Expensive Is Whole Foods, Really?

    Learn about Whole Foods Market, Inc., and discover how Whole Foods pricing actually compares to that of other grocery store operations.
  3. Stock Analysis

    4 Quick Service Restaurants for Your Portfolio

    Learn about the four quick service restaurants with attractive investment theses and growth prospects that can be valuable additions to your portfolio.
  4. Stock Analysis

    The 5 Best Dividend Stocks in the Healthcare Sector

    Learn about the top five dividend stocks of companies operating in the health care sector that generate substantial cash flows to afford high payouts.
  5. Stock Analysis

    What Makes the 'Share a Coke' Campaign So Successful?

    Understand how Coca-Cola implemented the successful "Share a Coke" campaign. Learn about the top three reasons why the campaign was successful.
  6. Investing News

    These 3 High-Quality Stocks Are Dividend Royalty

    Here are three resilient, dividend-paying companies that may mitigate some worry in an uncertain investing environment.
  7. Stock Analysis

    The 6 Best Dividend Stocks in the Consumer Staples Sector

    Learn about the top six companies that make an attractive investment for investors looking for stocks for dividend income investing.
  8. Mutual Funds & ETFs

    Top 3 Consumer Cyclical Mutual Funds

    Obtain information on, and analysis of, some of the best performing mutual funds that offer exposure to the consumer cyclicals sector.
  9. Mutual Funds & ETFs

    Top 5 Health Mutual Funds

    Learn about the top five mutual funds that invest in stocks of companies that primarily operate in the health care sector of the United States.
  10. Investing

    Procter & Gamble Restructures, Sheds 100 Brands

    All businesses face adversity, and Procter & Gamble is no exception. We take a look at recent developments affecting this global giant.
  1. What role does the agency problem play in the modern Health Care industry?

    Agency problems vary from health care system to health care system, and not all economists agree on the degree and desirability ... Read Full Answer >>
  2. What does marginal utility tell us about consumer choice?

    In microeconomics, utility represents a way to relate the amount of goods consumed to the amount of happiness or satisfaction ... Read Full Answer >>
  3. What are some common ways product differentiation is achieved?

    There are many ways to achieve product differentiation, some more common than others. Horizontal Differentiation Horizontal ... Read Full Answer >>
  4. What is the difference between an OEM (original equipment manufacturer) and a VAR ...

    An original equipment manufacturer (OEM) is a company that manufactures a basic product or a component product, such as a ... Read Full Answer >>
  5. Is the retail sector also affected by seasonal factors?

    Generally speaking, the retail sector is highly seasonal. Almost invariably, sales in the retail sector are highest in the ... Read Full Answer >>
  6. What has the retail sector evolved to its current structure?

    Retail is the catch-all phrase for the sale of final goods to consumers; a retail transaction is considered an "end" and ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Purchasing Power

    The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing ...
  2. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  3. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  4. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  5. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  6. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!