Pharma's new strategy for reducing competition

In 1889 the predatory banker J.P. Morgan, a great exemplar of Social Darwinism, convened the country's largest investment banks at his house along New York's Madison Avenue. At the time the country's great investment banks (Morgan's own, Brown Brothers, Drexel, and Kidder, Peabody) held controlling interests in the railroads that were creating a national economy and industrializing the United States. Morgan took great care that the public should remain unaware of his invitation because the conclave's purpose was to create, in the phrase of the time, an "iron-clad combination" to eliminate competition among the railroads.

In his report on the meeting, the great muckraking journalist Gustavus Myers – a prodigy from Philadelphia – wrote that the participants sought to forge "an agreement by which the people of the United States would be bled even more effectively than before."

The pharmaceutical companies of today are more sensitive to legal indictments for price fixing and collusion, meaning that their concerted action is far less overt and subtler. One way they coordinate their activity now involves either the industry's principal lobby, PhRMA (Pharmaceutical Research and Manufacturers of America), or one of the pharma companies, hiring a consultancy to recommend an optimal "strategic direction" and then permitting the agency to publicly disclose the broad outlines of its recommendation.

That was precisely what happened this month when the consultancy Deloitte published its study showing that pharma's projected return on its R&D investment fell by more than half between 2010 and 2015. The decline resulted from fewer mega-blockbusters and the increasing cost of developing drugs. According to the head of Deloitte's London office, the "bigger the [pharma] company, the less efficient they are."

Deloitte's path out of this downward spiral involves each pharma company focusing on just two or three core therapeutic classes so that everyone faces a smaller number of competitors. Less competition will dampen the pressure to curtail new product prices and permit the industry to continue operating as a cartel.

Using its consultant-speak, Deloitte concluded that "focusing on fewer core therapy areas, and building end-to-end scientific, regulatory and commercial capabilities in those areas, may provide the greatest chance of holistically addressing the complexity of successfully bringing a drug to market."

Instead of showing sensitivity to the public's outrage at unaffordable prices, pharma pursues ways of squelching a real market in order to avoid price competition.

In gold rush therapeutic categories such as oncology and autoimmune conditions, pharma's Deloitte-inspired strategy advises chopping up each one into numerous sub-categories to enable mastering a small number of them amidst less competition. So for example, pharmas can slice and dice oncology into scores of small sub-categories based on any of several factors. These might include blood cancers versus solid tumors, affected organ/system, malfunctioning gene or genetic target, biomarker response or other criteria.

This narrow-focus strategy is only pharma's latest move in a 60-plus year effort to defy the market. The industry hires whoring academics and bribes both Congress and the executive branch to prevent the sort of government price controls on drugs that exist in almost all other countries. It does so with the claim that so-called "free markets" (a phantom that exists nowhere) are the fairest and most effective means of obtaining the best products at the fairest prices. Yet pharma's principal strategy is all about avoiding the competitive challenges of a real market.

The drug industry acts as if patent protection, a gatekeeper system, third-party payment and the lowest effective tax bracket of any industry are not sufficiently unfair advantages. Just in the area of tax breaks, a pharma company automatically receives a reduction on its bottom-line tax liability amounting to half of what it spends on R&D.

Although Deloitte found a declining return on pharma's R&D investment, the stark fact is that 85 percent of the money spent on pharmaceutical research comes from sources such as the National Institutes of Health, public tax credits, private foundations, and academia.  (See, Minnesota Attorney-General's Office, "Follow the Money: The Pharmaceutical Industry – The Other Drug Cartel.") That means pharma does not compete in a fair market. To the contrary, it has rigged a place for itself in the American version of capitalism that privatizes gains and socializes losses.

J.P. Morgan once admitted that he resolutely avoided competition. His efforts to eliminate it, buy it off and legislate it out of existence earned him the designation of, "Robber Baron."

What is the appropriate moniker for the pharmaceutical industry?

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