Why drug companies lavish doctors and how they price their drugs

An excerpt from Unhinged: The trouble with psychiatry- a doctor’s revelations about a profession in crisis. Copyright © 2010 Daniel Carlat. Excerpted with permission by Free Press, a Division of Simon & Schuster, Inc.

My own education in pharmaceutical marketing began during my second year of residency at Massachusetts General Hospital.

Suddenly, I noticed that Paxil bagels began appearing everywhere. I first saw them in the break room of the psychiatric emergency department, then in the conference room of the psychopharmacology clinic. There were platters of sesame bagels, poppyseed bagels, “everything” bagels, along with an assortment of cream cheeses, and a big container of Dunkin’ Donuts coffee.

Nestling up by the bagels was an assortment of Paxil paraphernalia, usually pens and pads emblazoned with the Paxil logo. Often, Walter the Paxil rep, a burly, friendly man in a suit and tie, was sitting next to this cornucopia, eager to bend our ears about the particular “advantages” of Paxil.

I usually partook of his offerings, but I felt sorry for Walter, because soon after Paxil was approved in 1992, it was already developing the reputation among the residents as a dud. Our patients who took it often complained of sleepiness, weight gain, and sexual problems. Walter stood gamely by his product nonetheless, arguing that few people actually gained significant weight, that the sedation was actually an advantage for patients with insomnia, and that the sexual side effects were no worse than those caused by other SSRIs.

And Paxil, Walter pointed out, was not only effective for depression, but also for the anxiety that usually accompanied the condition. “Don’t forget Paxil for your anxious, depressed patients,” he would remind us.

Deciding between Paxil and its archrivals Prozac and Zoloft was made difficult by the fact that the FDA doesn’t require drug companies to do head-to-head studies. The bar for FDA approval is set rather low. Companies are required to furnish at least two studies showing that a drug is safe and is significantly better than a placebo pill. In many cases, a company will conduct several trials to ensure they can make the magic number of two. Forest Pharmaceuticals, for example, had to conduct five trials to get approval for Celexa as an antidepressant—in two of the studies the drug beat placebo, but in three others it did not. Companies are allowed as many tries as they want, since the FDA doesn’t count negative trials against them.

Companies rarely pay for head-to-head trials comparing their drug with a competitor, because most drugs within the same therapeutic class are so closely similar in their effects. And if a company can show that its drug is only as good as another drug, that rarely helps sales. If Paxil were found to be just as effective as Zoloft, then Walter would have been unable to subtly imply that it was more effective. It’s much better to leave such questions unanswered, because then there is no inconvenient data to distract the doctor from a marketing pitch.

Although Paxil had the reputation as the high-side-effect SSRI, such was GlaxoSmithKline’s marketing prowess that sales were unaffected. Walter and his counterparts were deployed to doctor’s offices and hospitals throughout the nation, marketing the drug as being the SSRI to choose for anxious patients, and Paxil soon became a blockbuster. Years later, independent researchers conducted a thorough review of the research literature, and concluded that there was no evidence that Paxil outperformed any of the other SSRIs for those with anxiety. But by then, this marketing message had been so thoroughly engrained in the minds of practitioners that the findings were largely ignored.

Walter became such a fixture in our department that in 1994 he earned himself a cameo role in the resident’s skit at Mass General’s yearly holiday party. In that skit, I played a psychiatry resident magically propelled one hundred years into the future, and the MGH Department of Psychiatry was portrayed as giving a single diagnosis to everyone—temporal lobe epilepsy—and Paxil had become the only medication the hospital prescribed. One of my classmates played the role of the chairman of the department, and in a dramatic denouement, this turned out to be none other than Walter the Paxil rep.

The skit, silly as it was, was prescient. Years later, the New York Times reported that in 2002 the MGH Child Psychiatry Department had solicited hundreds of thousands of dollars for a “Johnson & Johnson Center for the Study of Pediatric Psychopathology.” Johnson & Johnson (owner of Janssen Pharmaceuticals) was marketing an antipsychotic drug for children, called Risperdal, and one of the publically stated aims of the center was to “move forward the commercial goals of J. & J.” A drug rep had not quite become chairman of the department, but a drug company was paying the rent. Walter’s gift of bagels was stingy compared to the drug industry’s largesse in later years. In 1999, for example, I attended the annual meeting of the American Psychiatric Association, held in Washington, D.C. I shared a hotel room with three of my former classmates from Mass General. In the exhibit hall, we raced from one drug company display to another, collecting “swag” in spiffy APA canvas bags that were themselves sponsored by a drug company and decorated with its logo. We competed to see who could get the best stuff. My bag was soon weighed down with disposable cameras, textbooks, long-distance phone cards, mugs, clocks, and innumerable pens—all free of charge.

At the Janssen booth, I chatted with a rep about Risperdal, the antipsychotic that was making the company billions per year. He handed me an invitation to a company-sponsored party, urging me to attend. Curious, I rounded up my friends, and we showed up at the address listed. It was the Smithsonian Air and Space Museum, and Janssen had rented out the entire facility—all 160,000 square feet.

A live band was playing jazz on the ground floor. There was a second band upstairs. Several buffet tables and bars were set up amid the Apollo command modules and vintage planes, such as Charles Lindbergh’s Spirit of St. Louis. We headed for the sushi table, stacked our plates with hamachi and California rolls, and moved on to one of the bars to choose from a selection of beers, wines, and martinis—all poured out by smiling staff. On one of the upper levels of the museum, Janssen had hired a team of photographers to take souvenir pictures, which they laminated onto refrigerator magnets. I still have that photo. In it, the four of us are smiling and lifting our wineglasses in a toast, and the Risperdal logo is positioned below us. We look deliriously happy—and why not? When had we ever been treated like such royalty?

Drug companies treat doctors like royalty because we hold the keys to their kingdom of riches. In the strange economic world of prescription drugs, as Senator Estes Kefauver once said, “He who buys does not order, and he who orders does not buy.” In this system neither the patient nor the doctor keeps track of how expensive new drugs are, because neither one foots the bill. As a doctor, I pay nothing when I write out a prescription, and my patients are responsible only for a minimal co-pay. There’s no incentive to bargain hunt, and drug companies exploit this topsy-turvy situation by setting astronomical prices for their newest medications.

Drug companies defend their pricing by arguing that they spend vast sums on research and development on many drugs that never make it to market. Accordingly, they argue, they are forced to charge dearly for the few drugs that make it through the FDA in order to recoup their expenses. It’s a reasonable-sounding argument, but it doesn’t wash with the actual numbers. It is true that companies spend plenty on R & D—$30 billion in 2007 alone. But they spend twice as much on marketing—close to $60 billion in that same year. Some 90 percent of this marketing money is spent on sales activities directed toward physicians.

Thus, rather than saying that drug companies are forced to charge high prices in order to develop new medications, a more accurate statement is that they must charge high prices to support a gigantic sales and marketing machine. Companies need so many salespeople and marketers because they are accustomed to making unusually high profits. Drug companies are consistently among the top three most profitable industries in the world. In 2002, according to Public Citizen, a nonprofit watchdog group, the combined profits of the top ten pharmaceutical companies in the Fortune 500 exceeded the combined profits of the other 490 companies combined.

Psychiatric drugs in particular have been spectacular sellers for the pharmaceutical industry. In 2003, antidepressants were the single most profitable class of drugs for drug companies worldwide. In 2008, Eli Lilly’s top two best sellers were psychiatric drugs: the antipsychotic Zyprexa brought in $4.7 billion/year, while the antidepressant Cymbalta grossed $2.7 billion—and sales were growing at a 60 percent annual clip. Wyeth’s best-selling drug is the antidepressant
Effexor, with $3.8 billion in sales in 2007. And Forest Laboratories’ two top-selling drugs are also psychopharmacological: the antidepressant Lexapro (over $2 billion per year) and the Alzheimer’s drug Namenda (about $800 million per year).

This is why, once we hang up a shingle and start a practice, drug reps descend on us like hordes of locusts—if quite attractive, friendly, and well-dressed locusts. They rarely have degrees in medical fields, though they are given intensive training by the drug company in the advantages of their particular medications and in the disadvantages of the competitors. Mostly, drug reps are great salespeople, and their job is to figure out how to get the doctors in their sales territory to prescribe more of their product. Shahram Ahari, a former rep for Eli Lilly, summed up his duties succinctly in an article published in the journal PLoS Medicine: “It’s my job to figure out what a physician’s price is. For some it’s dinner at the finest restaurants, for others it’s enough convincing data to let them prescribe confidently and for others it’s my attention and friendship . . . but at the most basic level, everything is for sale and everything is an exchange.”


[Editor's note: Please visit part 1, and stay tuned for part 3 of this excerpt, coming soon.]

Daniel Carlat is a psychiatrist and author of Unhinged: The trouble with psychiatry – a doctor’s revelations about a profession in crisis.

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  • Eric

    Wasn’t there a ban enacted in Massachussetts on company gifts from pharmaceuticals and medical device companies about a year ago? How did that turn out?

  • Doc99

    Why would any professional get his pharmacology info from someone who possibly finished high school – for bagels, pens? Sorry fellow docs but really, man up. Do your own literature research before prescribing a new drug. We don’t need laws, mandates, etc. We need to rediscover professionalism.

  • Bob

    People treat Pharma as this big bad bear that everyone should avoid. Regardless of what they spend on R & D vs. Marketing, its really irrelevant. Private enterprise is there for one objective and we should be thanking these companies for their contributions which regularly revolutionize medicine and treatments for patients. They spend millions to make billions. If we don’t ever find out about these drugs [through marketing], how can we do our “own literature research” if we don’t know whats out there. Just because its new doesn’t mean its better, but Prescriber’s Letter can only cover so many medicines in a month. I like hanging it up after work and not spending my time picking through the garbage that so many of our journals consist of.

  • Residentphysician

    This article seems stuck in the 90s. I haven’t seen one pharmacy rep at my institution ever.

    • anonamom

      Residentphysician wrote, “This article seems stuck in the 90s. I haven’t seen one pharmacy rep at my institution ever.”

      Ah, but all your attendings are on pharma speakers’ bureaus so the reps don’t have to come there themselves anymore.

  • Paul Kim

    I think that so much money is wasted on marginal benefit that it is bankrupting our system. Sure, there is progress, but I won’t support it if it costs so much.

  • Max

    I agree with residentphysician. This is straight out of the 90′s. Go to any conference now and go to the exhibit hall. Mostly dead. No freebies except a latte occasionally. No more physicians with bags of cheap free garbage. Sample cubboards sit bare all across America. When pharma pulls out completely, and I hope they do, medical journals will be 5 pages thick. Subscription and membership will drop. Conference fees with be $2000. No doc will take off a week of work, pay $2k, pay $600 flight, pay $600 hotel, pay $200 meals, lose $10k gross for the week, etc. Big auditoriums will sit empty because no one wants to hear the guy who has no pharma connections and isn’t an expert any more than any other specialist in the community speak. Patients will get no more samples from docs. I’m fine with that too. I’ll get my CME online for free. Bring it on, please. I want to watch this implosion from my computer screen where I’ll getting 500000 credits CME in a day for free. Who needs research.

  • http://www.pacificpsych.com/ pacificpsych

    It’s good that those days are over. Bio-psychiatry with its mindless, endless, pointless, drugging of the populace has fallen! Yay.

    I’m SO glad we’ve finally got to where patients are treated mainly with psychological and social methods. So glad Pharma’s brainwashing has dissipated.

    So glad Pharma is finally conducting basic research and developing effective medications for schizophrenia, instead of spending most of its money on marketing and me toos based on brain theories from 40-50 years ago, for an ever increasing population of the not-really-sick-at-all.

    So glad physicians are finally waking up to the fact that SSRIs are not effective (I’ve heard prescriptions for SSRIs have fallen by 90% over the past 3 months), that antipsychotics should not be given to every Tom, Dick and Harry, that they need to spend an hour a week with a patient to get to know them, and that psychotherapy is more effective than medications in many cases.

    Pharma’s marketing machine has been vanquished! Hurray.

  • http://fertilityfile.com IVF-MD

    I agree with Doc99. We don’t need more arbitrary regulation. We just need to take responsibility for our own personal smart thinking and not rely on the voice of deceptive corporate marketing nor its pal, the voice of coercive bureaucratic authority. :)

  • http://blog.headache-treatment-options.com/appliedobjectivism/ David Allen

    I’m looking forward to parts II and III of this article, because so far, only a little insight has been offered. Why is so much spent on marketing by pharmaceutical companies? Why are drugs so expensive? Why the push on physicians?

    If physicians didn’t have the exclusive right to prescribe medications, they wouldn’t be such targets (as the article correctly identifies). Physicians are one of the bottlenecks in the process. Patients really should have the right to use drugs as they see fit – so long as someone is willing to sell it to them. Let the buyer (patient) beware – and let the physician be only an adviser, not the controller of what is prescribed.

    The FDA creates another bottleneck. They force companies to spend millions on research and decide which drugs do and do not pass muster. Those drugs that get through this very expensive process and are approved are truly like gold. The drug companies simply cannot afford to give them up – even if their benefit is marginal. (Often, by the way, their benefit is great). The process is expensive enough, in fact, that it creates ‘orphan diseases’. These are diseases that are rarer than diabetes, COPD, depression, asthma, or hypertension, for example. Because of the FDA’s one-size-fits-all approach – effective drugs aren’t developed for rarer diseases.

    Third party payer systems are another problem. Since the patient is paying very little for the drug (sometimes nothing) then there is no incentive on their part to choose the cheaper alternative. Insurance companies have tried to tier drugs, in order to make patients feel the cost a little more – but it is certainly resented by patients. A third party payer system makes people accept using drugs much more readily.

    Also, Medicare is a large government purchaser of medication for patients. They help to drive up prices of medications and create a much larger market than would otherwise exist.

    Perhaps the author will really address these issues by suggesting a free market approach: freeing up access to drugs by patients, eliminating the FDA’s control over medications, changing laws and incentives to phase out third-party payment for health care, and slowing phasing the government (Medicare) out of purchasing drugs.

    Or will the author conclude that yet another layer of government controls is the answer – on top of an already over regulated system.

  • http://fertilityfile.com IVF-MD

    Brilliant points, Mr. Allen.

    As a physician who stands to benefit unfairly from the protectionist privileges of my medical degree, I would still much rather have patients choose to see me because they judge my advice, clinical judgment and surgical skills to be superior rather than because I have the protected right to be one of the few who can legally dispense the medical care that can help them.

    As for the FDA, it’s mind-boggling to think how many drugs are withheld from the sick who have the misfortune of having a “non-popular” disease that makes it not worth the money for a drug company to do the tests and jump through the hoops necessary for “approval”.

    You also hit the nail on the head with regards to third party payment (whether an insurance company or the government). This basically creates an unfair competitor against physicians who chose not to transact with the third party. It’s fine if those third parties compete fairly, but they don’t. They either take their money by forced taxation which completely throws off the balance or by having no competition in the case of large insurance corporations which have protection from “mom and pop” insurance companies springing up to compete by virtue of the huge barriers to entry erected by bureaucratic regulations.

    We all want better health care at a better price and allowing the accountability and healthy competition brought on by the free market is the best solution. Besides, it will make practicing medicine more enjoyable again, thereby attracting the brightest minds into medicine.

    • HJ

      “As for the FDA, it’s mind-boggling to think how many drugs are withheld from the sick who have the misfortune of having a “non-popular” disease that makes it not worth the money for a drug company to do the tests and jump through the hoops necessary for “approval”.”

      I am not sure why you think that drug companies would spend any money developing these drugs without the financial reward-FDA or no FDA. And why spend the money to develop cures instead of treatments?

      Without an entity making sure claims are true, aren’t we talking about a situation like the supplement market? Do drug companies have to show efficacy or do they get to say, “May promote fertility?”

      I would be all over getting medication without a doctor’s presciption. I take a medication that has to be monitored and hate jumping through all those stupid hoops. I could monitor it myself and make medication changes-the formula is not that hard.

      • http://fertilityfile.com IVF-MD

        Yes, financial compensation would drive efforts to come up with a medication that people would be happy to pay for. The point about the FDA is that it adds a lot to the costs and therefore makes it less likely that companies will bother for drugs that have a smaller potential benefit group.

        Whether it be the supplement market (boosts immune system), investment brokers (provide for your retirement) or the government (eliminate poverty and keep you safe from harm), false claims are being made all the time. Isn’t it the responsibility of the individual to be smart and skeptical?

        There can be ratings agencies like the BBB and entities like Underwriter’s Laboratories, but they are voluntary and do not have the power to prohibit two willing parties from engaging in a mutually consensual transaction.

        It’s totally fine to have the FDA say that it does not approve of a certain drug, but it’s also the autonomous moral right for a patient to be willing to use a drug or supplement off-label or even to use something that is not approved.

        • HJ

          :”Yes, financial compensation would drive efforts to come up with a medication that people would be happy to pay for.”

          Like narcotics?

          And how does this solve the problem of orphan diseases?

          • http://fertilityfile.com IVF-MD


            The concept of market forces is universal so yes, it does apply to narcotics but not with any special emphasis other than to the degree that the public wants pain relief.

            Are you somehow suggesting that stricter FDA regulations would somehow make it easier for orphan disease treatment options to emerge? With limited resources, the market naturally allocates more labor and effort towards addressing the diseases for which there is a greater demand (as voted by the patients). But overall, with less bureaucracy, there is more efficiency so that there is less waste and a greater chance that a particular orphan disease will draw interest.

  • http://fertilityfile.com IVF-MD

    Oops, I meant to address you as DOCTOR Allen. I know you didn’t work your way through four years of medical school to be addressed as Mr.

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