Life Science Compliance Update

June 10, 2015

Debunking Myths About 'Big Pharma'


We recently wrote about the media’s coverage of the 2013 Open Payments data, noting the ease in which a government database emboldens journalists to imply misconduct. Although the Justice Department has not used information from the database to bring forward specific legal action in court, the media has not been as restrained, quickly moving to try their own cases in the “court of public opinion”. These stories create a chilling effect on industry-physician collaboration, as many interactions could subject either party to unwanted—and perhaps more importantly—unjustified attention.

These stories nearly universally paint the pharmaceutical industry in a poor light, fostering public distrust, and ultimately hurting patient care around the globe.

But the industry is fighting back. Last year, for example, we highlighted the Pharmaceutical Research and Manufacturers of America’s (PhRMA) website—the “Innovation Hub”—which showcases the latest data and research on innovation in the biopharmaceutical industry. The website offers a central place for PhRMA’s resources related to the R&D process, the biopharmaceutical pipeline, and progress fighting diseases such as hepatitis C, cancer, Alzheimer’s, leukemia, and HIV/AIDS.

John Lechleiter, the Chairman, President, and Chief Executive Officer of Eli Lilly and Company recently added to this debate, writing an opinion piece, “Debunking The Five Big Myths About ‘Big Pharma’” in Forbes. In his article, Lechleiter criticizes myths about “industry that routinely poison debates, obscure genuine problems, and distort policy recommendations on health care.” Concerned about the growing power of these myths, he critiques them head on.

First, Lechleiter addresses the claim that pharmaceutical companies exaggerate costs of developing new medication to justify higher prices. Lechleiter points out that research and development (R&D) expenditures are incredibly expensive. He notes this information is publicly available and that PhRMA spent over $51 billion on R&D in 2014 alone. The pharmaceutical industry accounts for 21 percent of all R&D spending by businesses in the United States. “This level of investment is what is required today to bring forth new medicines,” he writes.

Another criticism of industry—that government and university labs develop most new medicine—is not entirely correct. Lechleiter acknowledges the important contributions of government and academic research, but they are a collaborative partner with industry. He points out that “the complex and expensive process of turning insights on diseases and promising leads into approved treatments for patients occurs almost entirely in private industry." A recent study confirms this, demonstrating while publicly funded research often indirectly contributes to the discovery and development of medications, “fully 91 percent of [FDA approved drugs between 1988-2005] were patented in the private sector—demonstrating that they were substantially discovered and developed by private firms,” notes Lechleiter.

Lechleiter continues by addressing the myth that prescription medications are the main driver of health care cost increases. In fact, 10 cents of every health care dollar spent in the United States, now and also the same back in 1960, goes toward prescription medications. However, during this time life expectancy increased more than nine years, despite the same leveling of spending. Lechleiter also points to a study in which the researchers compared total medical expenditures for patients with major diseases who regularly took their medication versus those who did not. The former group saw greater overall health care savings and it exceeded the extra medication costs by a significant margin.

Lechleiter additionally answers two other myths: that public and private health care payers must accept and pay whatever price drug companies charge, and that government-controlled pricing of medication lowers health spending in other countries. Lechleiter points out that health insurance companies can control spending by establishing “formularies” of treatments, by requiring prior authorization of prescriptions, and adding incentives for physicians to prescribe generics. In fact, hospitals and the Pharmacy Benefit Management (PBM) companies purchase medication in large bulks, garnering a large market share and ultimately significant leverage over the prices paid.

Finally, Lechleiter cites an analysis from the Organization for Economic Cooperation and Development, showing that American health spending is twice per-capita than that of Canada and Germany. However, medicines account for a small percent of the difference in total spending. “In order words, if we equalized drug prices with those countries tomorrow, we would further reduce the economic incentives for new-drug innovation—but we would do essentially nothing to lower the cost of health care.”

Lechleiter cautions against the creation of myths regarding the pharmaceutical industry. These claims hinder efforts to develop new medications and innovative ideas, often produced by collaboration between industry and medicine. Myth-making also diverts our attention from significant culprits in American health spending, such as perverse insurance structures and shorter periods of exclusivity for biopharmaceutical intellectual property. He concludes by stating: “No one should fear the truth when it comes to our shared goals of improving our health-care system, continuing medical progress, and making life better for patients.”

May 28, 2015

Supreme Court Passes on Challenge to Alameda's Drug Disposal Ordinance; California Counties Are Lined Up with Similar Initiatives

Dispose unused rx

The Supreme Court has declined to hear a challenge to Alameda County’s Drug Disposal Ordinance. The Court’s decision upholds the Ninth Circuit’s opinion, which found that the Ordinance—requiring pharmaceutical manufacturers to fund drug take-back programs in the County—did not interfere with interstate commerce or discriminate against out-of-state drugmakers. While the Supreme Court’s choice to pass on the decision is not too surprising given that the Ninth Circuit is the first to consider the Ordinance's Constitutionality—and hence there being no Circuit-split—the Ordinance is already in full swing in a number of different places.

For example, San Francisco has been sending reminders to drug wholesalers licensed by the CA Board of Pharmacy about their responsibilities under the San Francisco Safe Drug Disposal Stewardship Ordinance. Specifically, wholesalers must provide the city with a list of manufacturers of drugs. Using these lists, San Francisco will notify the manufacturers about their obligations to fund programs to collect and properly dispose of unwanted medicine.  Download San Francisco Letter to Drug Wholesalers

Four counties including Alameda have adopted drug disposal ordinances, and two more have introduced them.


The California Product Stewardship Council notes that an estimated 10 to 33 percent of prescribed medicines are not consumed. “With a lack of safe and secure disposal options, consumers traditionally have had the option of trashing, flushing or storing these medicines in the home,” they state. “Numerous studies have documented the widespread consequences of improperly stored and disposed medicines, including the impacts on water quality and public health.”

The solution a number of counties have landed on is “Extended Producer Responsibility,” which requires pharmaceutical manufacturers and others in the product chain to “design, manage and fund take-back programs to securely collect unwanted medicines and sometimes their packaging from the public and ensure the collected materials are properly managed.”

On June 24, 2012, Alameda County adopted the Safe Drug Disposal Ordinance and became the first place in the nation to require pharmaceutical companies to fund the collection and disposal of unused medications from the public. Under the Ordinance, manufacturers must set up disposal kiosk sites throughout Alameda, which consist of disposal bins located in areas “convenient and adequate to serve the [disposal] needs of Alameda County residents.” Manufacturers must also promote the stewardship program to the public through educational and outreach materials. After collection, manufacturers must arrange to destroy the unused prescription drugs at medical waste facilities.

Other counties followed suit, including:



Following Alameda’s adoption of the drug take back program, several industry trade groups, including PhRMA, BIO, and GPhA, challenged the ordinance in court, arguing the ordinance burdens interstate commerce and discriminates against out-of-state companies by shifting costs to counties and states outside of Alameda. Chief Counsel with the Washington Legal Foundation, Richard Semp, a strong opponent of the drug disposal law, noted that the ordinance forces others to pay for something that should be paid for locally. “If Alameda County is permitted to evade the cost of collecting unused pharmaceuticals, then other jurisdictions will take similar steps,” he states. “Local governments have little incentive to impose costs prudently on interstate commerce when their citizens will not bear those costs, but enforcing the dormant Commerce Clause prevents such mischief.”

Pharmaceutical companies lost at District Court and again at the Ninth Circuit. Ninth Circuit Judge N.R. Smith held that the Ordinance is not discriminatory because it “applies to all manufacturers that make their drugs available in Alameda County—without respect to the geographic location of the manufacturer.” He notes that “[e]ven if one of the manufacturers represented by Plaintiffs were to close all of its production facilities, open a single production facility in Alameda County, and limit the sale of its products to intra-county commerce, the Ordinance would still apply to that manufacturer.”

View: PhRMA et. al.  v. County of Alameda, 9th Circuit Opinion

Furthermore, Judge Smith rejected the argument that the purpose of the Ordinance is “merely to shift costs away from the county and onto the manufacturers.” PhRMA and the industry groups noted that because Alameda County could run a drug disposal program that “would achieve precisely the same effects” as the program mandated by the Ordinance, the Ordinance “yields no public benefits.”  Judge Smith stated: “The fact that the county could run a similar program does not nullify the program’s benefits… even if the Ordinance did nothing other than save the county money, that is not equivalent to ‘no public benefits.’”

The trade groups appealed the Ninth Circuit decision to the Supreme Court, but on May 26, the Supreme Court denied the petition.

Pending Ordinances

Two more California counties have introduced similar models of pharmaceutical-funded drug disposal programs. View the California Product Stewardship Council's website for comprehensive updates on various take-back programs. 

Santa Barbara County, California

  • Press – County Looks to Big Pharma to Fund Drug Take Back, Kelsey Brugger, Santa Barbara Independent, 5/20/15
  • 5/19/15 – Hearing held at County of Santa Barbara Board of Supervisors Meeting to receive staff report on unused pharmaceuticals and vote on beginning the medicine stakeholder process. The Board voted unanimously to authorize the Director of the Public Health Department to conduct stakeholder outreach, in collaboration with the Third District office and Public Works Department, and return in October 2015 with a recommendation for establishment of a permanent and sustainably funded model to collect and safely dispose of unwanted medications from residents in Santa Barbara County.

Santa Clara County, California

  • 5/19/15 – Ordinance introduced at County of Santa Clara Board of Supervisors Meeting and passed by a 3-0 vote with two Supervisors recusing themselves due to pharmaceutical investments.
  • County of Santa Clara Board of Supervisors Meeting 5/19/15 – Meeting video, County of Santa Clara Board of Supervisors, 5/19/15 (Ordinance discussion begins at 3:47:20)


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