Ethics and Industry: The Face in the Mirror

Speaker Name: Robert Ingram
Speaker Title: Vice Chairman Pharmaceuticals
Speaker Company: GlaxoSmithKline
GlaxoSmithKline Website

Robert IngramToday, I want to talk about ethics – in business and in life. Not an inappropriate topic given the news of the day, as headlines proclaim seemingly endless examples of corporate greed and ethics gone awry. Understandably, the public is angry. People lost their fortunes to dotcoms that oversold their ability to provide a return to shareholders. People who invested in Enron and Worldcom, and who lost that investment, were wronged by inept or fraudulent managers. Fund managers are under scrutiny, and CEOs now have to personally verify the accuracy of their company’s reported results – or face prison. Public anger at corporate scandals is justified, and the resulting regulations designed to prevent such scandals is justified as well. But there are other consequences, one of which is a growing cynicism in our society against all business.

Today, it is popular to vilify industry – particularly large companies, and especially those that are successful enough to be global players. We are all too ready to agree with any critic who points a finger and makes a charge – founded or unfounded – against a person, company or industry. We accept such vilification, too often without question and without accepting responsibility for learning the “other side of the story.”

And there is always another side to the story. Fair punishment for white collar crimes is fair punishment – no doubt about that. But as a society, we must ensure that we don’t allow the pendulum to swing too far and destroy the very foundations upon which success in America is built – a free enterprise marketplace where hard work and innovative ideas are rewarded with profits.

Somehow, “profit” has become a four-letter word in our society. Take my own industry – pharmaceuticals. The pharmaceutical industry is frequently cited as the most profitable of all legitimate industries. While it may be true for the industry as a whole, it gives a false impression – that individual pharmaceutical companies are the most profitable companies.

That’s not true. Fortune magazine’s list of the top 50 most profitable companies in the United States for 2003 ranks Citigroup as the leader with a profit of about $15.2 billion for 2002. Pharmaceutical companies account for only seven spots on the top 50 list. Again, according to Fortune, 2002 revenues for Wal-Mart exceeded the revenues of the entire U.S. pharmaceutical industry by $17.3 billion.

But what if the charge of being most profitable were true? When did it become a bad thing in America to be a profitable business? My company employs over 110,000 people worldwide. As a business, we enable our employees to put food on the family table, educate their children, and support their communities through taxes. I think that’s a good thing.

On top of that, however, pharmaceutical research companies turn more of those profits back into research and development (R&D) than any other industry – over $33 billion estimated for 2003 – which is more than the entire National Institutes of Health operating budget [of $24 billion in 2002].

That’s over 18 percent of sales, compared to 17 percent in the computer software industry, 5 percent for automotive, and 3 percent for telecommunications. On average, a Pharmaceutical Research and Manufacturers of America (PhRMA) company’s R&D-to-sales ratio is higher each year than those of such other research-driven companies such as Microsoft, Boeing, and IBM.

I believe that’s also a good thing, because it means new and better medicines for you and me and our families. In fact, of the most popular medicines on the market, 91 percent came from industry. I believe that is a very, very good thing.

R&D investment results not only in more and better medicines but also longer and healthier lives for all of us. The proof of that? The average age of a person entering a nursing home in 1980 was 66. In 2002, it was 81. That’s 15 extra years of people living in their own homes, or with their families, and living a better quality of life – thanks in great part to medicines, brought to them by the pharmaceutical industry, that turn yesterday’s killer diseases into diseases we can live with today.

It’s important, too, to note that the fastest growing segment of our population is those aged 65 and older – and they use more medicines. Drugs today account for only 10 percent of what we as a nation spend on health care. The cost of disease eats up the other 90 percent. In an aging society, it will be the cost of disease – not the cost of medicines – that will bankrupt this country.

Bringing down the price of drugs today won’t solve our future problems in dealing with the cost of medical care – but finding new medicines will. And yet, the pharmaceutical industry is an open target – for critics and for anyone else who wants to make or save a few dollars. The issue of importation of drugs from Canada is an excellent case in point. The pharmaceutical industry is roundly attacked for being unethical in moving to stop the importation of drugs from Canada to the U.S. Why? Because people in the U.S. want cheap drugs. Plain and simple.

Why are medicines cheaper in Canada? Because virtually everything costs less in Canada due to the lower standard of living and the exchange rate – except, oddly enough, many generic medicines, which are less expensive in the U.S. But the Canadian government, like governments in every other country outside the U.S., also sets the ceiling on the price of a medicine coming onto the market, based on an average of European prices which are already low. Each Canadian province then sets a price for its approved list of drugs, which is often lower than the ceiling price. This is not a free enterprise system.

The result is lower-cost medicines, yes, but also a severely diminished incentive to invest in R&D offered by the free enterprise system. We all know you have to make money to spend money, and pharmaceutical companies have to make money to spend money on pharmaceutical R&D. That’s expensive, upwards of $1 billion to bring a new drug to market these days.

Unfortunately, our current single-minded focus as a nation on importing lower cost medicines from Canada – and pillorying the industry in the process – is blinding policymakers and patients to the point that they are unwilling to even consider the serious consequences that opening up our borders can have on their health. Short-term thinking often carries with it long-term costs.

GSK Canada did move to ensure that supplies of its medicines designed for Canadian patients stay in Canada – as did other pharmaceutical companies. Was that unethical? Not in my view. Why? My Canadian colleagues acted because they were afraid that shortages of medicines would deny treatment to patients in Canada, since a U.S. market hungry for cheap drugs would surely siphon off all the drugs from a country one tenth the size of the U.S. – yet still not meet the demand.

The cross-border trade of prescription medicines is clearly illegal under U.S. law. Yet 25 governors, several mayors, a large number of elected representatives in Congress – all looking for ways to bolster their cash-strapped budgets – are rabid in their condemnation of my industry for not supporting an illegal activity. In fact, several attorneys general have launched official investigations against my company for not violating the law. How ethical is that?

The Food and Drug Administration (FDA) has said that importation poses a safety threat to patients – an argument rejected with accusations that the FDA is clearly in the pocket of the pharmaceutical industry. Those intent on pushing forward their own “cheap drug” agenda deride an agency of the federal government that was set up to preserve the safety of the U.S. drug supply for the benefit of American patients. They all too readily dismiss the fact that the FDA cannot guarantee that prescription drugs not approved for sale in the U.S. by the agency – including drugs imported across the Internet – are safe and effective.

Why are such drugs unsafe? After all, GSK makes the drugs sold to patients in Canada, and they’re exactly the same, except cheaper than what’s on the south side of the border, right? Not at all. Legitimate drugs made by GSK bought across the border are not subject to FDA oversight and are not continuously under the custody of a U.S. manufacturer or authorized distributor. Therefore, their quality is less predictable than drugs in the U.S. system. In various inspections, the FDA has found examples of legitimate medicines that should have been refrigerated in transit, but arrived in broken – and unrefrigerated – packaging. Some medicines arrived in loose sandwich bags, tissue paper or envelopes.

The FDA has found unapproved drugs, controlled substances, drugs withdrawn from the U.S. market for safety reasons, and drugs requiring monitoring by a physician to avoid serious risks such as birth defects.

Lack of FDA oversight also means that anyone can get any drug from anywhere. As reported in The Wall Street Journal, one former New York policeman ordered more than 100 medications from Internet pharmacies. Some of them arrived improperly packaged, from unexpected countries or from operations run by shady characters. He also placed online orders for 146 drugs and received more than 50 even though no doctor had ever written him a prescription.

Even more worrisome, his children, ages 9 and 13, also ordered prescription medicines online. His daughter ordered a weight-loss drug that is on the Drug Enforcement Agency’s list of controlled substances. And his son received a shipment of Prozac – a powerful antidepressant - even though he said he was only 4 feet 8 inches tall and weighed 70 pounds.

The FDA exists, in part, to ensure that the drugs taken by Americans are safe and effective. You and I depend on the FDA to watch out for our interests. But the FDA cannot regulate trade from across the border.

No one is minding the store, so to speak, which leaves the door open for you, me or anyone else to set up a website and begin making illegitimate profits. Anybody can load on a maple leaf and declare a website to be Canadian. For some reason, many of them seem to be registered in Barbados.

This situation puts patients at risk. FDA Commissioner Dr. Mark McClellan has cited, as just one example, the case of a consumer who bought an anti-seizure medicine, Neurotonin, approved by the FDA, from a website that claimed to operate in Canada and ship to the U.S. Yet the patient received a drug that was made in India and not approved for any use in the U.S. How ethical is that?

Entrepreneurs always go where the money is – certainly with regard to pharmaceuticals – and the Internet may be the last frontier in which free enterprise operates without any restrictions – a particular advantage for unscrupulous operators and counterfeiters. And that, of course, is the problem. The FDA has no control over where the drugs you get in the mail from across the border actually come from. There is no guarantee that a medicine in GSK packaging is a GSK medicine, and whoever made that product may not have put in the same amount of active ingredient as the medicine you’re used to. Or there may not be any active ingredient at all.

Oddly enough, the U.S. imposes high tariffs on grain coming from Canada into this country to protect our agricultural industry. We refuse to allow their beef across the border, because we don’t trust Canadian officials to ensure it’s not infected with BSE. Just last year, Congress passed legislation that gives the FDA unprecedented ability to protect food imports from deliberate or accidental attempts to contaminate them.

Yet we, as a society, are happy to allow prescription medicines across the border with no oversight – medicines that can kill if they are improperly handled – or counterfeit.

Here we have real examples of all kinds of ethical violations. And yet, on the Online News Hour with Jim Lehrer, one Congressman is quoted as saying: “We know how many people have died from taking drugs from Canada, legal prescription drugs. It’s a nice round number. It’s easy to remember. It’s zero.”

I have to ask, how ethical is it to wait until there are bodies in the street before we move to preserve the safety of American patients? Still, it is pharmaceutical companies, and the FDA, who are charged with being unethical villains. If any of you watched 60 Minutes this past Sunday, I don’t need to say anything more.

In July 2003, The Wall Street Journal stated: “It’s hard to think of any other industry that does nearly as much to improve the quality of American life. Yet in the political debate, the drug companies occupy a spot once reserved for tobacco purveyors.”

That article was describing a vote in the Congress that passed a bill to allow importation of medicines from Canada. The article goes on to say that: “Members of both parties talked openly… about how satisfying it was to defeat [the industry].”

The implication is, of course, that this particular Congressional vote was in part an opportunity to “get back” at the industry. But what do we lose when our elected representatives – or a jury – vote to make an example of a person, or a company, or an industry because of public anger of the electorate? Is that ethical? And in the long run, is that in the best interests of our society and ourselves?

"What is ethical?” That’s a very personal question that requires a personal response. Ernest Hemingway gave one possible answer when he said, “What is moral is what you feel good after, and what is immoral is what you feel bad after.”

This is critical. Because, even if unethical behavior makes you a success to the rest of the world, it will never allow you to be a success in your own eyes. And that’s a price that most of us are – or should be – unwilling to pay. Unfortunately, such a simple formula gets confused when we decide as a society that the target of our attacks “deserve it” without regard for the truth; that, deserved or not, retribution is an “overdue victory for the little guy.”

I would submit to you that regarding the issue of importation of medicines from Canada, it is the pharmaceutical industry that is acting ethically, and it is our critics who should look hard at the face in the mirror and ask if they are really acting in the best interests of American patients.

It is a massive failure of American public policy if governments and patients feel they have to go to Canada to get prescription medicines – a failure that I hope the coming Medicare drug benefit will help to alleviate.

In the meantime, pharmaceutical companies like GSK offer savings cards to seniors without drug coverage that help them save – in our case – up to 40 percent off their GSK medicines. These prices are comparable to what they can get from Canada over the Internet, but without the safety risks. The Medicare Cards, coming in June, should also offer savings.

And there are other constructive ways to hold down costs. Instead of suing pharmaceutical companies in the hope of bolstering state budgets with big windfall court awards, governments across the U.S. should be looking to their own houses to better manage their programs for greater effectiveness.

The Asheville project is a case in point. The city of Asheville, North Carolina, wanted to more effectively manage its health care costs, particularly in the area of diabetes. What did they do? They trained community pharmacists in diabetes management and waived the co-pays on medicines and medical supplies for city employees with diabetes. Employees agreed to go through a diabetes education program and to meet regularly with a specially trained pharmacist. The pharmacists monitored their patient’s condition, educated the patient on medications, and acted as a partner in managing all aspects of the disease.

What happened? Prescription drug costs went up – from $762 to over $2,900 per patient over five years. But medical and insurance costs went down far more dramatically. Employees reported a greater quality of life and greater success in managing their diabetes. Employers reported decreased absenteeism and increased productivity.

There are constructive ways to control costs and improve access to medicines in America while preserving the spirit of innovation in a free market system. But you have to be willing to do what’s right for the long-term.

Yet some elected officials in Congress are moving forward with plans to open the borders to imported prescription medicines coming through Canada – from who knows where. And there are also moves afoot to impose price controls on the pharmaceutical industry – like those in Canada – undermining for my industry the right to operate in a free enterprise society where innovation is rewarded and encouraged for the benefit of all.

Of course, in the long run, such price controls will have a predictable, but I expect, unwanted effect. Without the ability to make a fair return on our investment, we – like any other industry – won’t invest so much in developing better treatments for complicated diseases like cancer. Or Parkinson’s Disease. Or Alzheimer’s.

If we as a society are willing to live with that, then by all means, impose price controls – though I would hope that anyone now suffering from cancer, or Parkinson’s or Alzheimer’s would want a free enterprise system to encourage innovation that would save someone else from such suffering tomorrow.

Short-term gain often has long-term costs – and in this case, the cost could be your health.

The basic question we are asking in this debate as an American society is: Should American patients shoulder more than their share of the global R&D cost? That’s clearly the case today, and the answer should be no. But as the FDA Commissioner has said, this inequity should be addressed by the European Union and other developed countries taking on more of their share of the cost of innovation, not emulating their cost controls in this country to undermine innovation in the U.S.

One of the lessons I learned early in my career, and one that I know GSK follows as a company, is that every decision we make must answer one question: Is what we are proposing to do in the best interest of the patient?

I believe if we put patients first, the profits will follow – but only if we can continue to invest in innovation that brings better medicines to patients.

There are many ways to compromise in life, and while we can certainly identify insider trading, or fraud, or other unethical acts as clear violations of what is right, there are many other ethical compromises that are harder to identify or condemn. But it doesn’t mean they are any less wrong. Believe me, you will be faced with some tough business situations where ethical compromise will garner short-term gain. But short-term gains often have long-term costs – and often in unexpected ways.

So I encourage you. Ask questions. Seek all perspectives in a debate. And decide for yourself. In closing I’d like to share a few other lessons that I’ve learned:

I’ve learned… That the best classroom in the world is at the feet of an elderly person.

I’ve learned… That just one person saying to me, "You’ve made my day!" makes my day.

I’ve learned… That being kind is more important than being right.

I’ve learned… That simple walks with my mother around the block on summer nights when I was a child did wonders for me as an adult. (And I’ve tried to emulate that with my own sons.)

I’ve learned… That we should be glad God doesn’t give us everything we ask for.

I’ve learned… That money doesn’t buy class.

I’ve learned… That under everyone’s hard shell is someone who wants to be appreciated and loved.

I’ve learned… That to ignore the facts does not change the facts.

I’ve learned… That when you plan to get even with someone, you are only letting that person continue to hurt you.

I’ve learned… That the easiest way for me to grow as a person is to surround myself with people smarter than I am.

I’ve learned… That everyone you meet deserves to be greeted with a smile.

I’ve learned… That opportunities are never lost; someone will take the ones you miss.

I’ve learned… That when you harbor bitterness, happiness will dock elsewhere.

I’ve learned… That when your newly born grandson holds your little finger in his little fist, that you’re hooked for life.

I’ve learned… That everyone wants to live on top of the mountain, but all the happiness and growth occurs while you’re climbing it. Enjoy the climb – and treasure your opportunities.

Thank you.