Too big to nail

This was in the news a couple of weeks ago, but I held on to it so I could remind people of it again, the "too big to nail" syndrome":

Imagine being charged with a crime, but an imaginary friend takes the rap for you.

That is essentially what happened when Pfizer, the world's largest pharmaceutical company, was caught illegally marketing Bextra, a painkiller that was taken off the market in 2005 because of safety concerns.

When the criminal case was announced last fall, federal officials touted their prosecution as a model for tough, effective enforcement. "It sends a clear message" to the pharmaceutical industry, said Kevin Perkins, assistant director of the FBI's Criminal Investigative Division.

But beyond the fanfare, a CNN Special Investigation found another story, one that officials downplayed when they declared victory.(Drew Griffin and Andy Segal, CNN)

Same old story. The corporatists are driving the bus, even when it has Democrat license plates. Bextra is a COX-2 inhibitor. In theory better and safer than generics like aspirin and ibuprofen that inhibit both COX-1 and COX-2, the greater specificity came at a 20 fold higher price, and, as it turned out, serious side effects -- increased risk from heart attacks and strokes. The FDA refused to approve the drug in 2001 for acute post surgical pain, which required a higher dose, instead approving it only for joint and menstrual pain.

Off-label promotion for uses requiring higher doses is illegal. No problem for Pfizer. The promoted it -- aggressively -- to doctors who performed surgical procedures, according to a memo from a district manager CNN managed to obtain, "anyone that use[d] a scalpel for a living." Not just pushed it for an unapproved use. Pushed it for double the approved dose and claiming the FDA has said it was safe.

Pfizer also deployed an army of doctor shills to promote the drug in "medical education" seminars and lectures, using them as public relations mouthpieces. There is enough shame here to go around and a lot of it has to fall on my fellow doctors who whored for Pfizer. The result was that by 2005, when Bextra was withdrawn from the market for safety reasons, half the profit from the drug came from off label uses. And they were caught at it.

That's when Pfizer played the "too big to nail" card. The company had committed a major health care fraud and if convicted, would be forbidden to bill the government for drugs prescribed to Medicaid and Medicare recipients. That's a big market. Big Pharma makes a bundle off of these federal and federal-state programs and Pfizer might have gone under if cut off. So instead of charging Pfizer with the crime, they charged a phantom subsidiary, Pharmacia & Upjohn Corporation, created two years earlier for the same reason: to immunize Pfizer. According to CNN, this is little more than a shell company erected for the purpose of taking the rap.

It's true that Pfizer paid a big fine ($1.2 billion) and had to settle numerous civil suits. By CNN's estimate, however, it amounted to only 3 months profit. Big Pharma is unbelievably profitable. Like Wall Street, it appears it can do whatever it wants and not be held accountable. They are "too big to nail."

So they let the big guys go.

Who then nail the rest of us with unsafe drugs. I guess our coffins aren't too big to nail.


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The problem is patents. Without them, other competitors could sell the same drugs to the government.

Upjohn was created in 1886

Pharmacia was created in 1911

the merger of Pharmacia/Upjohn was in 1995

from what I can tell Bextra was a Pharmacia drug approved 2001-ish

Pfizer/Pharmacia merger was announced 2003.

so the timeline doesn't support your claim that this is an intentional dodge.

It IS, however, an interesting question as to how and why the surviving entity is allowed to totally escape liability for the past actions of a company they've acquired/merged with.

By DrugMonkey (not verified) on 16 Apr 2010 #permalink

DM: My understanding is that the shell company was created in 2007 for the same reason (that's how I read the CNN investigative piece, linked in the post). And your interesting question is about why Pfizer isn't being held to the liability they bought.

Aha. Would have been clearer if I'd read the CNN bit first. here's the critical statement

According to court documents, Pfizer Inc. owns (a) Pharmacia Corp., which owns (b) Pharmacia & Upjohn LLC, which owns (c) Pharmacia & Upjohn Co. LLC, which in turn owns (d) Pharmacia & Upjohn Co. Inc.

By DrugMonkey (not verified) on 16 Apr 2010 #permalink

Right, Pfizer bought Pharmacia & Upjohn. Pharmacia and Upjohn were each significant pharmaceutical companies before their merger, then purchase by Pfizer.

The CNN article just doesn't make much sense given that fact. Pfizer did not invent P&U out of whole cloth. It's not clear whether this marketing took place prior to the merger, in which case Pfizer is basically saying "it wasn't us, it was them."

Or maybe it really is total shenanigans, I certainly wouldn't put it past either the government or Pfizer... but this CNN piece really doesn't explain wtf exactly is going on.

I think it does, SamR, if you focus on the bit I quoted in #4. There are a couple of entities with the Pharmacia / Upjohn names that function as subsidiary companies.

CNN seems to be saying that the subsidiary that the Feds negotiated into holding the bag was created *solely* for the purpose of diverting the liability for past actions off into somewhere it could do no actual harm to the larger corporate entity or, likely, any of the other subsidiaries.

revere's essential critique is spot on, why the hell did the Fed go for this? What does it mean for the notion that penalties are supposed to be a dis-incentive for current and future bad behavior on the part of corporations? It does indeed sound like more of this flawed "too big to fail" rationale

By DrugMonkey (not verified) on 16 Apr 2010 #permalink

Don't take this as a defense of Pfizer, but the effect on patients of a Pfizer conviction could have been substantial. Their website lists about 120 common prescription medicines, including some significant cardiovascular, chemotherapeutic, antibiotic meds, all of which would become unavailable to Medicare/Medicaid patients if Pfizer took the rap (I know, some have generic equivalents or competing/?comparable meds...) It certainly looks as though a calculation was made by those prosecuting that the potential harm to individuals outweighed the deterrant/revenge effect on the company.

Don't take this as a defense of Pfizer, but the effect on patients of a Pfizer conviction could have been substantial.

is this not just another way of saying they're too big to fail? i dunno about anyone else, but i still think companies too big to fail are too big to exist, and should be broken up until they aren't any longer.

By Nomen Nescio (not verified) on 16 Apr 2010 #permalink

I think this is a weakness of the law and the stipulated penalty, not of the company's size. Personally, I'd suggest that an infraction such as this results in loss of patent on the medication as well as increased personal liability to the leadership of the company. A recurring theme in corporate malfeasance is that often the indivuals have limited liability even if the company takes a hit (a few recent exceptions noted.)

Firstly I'll admit that I don't know the details here but it may be that the officials didnt have much choice over who they went after.

It is usually quite difficult to "pierce the corporate veil" and go after a parent company for liabilities arising from a subsidiary.

I think the EPA is able to do so because legislation was especially written to allow them to do so. I'm farly sure this was introduced because of incidents where mining companies had subsidiaries pass profits to the parent company then when it came to clean up the mess from the mining they could declare bankruptcy and avoid the cleanup bills. Similarly in the UK the Pensions Regulator can require parent companies to pay contributions into underfunded pension plans sponsored by subsidiary companies in some situations.

The common theme in those two examples is that in the EPA's case if they can't find someone to pay the bills the Superfund must do so and with the Regulator the Pension Protection Fund provides partial compensation to pensioners who lose their pensions. The legislation was especially written to void companies being able to dump the liabilities of their subsidiaries into government run funds.

Nevertheless I think these two examples are unusual, possibly in this case Pfizer set up their subsidiary company cleverly enough to make sure it was isolated from the rest of their business.

@SurgPA Personally, I'd suggest that an infraction such as this results in loss of patent on the medication as well as increased personal liability to the leadership of the company.

But since the drug's approval was withdrawn, losing the patent is no penalty at all. Increasing the personal liability to the leadership of the company, OTOH would be salutary. Ask Ken Lay... That might be a poor choice. He never served a day, and his conviction was vacated.

The disincentives are ineffective. These companies are not going to stop off-label marketing, because they'll just swallow an fines as a cost of doing business.

"i dunno about anyone else, but i still think companies too big to fail are too big to exist"

I agree completely. [/Pfizer acquiree who just lost thousands of good colleagues.]

By Anon today (not verified) on 17 Apr 2010 #permalink

Pfizer wasn't "too big to nail." Their top execs were "too-connected to be nailed." The CNN story was false. In 2007, the three top executives of Purdue Pharmaceuticals were criminally prosecuted under a shell company [similar to the Pfizer case] for their fraudulent marketing of OxyContin. Instead of getting a personal fine of $19 million out-of-pocket like the top Purdue guy, Pfizer CEO Jeffrey Kindler got a $13 million buyout and is now the Director of PhRMA. Now that's a crime!

By FakeStory (not verified) on 11 Jun 2010 #permalink