The global pharma industry has racked up fines of more than $11billion in the past three years for criminal wrongdoing. The scale of the wrongdoing has undermined public and professional trust in the industry and is holding back clinical progress
“The love of money is the root of all kinds of evil”—Jesus
Wall Street has three major players—pharma, oil and banking. Of the three, the first is the only one that has been growing at 20% per year in the past one decade or so. The lobby of the pharma is thrice as big and powerful as that of oil, although oil is much bigger than drugs in total turnover! To understand how the industry works one must read the new book by two French medical specialists appointed by former French President Nicholas Sarkozy to study the working of the drugs lobby in France. Although the book is in French, the reporter, Kim Wilsher of the UK daily, The Guardian, has written about this book and the interview with the authors on the 14th of September 2012.
The best part of the interview was the answer given by the first author “There is nothing revolutionary in this book. This has all been known for some time.” I was happy as I was writing about this in India, the UK and the USA for at least four decades but to no avail. The powers that be do not seem to take notice, at least in India. Professor Philippe Even, director of the prestigious Necker Institute, and Bernard Debré, a doctor and member of parliament, the two authors feel that removing what they describe as superfluous and hazardous drugs from the list of those paid for by the French health service would save up to 10 billion euros(8 billion pounds) a year. It would also prevent up to 20,000 deaths linked to the medication and reduce hospital admissions by up to 100,000, they claim.
The book, The Guide to 4,000 Useful, Useless and Dangerous Drugs, in all its 900 pages looked at the effectiveness, risks, and the prohibitively high cost of the drugs. Among those which were completely useless the first rank was taken by STATINS, the most fashionable and doctor friendly anti-cholesterol drug. The authors blacklisted a total of 58 drugs which included anti-inflammatory drugs, pain killers; cardiovascular drugs many of which are useless, anti-diabetics-many of them are dangerous to say the least, and the useless drugs for osteoporosis, contraception, muscular cramps and tobacco addiction! According to these specialists roughly one half of the drugs prescribed by doctors in France are useless and many of them down right dangerous. The authors feel that the powerful pharma companies keep these drugs moving for their own benefit.
Most of these drugs are produced in France. Professor Evans felt that the drug companies push these drugs on the doctors who then push them on to patients. “The pharma industry is the most lucrative, the most cynical and the least ethical of all the industries,” he said. “It is like an octopus with tentacles that has infiltrated all the decision making bodies, world health organisations, governments, parliaments, high administrations in health and hospitals and the medical profession, he felt.” He went on to add that: “for the last 40 years patients have been told that medicines are necessary for them, so they ask for them. Today we have doctors who want to give people medicines and sick people asking for medicines. There’s nothing objective or realistic about this.”
The story is the same in India. The only difference is that the proportion of useless drugs sold here will run into hundreds, if not thousands. My curiosity was aroused further to read the immediate response of the industry led by the President Christian Lajoux of The Professional Federation of Medical Industrialists who responded thus: “It is dangerous and irresponsible… hundreds of their examples are neither precise nor properly documented. We must not forget that the state exercises strict controls on drugs. France has specialist agencies responsible for the health of patients and of controlling what information is given to them.” Less said about these controlling agencies in any country, including the US FDA, the better. They all live for the industry and not for the common man, anyway. That is why the Federation president leans very heavily on them, instead of countering the new book’s finding on evidence base.
The Indian public also had lukewarm response to my writings on the subject so far in the past four decades. Now that the information comes from the west, thanks to our slavish western mentality, people might sit up and take note. That would be good for mankind as Oliver Wendell Holmes put it succinctly thus: “If the whole pharmacopeia were to be sunk to the bottom of the seas that will be that much good for people and that much worse for the fishes.” How true indeed? There is no pill for every ill but there is definitely an ill following every pill!
How can we change all these? One would shudder to see this report in a recent issue of the prestigious New England Journal of Medicine: “The global pharma industry has racked up fines of more than $11billion in the past three years for criminal wrongdoing, including withholding safety data and promoting drugs for use beyond their licensed conditions.
In all, 26 companies, including eight of the 10 top players in the global industry, have been found to be acting dishonestly. The scale of the wrongdoing, revealed for the first time, has undermined public and professional trust in the industry and is holding back clinical progress.”
The biggest amount of fine of $3billion, imposed on the UK-based company GlaxoSmithKline in July after it admitted three counts of criminal behaviour in the US courts, was probably the highest paid so far in the history of pharma but that alone will not deter them from wrong doing as this is a small flea bite for their huge yearly profits! Nine other companies have had fines imposed, ranging from $420 million on Novartis to $2.3 billion on Pfizer since 2009, totaling over $11 billion.
“The be-all and end-all of life should not be to get rich, but to enrich the world”—BC Forbes
(Professor Dr BM Hegde, a Padma Bhushan awardee in 2010, is an MD, PhD, FRCP (London, Edinburgh, Glasgow & Dublin), FACC and FAMS. He is also Editor-in-Chief of the Journal of the Science of Healing Outcomes, Chairman of the State Health Society's Expert Committee, Govt of Bihar, Patna. He is former Vice Chancellor of Manipal University at Mangalore and former professor for Cardiology of the Middlesex Hospital Medical School, University of London. Prof Dr Hegde can be contacted at [email protected])
Subsidies, stimulus, incentives, disincentives and limitations created by government policies can have a short-term effect. Once in place, these policies become sacred policy mantra to their original perpetrators and are very difficult to remove regardless of their detrimental effect
In the past month all of the central banks around the world have been trying to outdo each other in a massive attempt to manipulate the markets. It seems, especially to many markets, that with their impressive monetary firepower at their disposal, they can easily get away with it. But can they? Governments are constantly seduced by the prospect that they can introduce policies designed to bend the markets to their will in an effort to help their countries often at the expense of everyone else. But do these policies actually work? The Chinese experience with rare earths provides a cautionary tale.
China may not have been blessed with an abundance of natural resources, but it does have an abundance of rare earth metals. Rare earth metal is the generic name for 17 elements with exotic names like thulium and lutetium. They are essential for many high-tech uses including wind turbines, car batteries and many sophisticated defence applications. China has been blessed with 57% of the world reserves, but that leaves 43% outside of China including substantial reserves in the United States, India and Australia.
Despite its dominance of the resource, China was not able to reap great rewards from it. They produced so much of these materials that from 1979 to 2009 the price increased only 20% while the demand tripled. What the Chinese were able to do over that period was to put all of the other miners out of business, so by 2009, the Chinese controlled 95% of the world supply.
With that sort of market dominance, flexing its economic muscle was irresistible for the Chinese government. They did so both domestically and internationally. The government ordered the state-owned Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co, a subsidiary of the imposing state-owned Baotou Iron and Steel Group, to create a monopoly on rare earths production by taking over most of the other 129 legally registered rare earths mines and closing down many of the illegal mines. Besides consolidation it also restricted exports. From 2006 it lowered the amount of exports by 5% to 10% per year. In 2010 they cut it by 40% and in September of 2010 they cut exports to Japan for two months.
Like the more recent manipulation, China’s attempt to control the rare earth market was temporarily successful. Prices for a basket of rare earth minerals went from $10/kg in 2009 to over $147/kg in 2011. So China apparently attained its goals in consolidating the industry in state hands, limiting exports and increasing the price. Speculators began to bid up any producer of rare earths. In the US Molycorp, the owner of the sole American mine, had an IPO in 2010 at 13 and its price increased over 500% to 74 by 2011. But then other countries and the market took over.
Over the past year the Japanese government began a program costing nearly $1.3 billion to fund alternative sources for rare earths. The government and Japanese companies are also spending about $652 million to find substitutes for rare earth minerals in a variety of products. The US also considered similar subsidies.
The subsidies are supposed to help find other sources and there are plenty of those. An Australian company, Lynas Corp, is spending $200 million to open a processing plant in Malaysia to process rare earths mined at Mt Weld in Australia. Molycorp reopened the US mine at Mountain Pass California. This mine, closed because of Chinese competition in 2002, renewed operation is in August. Another victim of Chinese competition, the state-owned Indian Rare Earths, is renewing operations that were closed in 2004. Not to be outdone the Brazilian mining giant Vale has also been doing preliminary investigations for mining in Brazil.
The results of all of this activity are predictable. Exports of rare earths from China have fallen sharply. Although China increased its export quota in 2012 for the first time since 2005, exports from China are down 37%. Prices have fallen as well. From their high in 2011, prices are down to $50/kg. They have halved in 2012 alone. The stock of Molycorp fell along with the prices. From a high of 74, Molycorp’s shares have fallen back to its IPO price of 13.
The problem with intervention, as the Chinese story shows, is that the ecology of the market in a globalized economy is far more complex than government policymakers originally can predict. Every action intended to have a limited beneficial local effect, will spur unintended consequences somewhere else. Subsidies, stimulus, incentives, disincentives and limitations created by government policies can have a short-term effect, but in the longer run they can flip the food chain. Once in place, these policies become sacred policy mantra to their original perpetrators and are very difficult to remove regardless of their detrimental effect.
(William Gamble is president of Emerging Market Strategies. An international lawyer and economist, he developed his theories beginning with his first hand experience and business dealings in the Russia starting in 1993. Mr Gamble holds two graduate law degrees. He was educated at Institute D'Etudes Politique, Trinity College, University of Miami School of Law, and University of Virginia Darden Graduate School of Business Administration. He was a member of the bar in three states, over four different federal courts and has spoken four languages. Mr Gamble can be contacted at [email protected] or [email protected].)
The need of the hour is to prepare an environment for growth of stock market. This should start from investor education and strict regulatory controls in capital market. Tax benefits can follow all this
The cat is finally out of the bag. The government has approved much awaited “Rajiv Gandhi Equity Savings Scheme” (RGESS) setting aside all speculations related to the features of the scheme. Two things which come out prominently from the features of the scheme are: 1) it is a scheme intended to provide tax benefit to investors investing directly in equity, mutual funds and exchange traded funds; and 2) it is an attempt to lure investors into stock market and broaden investor base in stocks.
The scheme offers tax benefits to investors whose income is up to Rs10 lakh. This means that the scheme is open for investors paying income tax in two tax brackets—10% and 20%. For an investment up to Rs50,000, 50% of investment will qualify for tax benefit. For an investor in 10% bracket, the total tax benefit offered by the scheme will be Rs2,500( 50% of Rs50,000 is Rs25,000 and 10% tax benefit on this amount is Rs2,500), while for an investor in 20% tax bracket this benefit will be Rs5,000 which can be availed only once. The tax benefits as such do not sound very attractive but in a country like India where investments are done on the basis of tax considerations, this amount is good enough to catch attention of an investor.
While the objectives of the scheme might sound noble, there are some questions which the scheme opens up for debate. Tax benefits on stock investments are not new to the investors in India. Equity Linked Savings Scheme (ELSS)—a tax benefit product—has been in existence for quite some time now but has failed to lure investors to the extent desired. When Compared to ELSS in terms of tax benefits, RGESS looks like an old wine in the new bottle to some extent. However, RGESS is different from ELSS in the sense that tax benefit offered under RGESS is available to first time investors alone and hence the most important question that RGESS raises is, “Can tax incentives alone lure new investors to the stock market and broaden investor base in the country?”
This question needs some investigation and hence requires analysis of some basic facts. As per existing tax provisions in India, investment in stocks is extremely attractive in terms of taxation of returns. There are no long-term capital gains taxes in the country for an investor if he purchases stocks which are traded on recognized stock exchanges and Securities Transaction Tax (STT) is paid on these stocks. Contrary to this, bank deposits and fixed deposits in particular are subject to taxation as per the tax slab in which income of an individual falls. Another attraction of investment in stocks is that it allows an investor to set off capital loss against capital gains subject to some conditions. But in bank deposits there are no such provisions.
In spite of there being very attractive tax structure for investment in stocks, investors in India prefer bank deposits to stock investment. RBI (Reserve Bank of India) data on change in financial assets (see table below) shows that banks deposits have shown consistence increase in deposits year on year basis. Even insurance as a product has shown similar trend. However, total change in stock investments during last ten years is less than a single year change in the bank deposits. In fact during last five years, due to global recession and bad performance of stcok market, total change in the investment in stocks has been marginal.
Looking at the data and trends in investments in financial assets in India, can a marginal tax incentive really lure investors in stock market? For a moment even if we believe that investors are indeed attracted to this scheme, will they remain invested beyond the lock-in period? The answer seems to be an emphatic no at this stage. The failure of ELSS as a product is an example of it.
The government it seems has failed to read the pulse of investor’s requirement once again as far as equity market is concerned. Investors have been avoiding equity market because of certain obvious factors and tax incentives are not right medicine to mitigate fear arising from these factors. Some of the factors which have driven investors out of equity market and are dissuading new investors to join the market are undesirable speculation in the market. Fast changing dynamics of the market and losses arising from the changes have kept investors away from the market. The regulator has failed to educate investors on this front. It is pertinent to note that one of the objectives with which market regulator Securities and Exchange Board of India (SEBI) was formed was education of investors. The common investor today feels that volatility in India equity market is too much and often words like , ‘Casino’, ‘Lottery’ and ‘Matka’ are used with respect to investment in equity.
The need of the hour is to prepare an environment for growth of equity market. This should start from investor education and strict regulatory controls in capital market. Investors need to be given confidence that equity market creates wealth in long term and vagaries of return can be overcome by long term investments. Presence of cumbersome processes needs to be simplified. For instance, one KYC should be good enough for all investments including mutual fund, equity and other equity related investments. Corporate governance practices need to be implemented strictly so that investors can believe companies and their operations. In brief, growth of equity culture needs to be an all encompassing exercise. Tax benefits can follow all this.