Abstract
This study describes financial penalties levied on pharmaceutical companies for illegal activities by type of activity and dollar value between 2003 and 2016.
Some pharmaceutical companies have received criticism for engaging in illegal activities, such as providing kickbacks and bribes, knowingly shipping adulterated or contaminated drugs to pharmacies, and marketing drugs for unapproved uses. This study examined financial penalties for illegal activities among large pharmaceutical firms in relation to annual revenues.
Methods
We collected data on financial penalties for pharmaceutical firms listed on the Global 500 or Fortune 1000 lists using procedures similar to Almashat et al.1 Consistent with prior research,2 we analyzed all firms that met inclusion criteria and appeared on the list for 7 years or more. All instances of financial penalties from state and federal settlements between January 2003 and December 2016 were obtained from the US Department of Justice, the US Securities and Exchange Commission, the US Environmental Protection Agency, and states’ attorneys general. Each settlement included the penalty amount and described the scope, type, and duration of the associated illegal activity. We secured missing data through Freedom of Information Act requests. Financial penalties were attributed to the settlement year.
To adjust for inflation, we calculated the cumulative dollar value of each firm’s financial penalties for each year and applied the Bureau of Economic Analysis’ Gross Domestic Product Deflator to convert the cumulative amount to 2016 dollars. When firms merged with or were acquired by other firms during the study period, we attributed all penalty settlements, both before and after acquisition, to the firm that engaged in the illegal activity. We calculated the mean penalty amount by dividing the total dollar value of each company’s financial penalties by the total number of penalties levied during the study period. We calculated the total dollar value of each company’s financial penalties as a percentage of their total revenues during the study period using data from Compustat, Mergent Online, Edgar Direct, and annual reports filed with the Securities and Exchange Commission. We provided the mean duration of illegal activity for penalties settled during the study period. We used content analysis to classify each settlement into 1 or more types of illegal activity and summarized the frequency by firm and illegal activity type.
Results
Among 26 firms in our sample, 22 (85%) had financial penalties for illegal activities. The combined dollar value of financial penalties totaled $33 billion for 2003 to 2016. Eleven firms with financial penalties exceeding $1 billion in inflation-adjusted dollars accounted for $28.8 billion (88%) of the total penalties (Table 1). The firms with the highest penalties as a percentage of revenues (ie, >1%) were Schering-Plough, GlaxoSmithKline, Allergan, and Wyeth; the number of penalties for these firms varied between 1 (Allergan) and 27 (GlaxoSmithKline). Four firms had financial penalties that totaled less than $80 million and no more than 2 penalty settlements (Actavis [Watson], Roche Group, Genzyme, and Perrigo). All but 1 firm (Perrigo) engaged in illegal activities associated with penalties for 4 or more years. An additional 4 firms received no financial penalties for illegal activities during this period. The most common types of illegal activity involving penalties (Table 2) were pricing violations, off-label marketing, and kickbacks. The firms with the greatest variety in the types of illegal activities involving penalties were GlaxoSmithKline, Bristol Myers Squibb, and Merck. Three firms (Actavis, Allergan, and Perrigo) had penalties limited to a single violation type.
Table 1. Value of Financial Penalties and Duration of Illegal Activity.
| Companya | Value of penalties, total $, in thousandsb | No. of penalties | Penalty amount, mean $, in thousands | Penalties, % of total revenues (rank)c | Duration of illegal activity associated with penalties, mean, y |
|---|---|---|---|---|---|
| GlaxoSmithKline | 9 775 419 | 27 | 362 053 | 1.55 (2) | 7.22 |
| Pfizer | 2 910 581 | 18 | 161 699 | 0.36 (11) | 5.67 |
| Johnson & Johnson | 2 668 326 | 15 | 177 888 | 0.28 (13) | 6.08 |
| Abbott Laboratories | 2 581 585 | 11 | 234 690 | 0.75 (6) | 6.36 |
| Merck | 2 094 026 | 11 | 209 403 | 0.40 (9) | 6.13 |
| Eli Lilly | 1 775 031 | 7 | 253 576 | 0.59 (7) | 6.14 |
| Schering-Ploughd | 1 645 186 | 12 | 137 099 | 2.05 (1) | 6.18 |
| Wyethd | 1 614 355 | 7 | 230 622 | 1.15 (4) | 8.71 |
| Bristol Myers Squibb | 1 389 197 | 12 | 115 766 | 0.50 (8) | 5.83 |
| Novartis | 1 198 088 | 11 | 108 917 | 0.18 (16) | 6.55 |
| AstraZeneca | 1 172 185 | 10 | 117 219 | 0.28 (14) | 8.30 |
| Amgen | 945 034 | 9 | 105 004 | 0.39 (10) | 9.78 |
| Allergand | 660 604 | 1 | 660 604 | 1.16 (3) | 7.00 |
| Bayer | 602 688 | 13 | 46 361 | 0.09 (19) | 4.00 |
| Mylan | 227 800 | 6 | 37 967 | 0.30 (12) | 4.67 |
| Sanofi-Aventis | 535 923 | 10 | 53 592 | 0.10 (18) | 6.50 |
| Boehringer Ingelheim | 416 439 | 7 | 59 491 | Not applicablee | 5.86 |
| Forest Laboratoriesd | 383 452 | 3 | 127 817 | 0.88 (5) | 5.33 |
| Actavis (Watson) | 77 312 | 2 | 38 656 | 0.09 (17) | 11.00 |
| Roche Group | 67 000 | 1 | 67 000 | 0.01 (21) | 5.00 |
| Genzymed | 56 152 | 2 | 28 076 | 0.19 (15) | 5.00 |
| Perrigo | 7816 | 1 | 7816 | 0.02 (20) | 1.00 |
Four firms were not found to have penalties for illegal activities during the sample period: Biogen Idec, Celgene, Gilead Sciences, and Hospira.
Total dollar value from 2003 through 2016, adjusted for inflation in 2016 dollars (the last year of data collection).
Sum of yearly revenues for the duration of firm existence over the study period (2003-2016), adjusted for inflation in 2016 dollars.
Six companies were acquired before 2016: Forest Laboratories in 2014 and Allergan in 2015 (acquired by Actavis [Watson]), Schering-Plough in 2009 (acquired by Merck), Wyeth in 2009 and Hospira in 2015 (acquired by Pfizer), and Genzyme in 2011 (acquired by Sanofi).
Boehringer Ingelheim is private. Revenues were not available to calculate penalties as a percentage of revenue.
Table 2. Type and Frequency of Illegal Activity Associated With Penalties.
| Companya | No. of penalties | Violation frequency | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Adulterated drugsb | Briberyc | Competitiond | Disclosuree | Environmental violationsf | Financial violationsg | Kickbacksh | Misleading marketingi | Off-label marketingj | Pricingk | Uncategorizedl | ||
| GlaxoSmithKline | 27 | 2 | 2 | 3 | 5 | 3 | 1 | 2 | 5 | 3 | 11 | 1 |
| Pfizer | 18 | 0 | 2 | 0 | 1 | 4 | 0 | 1 | 7 | 5 | 3 | 0 |
| Johnson & Johnson | 15 | 1 | 1 | 0 | 5 | 0 | 0 | 4 | 4 | 9 | 2 | 0 |
| Bayer | 13 | 0 | 0 | 3 | 1 | 4 | 0 | 1 | 3 | 1 | 4 | 0 |
| Schering-Ploughm | 12 | 0 | 0 | 0 | 2 | 0 | 2 | 1 | 1 | 1 | 8 | 0 |
| Bristol Myers Squibb | 12 | 0 | 1 | 4 | 1 | 1 | 2 | 1 | 1 | 2 | 3 | 0 |
| Abbott Laboratories | 11 | 0 | 0 | 2 | 1 | 2 | 0 | 3 | 1 | 1 | 4 | 0 |
| Merck | 11 | 0 | 0 | 0 | 2 | 2 | 1 | 2 | 1 | 2 | 7 | 1 |
| Novartis | 11 | 0 | 1 | 0 | 1 | 0 | 1 | 5 | 0 | 4 | 5 | 0 |
| AstraZeneca | 10 | 0 | 1 | 0 | 1 | 0 | 0 | 4 | 1 | 2 | 6 | 1 |
| Sanofi-Aventis | 10 | 0 | 0 | 2 | 0 | 1 | 0 | 2 | 0 | 0 | 6 | 0 |
| Amgen | 9 | 0 | 0 | 0 | 0 | 1 | 0 | 3 | 1 | 3 | 5 | 0 |
| Boehringer Ingelheim | 7 | 0 | 0 | 0 | 0 | 2 | 0 | 1 | 1 | 1 | 4 | 0 |
| Eli Lilly | 7 | 0 | 0 | 0 | 1 | 0 | 0 | 1 | 1 | 7 | 1 | 0 |
| Wyethm | 7 | 0 | 1 | 0 | 0 | 1 | 0 | 0 | 2 | 4 | 1 | 0 |
| Mylan | 6 | 0 | 0 | 1 | 0 | 0 | 0 | 0 | 1 | 0 | 4 | 0 |
| Forest Laboratoriesm | 3 | 1 | 0 | 0 | 0 | 0 | 0 | 2 | 0 | 1 | 1 | 1 |
| Actavis (Watson) | 2 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 2 | 0 |
| Genzymem | 2 | 1 | 0 | 0 | 0 | 0 | 0 | 0 | 1 | 2 | 1 | 0 |
| Allerganm | 1 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 1 | 0 | 0 |
| Roche Group | 1 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 1 | 1 | 0 | 0 |
| Perrigo | 1 | 0 | 0 | 1 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total | 5 | 9 | 16 | 21 | 21 | 7 | 33 | 32 | 50 | 78 | 4 | |
Biogen, Celgene, Gilead Sciences, and Hospira had no violations in this period.
Manufacturing and distributing adulterated or unapproved drugs.
Bribery to foreign officials, suppliers, or other entities.
Fraudulently delaying market entry of competitors, antitrust, monopoly.
Failure to disclose negative information about a product or about poor drug development.
Violations of environmental regulation(eg, Clean Air Act).
Tax fraud and insider trading.
Offering kickbacks to suppliers or customers to purchase and sell their product(s).
Misleading or deceptive marketing practices.
Advertising a product for uses other than approved by the US Food and Drug Administration.
Overpricing drugs reimbursed or paid for by government, underpaying rebate obligations, fraudulent pricing or billing, or other pricing illegalities.
Violations that do not fit the other reported categories.
Company was acquired before 2016. See footnote d in Table 1.
Discussion
Among the large pharmaceutical companies included in this study, 85% had evidence of financial penalties for illegal activities. Given the scope and nature of the illegal activities involving financial penalties, physicians and regulators should exhibit vigilance over the activities of large pharmaceutical firms. Four firms were not found to have penalties for illegal activities during the sample period. This may indicate an ability for illegal activity to be undetected, although these firms may instead have effective ethics and compliance programs.3,4
Limitations of the study include focus on the largest firms, exclusion of class-action settlements and penalties by non-US governments, and the possibility that some settlements were missed. Also, only settlements from a limited time period were examined; whether these data reflect current activities of pharmaceutical companies or whether financial penalties for illegal activities have increased or decreased more recently could not be determined. Other industries also engage in illegal activities, but a comparative analysis is beyond the scope of this study.
Section Editor: Jody W. Zylke, MD, Deputy Editor.
References
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