The Pharmaceutical Industry in Public Health


Lisa Fardy, RN, and Chris McCoy


Case Western Reserve University





















The Pharmaceutical Industry in Public Health

Lisa Fardy, RN, and Chris McCoy




            The pharmaceutical industry rightfully rests under the expansive umbrella of public health. Critical to the development, production, and promotion of novel and practiced treatments, the pharmaceutical industry laudably strives to better human health.


            The pharmaceutical industry, however, faces definite challenge. Of primary concern is industrial solvency. Solvency requires not only the acquisition of sufficient funds but also the protection of human participants. Clinical investigation uniquely requires voluntary participation. The timely progression from preclinical to clinical phases demands patient involvement.


            The purpose of this chapter is three-fold: 1) to define the scope of the domestic pharmaceutical industry; 2) to address the use of available health resources by the domestic pharmaceutical company; and 3) to explore the regulatory standards and ethical principles inherent to human subject protection. Address of human subject protection is limited to clinical research practice.


History of the Pharmaceutical Industry


            Derived from the Greek pharmakeutikos meaning “relating to drug,” the pharmaceutical industry is not novel. The practice of plant distillation predates formal recognition or definition. The landmark discovery of 1674, however, revolutionized the early pharmaceutical industry.


            In 1674, Anton van Leeuwenhoek, the famed “father of microscopy,” caught the first glimpse of microscopic life through his primitively crafted microscope (Volk, 1992). van Leeuwenhoek redefined the scientific community, his historic discoveries prompting a responsive broadening of microbiologic research. 


            Paul Ehrlich assumed van Leeuwenhoek’s challenge for greater knowledge. In 1908, nearly two hundred years following van Leeuwenhoek’s death, Ehrlich earned the Nobel Prize. A self-proclaimed dreamer of the “magic bullet” that would destroy the invading microscopic organism but not its human host, Ehrlich succeeded in his creation of salvarsan, the first effective and relatively nontoxic treatment for syphilis (Volk, 1992). The synthesis of salvarsan signaled the birth of chemotherapy.


            “The use of chemicals to treat disease,” chemotherapy is the cornerstone of the modern pharmaceutical industry. In 1935, fellow chemotherapy pioneer Gerhard Domagk introduced Prontosil, an antibacterial red dye proven effective in treating certain human infections (McIntyre, 1999).


            The advent of the pharmaceutical industry, however, demanded ready address. Medical advancement in the absence of regulatory parameters elicited concern. Critics questioned the seeming disregard for patient safety, arguing that the conduct of research did not grant license for the abandonment of responsibility. Human tragedy would highlight the apparent research-responsibility chasm.


The 1938 Food, Drug, and Cosmetic Act


            The novel creation and promotion of Elixir Sulfanilamide, the purported miracle drug for children, prompted public outcry and presidential response.  Elixir Sulfanilamide was toxic. The untested antibiotic unknowingly contained a chemical analogue of antifreeze, its administration resulting in the tragic deaths of more than one hundred adults and children (Dunn & Chadwick, 1999). Outrage escalated. The proponents of patient safety demanded industry reform. On June 25, 1938, President Franklin D. Roosevelt signed the 1938 Food, Drug, and Cosmetic Act (FDCA), its drafting and enacting the direct result of public demand for Congressional involvement.


            The placement of regulatory parameters was definite. The 1938 FDCA mandated Food and Drug Administration (FDA) pre-approval of all drugs prior to marketing. To promote consumer safety, the affixation of medication labels and the inclusion of patient directions were demanded. Enforcement of patient and product safety was broadened to include food, cosmetics, and medical devices. Aversion of repeat tragedy was of primary concern.


The Durham-Humphrey Amendment


            The 1951 enactment of the Durham-Humphrey Amendment (DHA) (also known as the Prescription Drug Amendment) to the 1938 FDCA mandated therapeutic classification. Prior to its passage, therapeutic classification (i.e., prescription or over-the-counter (OTC)) was not mandated (Smith, 2002). In the absence of compulsory classification, consumer information was compromised.  Manufacturers were free to promote their medications as either prescription drugs or OTC medications.


            The DHA recognized the need for FDA jurisdiction, its enactment resulting in the transfer of drug classification responsibility from drug manufacturers to the FDA. Placement of therapeutic classification under FDA purview newly required medical prescriptions for purchase of pharmaceutical drugs.  This institution of prescriptive parameters placed rightful onus of patient responsibility on healthcare providers.



The Keufaver-Harris Amendments


            In the late 1950s, the use of thalidomide to induce sedation was approved in Europe (Dunn & Chadwick, 1999). Its use, however, was not approved in the United States (U.S.). Despite failure to garner FDA approval, thalidomide manufacturers provided free drug samples to U.S. physicians under the vague auspices of “drug research.” Eager to explore its efficacy, U.S. physicians readily prescribed the experimental thalidomide to their patients. In the race to examine drug efficacy, however, drug safety was ignored.


            Public outrage resurfaced. The issue of patient deception arose. Senator Hubert Humphrey chaired a U.S. Senate subcommittee to address growing public concern over research conduct and participant consent. Examination of testimony would reveal physicians’ failure to provide patient information or secure appropriate consent.


            The thalidomide tragedy resulted in the 1962 passage of the Kefauver-Harris Amendments (KHA). Enactment of the KHA newly mandated the provision of subject consent.


The Informed Consent Process

Exploration of Process


            The informed consent process demands the sound oral and written exchange of information between principal investigator (PI) and prospective participant (Irvine & Hamilton, 2003). Acquisition of informed consent must occur prior to study enrollment and treatment initiation. Of primary objective is provision of necessary knowledge so as to make an informed decision. Participation is voluntary, thus necessitating the prospective participant’s full recognition and understanding of study risks and benefits. In the absence of satisfactory study disclosure, the informed consent process is appropriately questioned.


            The informed consent process has garnered increasing scrutiny (Dunn & Chadwick, 1999). With seemingly daily lengthening of informed consent forms (ICFs) compounded by growing publicized concern over FDA approvals, concern over participant comprehension has heightened. The prospective research participant, frequently in a state of mind emotionally altered by concerning diagnosis, may hurriedly sign the ICF, trusting that his PI’s judgment is best. In a well-intentioned race for the cure, the PI may unwittingly compromise subject care.


Preservation of Process Integrity


            Preservation of process integrity necessitates simplification of process exchange. Of careful consideration must be the ICF. The ICF outlines the proposed treatment course, its signing signifying the research subject’s assent to study participation. Its wording, therefore, is critical. Translation of sophisticated science into lay understanding is mandatory.


            Limit language to simple, nonscientific terms. Draft content appropriate to a sixth grader’s comprehension level. Failure to lessen content complexity threatens the informative nature of the informed consent process (Irvine & Hamilton, 2003).  In short, if the prospective study subject cannot understand the ICF content, then how can he be expected to make an informed decision?


Required Elements of an Informed Consent Form


            The U.S. Office for Human Research Protection and the Code of Federal Regulations jointly mandate the inclusion of specific ICF elements (Irvine & Hamilton, 2003). The Health Insurance Portability and Accountability Act (HIPAA) of 1996 stipulated the additional address of confidentiality, voluntary participation, and statement of consent.


            Promotion of ICF compliance necessitates inclusion of the following elements: 1) identification of study as research-focused, 2) delineation of study purposes, 3) definition of expected participant duration, 4) explanation of study procedures, 5) description of experimental procedures, 6) explication of study risks and benefits, 7) mention of alternative treatments or procedures, 8) location of confidential records, 9) mention of injury compensation, 10) identification of study contacts, and 11) explanation of study participation as wholly voluntary.


Ethics and Federal Regulations

The Belmont Report


            The 1974 passage of the National Research Act sponsored the creation of the National Commission for the Protection of Human Subjects of Biomedical and Behavioral Research. Enactment of the National Research Act resulted in the subsequent 1979 publication of the Ethical Principles and Guidelines for the Protection of Human Subjects of Research (commonly known as the Belmont Report) (Irvine & Hamilton, 2003). The phrasing of the Belmont Report provided a pivotal cornerstone for the founding of ethical principles to guide clinical research, its publication heightening public awareness of human subject protection.


            Passage of the Belmont Report was decidedly timely: With the evolving sphere of clinical research growing daily in complexity, the need for ethical framework became more steadily apparent. Fundamental to the Belmont Report are three ethical principles: 1) respect for persons, 2) beneficence, and 3) justice.


Respect for Persons


            The principle of respect for persons celebrates autonomy (Gabriele, 2003).The principle of respect for persons recognizes prospective research participants as autonomous beings, individually capable of determining their treatment involvement. Subject protection is of primary concern. Special provisions are made for increased protection of prospective participants with compromised autonomy. Such vulnerable subjects include children, prisoners, and the mentally disabled.







            Derived from the Latin bene facere meaning “to do well,” beneficence is the second of three principles outlined in the Belmont Report. The principle of beneficence expounds on the principle of respect for persons (Gabriele, 2003). Human research poses risk. Preservation of beneficence thus presents obvious challenge: Integral to principle observation is the striking of balance between doing no harm and always doing good.  Careful consideration of the benefit/risk ratio is key. In short, the following must be asked: Do the potential benefits outweigh the possible risks? Will research conduct promote or compromise participant well-being? Comprehensive assessment is critical.




            The principle of justice is of greatest challenge to articulate. Definition remains vague. Mention of justice traditionally evokes images of courtrooms (Gabriele, 2003). Recognition of justice in relation to research, however, demands a broader understanding.


            The concept of justice addresses the bearing of risk. As aforementioned, inherent to research is the possibility of risk. No specific population, however, may be selected to assume greater risk. Of particular focus are so-called “vulnerable” subjects, individuals whose potential for risk exceeds that of others. Factors warranting consideration include age, imprisonment, cognitive function, and socioeconomic status (Dunn & Chadwick, 1999).


Purpose of the Belmont Report


            The cornerstone of human research ethics is the Belmont Report. Recognition of its scope is essential. The Belmont Report is not a legislative document. As such, the Report guides, not dictates, research conduct. Its formal address of three principles—respect for persons, beneficence, and justice—provides ethical foundation for human subject protection. To ensure the humane treatment of research participants, the establishment of definite legal and ethical parameters is paramount.


Manufacturing of Pharmaceuticals


Patent Laws


            Enactment of the 1984 Drug Price Competition and Patent Term Restoration Act permitted pharmaceutical manufacturers to petition for patent extension in order to recover time lost during FDA approval (“National Institute for Health Care Management,” 2001). Consideration for patent extension may also be granted for the following: 1) new indication for use, 2) improved purification of compound, and/or 3) proven safety in children.


            Present patent laws protect the research, development, and use of novel chemical compounds. Patent procurement solely entitles the holder to drug manufacture. Alternatively, the patent holder may elect to license a second firm for drug manufacture and distribution. Passage of the 1994 Uruguay Round Agreement Act standardized the patent laws of the signatory countries (“National Institute for Health Care Management,” 2001). Patent protection is valid for twenty years from the date of patent application.


Disease Selection


            The initial step of drug development is disease selection. Careful consideration of the selected disease is critical. The price of drug development is prohibitive. Maintenance of industrial solvency is thus critical. The sale of the final compound must justify the cost of its development. To optimize chances of financial recovery, the prospective manufacturer exercises strategic marketing. Of likely target is a prevalent disease within a population willing to seek care and purchase treatment.


Drug Development


            The course of drug development is gradual. Completion necessitates deliberate phase progression.


             Exploration of novel compounds begins in the laboratory. Intense examination of the targeted disease follows. The result: On average, one of 1,000 tested compounds qualifies for clinical testing (“Tufts Center for Drug Development,” 2001). Pursuit of formal clinical trial evaluation necessitates the pharmaceutical sponsor’s filing of a Notice of Claimed Investigational Exemption for a New Drug (IND) with the FDA. Filing of an IND reflects the sponsor’s intention to pursue compound evaluation in human subjects. 


            A novel compound cannot be tested in humans without its prior evaluation in animals. Animal study findings are submitted with the IND as preclinical data. Demonstration of unacceptable toxicities or gross side effects results invalidates IND eligibility.


            A mandatory wait period of thirty days follows IND filing (“From Discovery to the IND,” 1994).  On completion, in the absence of FDA comment or response, the sponsor is permitted to start compound testing. Investigational study follows four progressive stages.



Phase I: Healthy Subjects


            The primary purpose of Phase I study is safety evaluation. Establishment of a drug profile is critical. Creation of the profile demands exploration of drug properties: Human absorption and excretion of the novel compound are studied. Side effects are documented. Appropriate dosage is examined.


            Sample size is limited (50 to 100 subjects). Selection of sample members varies. Subjects may be healthy or sick (with the disease of interest). Typically, enrolled subjects are healthy volunteers.


            Irrespective of health status, however, every human subject is a recognized volunteer. Voluntary participation is the crux of human research. Coercive participation is prohibited by law.


            Note:  The FDA mandates that the prospective subject be given proper informed consent prior to study enrollment. The prospective subject must sign the ICF prior to study participation. Signing of the ICF, however, is obligatory, not contractual. The subject, a recognized research volunteer, retains the right to withdraw his participation for any reason.


Phase II: Targeted Population


            Initiation of Phase II is pivotal. Progression to Phase II often signifies the first opportunity for compound testing in the targeted population (i.e., sick volunteers with the disease of interest). Sample size is increased (usually 200 to 400 subjects). Examination of compound efficacy and toxicity continues. Dose finding remains the challenge. Accurate measurement of dose response is imperative.


Phase III: Blinded Study


            Entrance into Phase III necessitates the establishment of compound efficacy and safety during Phase II. Garnering of Phase III approval, however, poses definite challenge. Phase III represents the largest, most costly segment of the testing sequence (“From Discovery to IND,” 1994).


            Should the investigational agent demonstrate promise during Phase II, then its continued examination in a larger sample size (up to 10,000 subjects) is warranted. Of challenge, therefore, is patient selection. Definition of participant eligibility criteria is necessary. To measure true compound efficacy, comparative analysis must be conducted. Such analysis demands examination of the investigational drug and an active control (or placebo).


            On successful completion of Phase III, the pharmaceutical sponsor may petition for FDA marketing approval.


 Phase IV: Marketed Use


            Establishment of FDA approval does not lessen sponsor responsibility. The pharmaceutical sponsor must engage in postmarketing surveillance. A mandatory monitoring process, postmarketing surveillance examines the additional clinical benefits and/or side effects of compound use.


Examination of Process


            The cost of drug research, development, and marketing is prohibitive. The estimated price totals $300 million to $600 million (Bodenheimer, 2000). An approximate 10 to 15 years elapse from preclinical development to marketing approval (“Tufts Center for Drug Development,” 2001).  .



Marketing of Pharmaceuticals


Advertisements to Physicians


            Despite the recent surge in direct-to-consumer (DTC) advertisements, the licensed physician remains the gatekeeper of pharmaceuticals. The consumer is unable to procure pharmaceuticals without a valid prescription.


            The physician remains the pharmaceutical industry’s marketing icon. In 2000, physician-targeted expenditure totaled $13.2 billion. Constituting greatest expense was the distribution of free medication samples: The cost equaled $8 billion (“National Institute for Health Care Management,” 2001). 


            To optimize the chances of product distribution, the pharmaceutical industry incurs detailing costs. Detailing costs include complementary meals, informational materials, office supplies, and physician-friendly gadgets. Provision of logo-emblazoned gifts increases sponsor and product familiarity (“National Institute for Health Care Management,” 2001).


            In July 2002, the Pharmaceutical Research and Manufacturers of America issued new guidelines governing sponsor-physician interactions. The allowable circumstances for direct physician compensation were delineated. Concurrently, the Office of the Inspector General of the Department of Health and Human Services cautioned pharmaceutical sponsors about physician and hospital involvement, warning against the possible appearance of relational impropriety (“Draft OIG Compliance Guidelines,” 2002).


Pharmaceutical Price Controls


Direct-to-Consumer Advertisements


            Only the U.S. and New Zealand permit DTC pharmaceutical advertising. In 1990, DTC spending totaled $48 million. By 2002, DTC expenditure equaled $2.38 billion (Palumbo & Mullins, 2002).


            The FDA regulates DTC advertising; however, the FDA rarely grants pre-approval of DTC advertisements. Rather, regulatory mechanisms exist so as to monitor advertisements and document consumer complaints. Should the FDA decide that a DTC advertisement does not satisfy regulatory requirements, one of two actions is taken: 1) a Notice of Violation is issued (for minor infractions; or 2) a Letter of Warning is issued (for major infractions). Of the total 28 FDA responses sent in 2002, 27 responses were Notices of Violation. Responsive disciplinary measures are posted on the Internet at



Cost-Control Methods

            In the U.S., market forces exclusively establish pharmaceutical pricings. The U.S. government retains no pricing authority. The granting of federal monies for drug development does not change the jurisdiction of such authority (“National Institute for Health Care Management,” 2000).


            Theoretically, the garnering of patent protection creates an inelastic price curve due to the resultant limitation of consumer options: Should the prospective consumer desire a specific pharmaceutical product, he must pay the manufacturer’s price. Manufacturer competition, however, threatens price inelasticity.


            Following the emergence of a successful product, savvy manufacturers compete for the development of a similar agent. To avoid original patent violation, manufacturers subtly alter chemical properties. The development of such so-called “me-too” drugs is less costly due to property similarity.




            In Britain, the National Health Service (NHS) remains the largest drug purchaser. Pricing is indirectly modulated. The pharmaceutical sponsor engages in price negotiation with the NHS; however, the NHS limits the sponsor’s resultant profit. To optimize chances of profit gain, the pharmaceutical sponsor may demonstrate drug innovation (McIntyre, 1999). To prevent transfer or loss of research and development monies, Britain restricts product advertising budgets.




            In Australia, the Pharmaceutical Benefits Scheme determines drug pricing. Should a drug demonstrate safety and effectiveness, the Pharmaceutical Benefits Advisory Committee (PBAC) establishes individual terms for governmental reimbursement (McIntyre, 1999). Establishment of price demands cost comparison of comparable medications.


            In the absence of comparable medications for cost comparison, the PBAC sets a benchmark price following review of manufacturing costs. A profit margin is added to the chosen benchmark price, such margin ranging from 15% to 40%.






            The pricing system of Japan mimics that of Australia (McIntyre, 1999). Pricing allowances are made for drug innovation, usefulness, market potential, and orphan status. In the case of a peerless drug, determination of price necessitates critical review of manufacturing costs.


Compulsory Licensing


            Compulsory licensing permits the production of a patented product by non-patent holders, typically in times of national emergency. Garnering initial approval at the Paris Accords of 1883, compulsory licensing secured recent reaffirmation by the World Trade Organization in 1994 and the Doha Agreement of 2001.


            The U.S. does not have a strong tradition of compulsory licensing, its reliance resting instead on the free market system and secure patent protection. Discussion of compulsory licensing, however, commonly emerges during examination of anti-trust actions. During the anthrax scare of 2001, legislative action was sought to break the patent on ciprofloxacin. Responsively, the responsible manufacturer reduced the price of ciprofloxacin prior to passage of legislation (Gluck, 2002).




            The content contained herein is not exhaustive. The media are replete with resources addressing the pharmaceutical industry. To broaden the beginner’s understanding of the pharmaceutical industry, the authors have compiled the following brief reference listing:


Internet Sites


Center for Information and Study on Clinical Research Participation:


Consumer Project on Technology:

Department of Health and Human Services:

Food and Drug Administration:

Kaiser Family Foundation:

National Institute for Health Care Management:

National Institutes of Health:

Pharmaceutical Research and Manufacturers of America:


Reference Manuals


Dunn, C.M., & Chadwick, G. (1999). Protecting study volunteers in research: A manual for investigative sites. Boston: CenterWatch.



Englehart, H.T. (1996). The foundation of bioethics (2nd ed.). New York: Oxford University Press.


Irvine, K., & Hilton, E. (2003). Ensuring a HIPAA-compliant informed consent process: A guide for clinical research professionals. Boston: CenterWatch.



Bodenheimer, T. (2000). Uneasy alliance: Clinical investigators and the pharmaceutical industry. New England Journal of Medicine, 342(20), 1539-1544.


Center for Drug Evaluation and Research. “From Discovery to the ‘IND.’” Released 1994. Retrieved March 24, 2005. Available at


Dunn, C.M., & Chadwick, G. (1999). Protecting study volunteers in research: A manual for investigative sites. Boston: CenterWatch.


Federal Register, vol. 67. Draft OIG compliance program guidelines for pharmaceutical manufacturers. Released September 27, 2002. Available at http:www/


Gabriele, E.F. (2003). The Belmont ethos: The meaning of the Belmont principles for human subject protection. Journal of Research Administration, 34(2), 19-24.


Gluck, M. (2002). Federal policies affecting the cost and availability of new pharmaceuticals. Menlo Park, CA: Kaiser Family Foundation.


Irvine, K., & Hilton, E. (2003). Ensuring a HIPAA-compliant informed consent process: A guide for clinical research professionals. Boston: CenterWatch.


McIntyre, A. (1999). Key issues in the pharmaceutical industry. Chichester, England: Wiley.


National Institute for Health Care Management Research and Education Foundation. “Prescription Drugs and Mass Media Advertising.” Released 2001. Available at


Palumbo, F.B., & Mullins, C.D. (2002). The development of direct-to-consumer prescription drug advertising regulation. Food and Drug Law Journal, 57.


Smith, M., et al. (2003). Pharmaceutical marketing: Principles, environment and practice. New York: Pharmaceutical Products Press.


Tufts Center for the Study of Drug Development. “Tufts Center for the Study of Drug Development Pegs Cost of a New Prescription Medicine at $802 Million.” Released November 30, 2001. Available at


Volk, W. (1992). Basic microbiology (7th ed.). New York: HarperCollins Publishers.