Hostname: page-component-78c5997874-mlc7c Total loading time: 0 Render date: 2024-11-19T22:56:39.206Z Has data issue: false hasContentIssue false
  • English
  • Français

Understanding Pharmaceutical Research Manipulation in the Context of Accounting Manipulation

Published online by Cambridge University Press:  01 January 2021

Abigail Brown
Get access Rights & Permissions [Opens in a new window]

Extract

Good decision-making requires reliable information. In medicine, relevant information comes from clinical trials and other forms of scientific research. In business, one source is in corporate annual financial statements. As for-profit, publicly traded companies whose business is discovering, manufacturing, and marketing drugs, pharmaceutical companies sit at the nexus of these two fields. Determining the safety and efficacy of a pharmaceutical product and determining the profitability of a complex enterprise are similarly difficult tasks: each is fraught with deeply ambiguous information that requires sophisticated judgment to interpret reasonably.

Type
Symposium
Information
Journal of Law, Medicine & Ethics , Volume 41 , Issue 3 , Fall 2013 , pp. 611 - 619
Copyright
Copyright © American Society of Law, Medicine and Ethics 2013

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Cosgrove, L. Wheeler, E. E., “Drug Firms, the Codification of Diagnostic Categories, and Bias in Clinical Guidelines,” Journal of Law, Medicine, & Ethics 41, no. 3 (2013): 644–653.CrossRefGoogle Scholar
Rose, S. L., “Patient Advocacy Organizations: Institutional Conflicts of Interest, Trust, and Trustworthiness,” Journal of Law, Medicine & Ethics 41, no. 3 (2013): 680–679.CrossRefGoogle Scholar
Light, D. W. Lexchin, J. Darrow, J., “Institutional Corruption of Pharmaceuticals and the Myth of Safe and Effective Drugs,” Journal of Law, Medicine & Ethics 41, no. 3 (2013): 590–600.CrossRefGoogle Scholar
Sismondo, S., “Key Opinion Leaders and the Corruption of Medical Knowledge: What the Sunshine Act Will and Won't Cast Light On,” Journal of Law, Medicine & Ethics 41, no. 3 (2013): 635–643; Rodwin, M., “Five Un-Easy Pieces to Pharmaceutical Policy Reform,” Journal of Law, Medicine & Ethics 41, no. 3 (2013): 581–589.CrossRefGoogle Scholar
This approach is similar to the one taken by Brown and Klerman in assessing the problems faced by the government program evaluation in the light of what we know about how auditors have grappled with their role. See Brown, A. B. Klerman, J. A., “Independent Evaluation: Insights from Public Accounting,” Evaluation Review 36, no. 3 (2012): 186–219.CrossRefGoogle Scholar
There are two main approaches to accounting: Accrual and cash accounting. Cash accounting books revenue and expenses when cash is exchanged in a system that is simpler and more concrete than accrual accounting but that does not reflect the underlying economics of decisions and transactions. Accrual accounting attempts to reflect the full value of a transaction, both its costs and its benefits, all at once. This provides more economically meaningful information but requires far more judgment and estimation, since some of the costs or benefits may not yet have been incurred.Google Scholar
Cuomo v. Ernst & Young Complaint Re Lehman Brothers Repo 105.Google Scholar
U.S. Government Accountability Office, Drug Pricing: Research on Savings from Generic Drug Use GAO-12-371R (2012).Google Scholar
Actual awards can vary significantly in either direction, depending on whether the company and executive met or exceeded various performance targets.Google Scholar
Merck, , “Proxy Statement, April 12, 2012,” at 29, available at <http://www.sec.gov/Archives/edgar/data/310158/000119312512160767/d284543ddef14a.htm> (last visited June 6, 2013).+(last+visited+June+6,+2013).>Google Scholar
Id., at 31.Google Scholar
Id., at 37.Google Scholar
Cumulative Abnormal Returns are the standard measure of stock price changes within a brief window of time that can be attributed to a specific news event, such as the announcement of FDA approval or rejection of a drug application, as opposed to changes from more general market movements. See Sharma, A. Lacey, N., “Linking Product Development Outcomes to Market Valuation of the Firm: The Case of the U.S. Pharmaceutical Industry,” Journal of Product Innovation Management 21, no. 5 (2004): 297–308. Estimates are rounded to the closest percentage point.CrossRefGoogle Scholar
Feldman, Y. Gauthier, R. Schuller, T., “Curbing Misconduct in the Pharmaceutical Industry: Insights from Behavioral Ethics and Behavioral Law and Economics,” Journal of Law, Medicine & Ethics 41, no. 3 (2013): 620–628.CrossRefGoogle Scholar
Rodwin, M. A., “Rooting Out Institutional Corruption to Manage Inappropriate Off-Label Drug Use,” Journal of Law, Medicine & Ethics 41, no. 3 (2013): 654–664.CrossRefGoogle Scholar
Sismondo, S., “Ghost Management: How Much of the Medical Literature Is Shaped Behind the Scenes by the Pharmaceutical Industry?” PLoS Medicine 4, no. 9 (2007): 1429–1433.CrossRefGoogle Scholar
Acemoglu, D. Gietzmann, M. B., “Auditor Independence, Incomplete Contracts and the Role of Legal Liability,” European Accounting Review 6, no. 3 (1997): 355–375.CrossRefGoogle Scholar
The trial registry at clinicaltrials.gov is an attempt to create consequences for pharmaceutical companies that bury unfavorable trial results. It does not yet appear to have a strong effect on behavior, in part because compliance with trial registry is spotty. See Rodwin, M. A. Abramson, J. D., “Clinical Trial Data as a Public Good,” JAMA 308, no. 9 (2012): 871–872.CrossRefGoogle Scholar
DeAngelo, L. E., “Auditor Size and Quality,” Journal of Accounting and Economics 3, no. 3 (1981): 183–199.CrossRefGoogle Scholar
Dye, R. A., “Auditing Standards, Legal Liability, and Auditor Wealth,” Journal of Political Economy 101, no. 5 (1993): 887–914.CrossRefGoogle Scholar
Akerlof, G. A., “The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism,” Quarterly Journal of Economics 84, no. 3 (1970): 488–500.CrossRefGoogle Scholar
We saw how reputation failed to constrain credit rating agencies in the financial crisis, even though it is now common knowledge that their ratings were useless for many of the mortgage-backed securities that were the trigger for the financial crisis. Reputation is less straightforward than much of the literature on the topic assumes. See, for example, Partnoy, F., “The Siskel and Ebert of Financial Markets?: Two Thumbs Down for the Credit Rating Agencies,” Washington University Law Quarterly 77, no. 3 (1999): 619–712; and Brown, A. B., “Effect of Market Structure and the Regulatory Franchise in Reputation-Dependent Industries,” paper presented at the 10th Annual International Industrial Organization Conference, Arlington, VA, March 17, 2012.Google Scholar
Becker, G. S., “Crime and Punishment: An Economic Approach,” Journal of Political Economy 76, no. 2 (1968): 169–217; see also Dye, , supra note 16.CrossRefGoogle Scholar
Schauer, F. Zeckhauser, R., “Paltering,” in Harrington, B., ed., Deception: From Ancient Empires to Internet Dating (Stanford: Stanford University Press, 2009): at 38–54.Google Scholar
For proposed legal remedies, see Swaminathan, V. Avery, M., “FDA Enforcement of Criminal Liability for Clinical Investigator Fraud,” Hastings Science & Technology Law Journal 4, no. 2 (2012): 325–356; and Stern, S. Lemmens, T., “Legal Remedies for Medical Ghostwriting: Imposing Fraud Liability on Guest Authors of Ghostwritten Articles,” PLoS Medicine 8, no. 8 (2011): 1–5.Google Scholar
For a comprehensive review of proposals along this spectrum, see Rodwin, M. A., “Independent Clinical Trials to Test Drugs: The Neglected Reform,” Saint Louis University Journal of Health Law & Policy 6, no. 1 (2013): 113–265. See also, Sismondo, S., supra note 4.Google Scholar
H. R. 4173 § 922.Google Scholar
Matrixx Initiatives, Inc. v. Siracusano, No. 09–1156, 563 U.S. – – (decided March 22, 2011) established that adverse information about a pharmaceutical product could constitute a material event requiring disclosure to shareholders. For an example of current litigation along these lines, see In re Merck & Co., Inc. Securities Litigation; Id. Pages 90–166 detail the connections between Merck's distortion of the medical research and materially false and misleading statements relevant to shareholders.Google Scholar
Unaware of each other, Dan Kahan posted a similar idea for psychology research on his “Cultural Cognition Project Blog” at the same time as this paper was drafted. See Kahan, D., “Likelihood ff 1 Journal (LRff1), The Cultural Cognition Project,” available at <http://www.culturalcognition.net/blog/2013/3/15/likelihood-ratio-1-journal-lr-1j.html> (last visited April 1, 2013).+(last+visited+April+1,+2013).>Google Scholar
See Feldman, Gauthier, Schuller, , supra note 14.Google Scholar
The second-stage reviewers would hopefully be the same people as in the first stage. If not, the new reviewers should be provided with the protocol and all previous reviewer comments.Google Scholar
Insurance could be mandatory or voluntary, as long as patent protection is equal or longer for the insured trials. If patent lengths are shortened across the board to cover the cost of the program, then pharmaceutical companies may be particularly eager to participate.Google Scholar