Executive Speeches

Speaking Notes for

Dawn Graham
President
Merck Frosst Canada Ltd.

Address to the IFPMA

Compliance: A critical responsibility
of the pharmaceutical industry

Montréal, Québec
May 26, 2008

Thank you very much. Good morning, ladies and gentlemen.

I want to begin by thanking the International Federation of Pharmaceutical Manufacturers and Associations for this kind invitation to speak at the fifth IFPMA Code Compliance Network Conference.

Bienvenue à Montréal, j'espère que vous pourrez profiter pleinement de notre ville et de ses excellents restaurants.

I am thrilled that the IFPMA decided to hold this meeting in my home town and I hope that you all enjoy your stay in Montreal.

You may wonder why somebody from my Company is delivering the keynote address at a compliance meeting since our name has been so much in the media headlines lately. I guess they asked me because I was well positioned to discuss the importance of compliance and reputation.

I am here today to discuss how the pharmaceutical industry strives to conduct its business in the utmost ethical fashion and how compliance is a critical component of everything we do. This commitment to compliance is of course anchored by a vision of excellence and a particular focus on the best interest of patients. We do this by abiding to a set of coordinated codes across the entire world and by applying the same rules in all markets, for all patients without distinction.

However, despite the pharmaceutical industry's tremendous contributions to human progress, including the development of miracle drugs for treating devastating diseases such as cancer, AIDS, and heart disease, there is a growing tension between the industry and the public. Our industry has been plagued by constant media coverage of a series of issues, some more serious than others, and by sharp attacks from a wide array of critics, many of them from the medical field. In a recent employee broadcast, our Chairman and CEO Richard Clark has confessed that "our reputation is what keeps him up at night". Of course, the pharmaceutical industry does not have sole ownership of the litany of scandals which have lead to tighter reporting regulations. While Enron may have given us Sarbanes-Oxley, we need more than ever to be proactive to ensure that we regain the trust of our customers.

Physicians, who use the medical innovations developed by our industry to treat patients, sit on top of the credibility ladder in surveys conducted in the developed world but our industry is lagging way behind in the eyes of the population.

Debates are raging over how the pharmaceutical industry can and should be expected to act. We are facing a variety of ethical dilemmas related to drug industry behavior.

To add to the complexity, our industry is greatly fragmented with the largest company having a mere 15% of the market. Few other industrial sectors are like that, hence making our job even more challenging when it is time to harmonize our practices.

Whether we are talking about intellectual property and patent protection, the moral and economic requirements of research and clinical trials, drug pricing, or marketing and advertising, it often feels like there are two camps: the industry on one side and the rest of the world on the other...
And it should not be that way!

Our commitment to patients is real. In my own company, George Merck told the world on the cover page of Time Magazine in 1950 that "we try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear".

These words make some people smile now but they still truly guide our actions today. But in spite of this commitment to always do what is right for patients, we are still under the microscope more than ever before.

We must regain the trust of Health Care Professionals and patients. The spectrum of more stringent government regulations is always present and it is important that the pharmaceutical industry takes appropriate actions to ensure that we remain self-regulated.

This is certainly a strong belief of our Chairman and CEO Dick Clark who is now the new head of PhRMA and who has gone on record to declare that Merck is taking appropriate steps to ensure that we do remain a self-regulated industry.

Just the fact that you have to ask your customers to trust you shows that there is a problem. Trust will come by the measures of our behaviors.

It is possible that many managers in our industry have not been caring very much about what the public and governments thought of their respective company as long as their brands were selling or their study was getting published.

But we now live in a different world. Trust matters and it is very easy to lose it overnight. People will act negatively based on distrust of companies. This means that they will not buy products from companies they distrust, they will share their negative opinion about those companies freely, they will oppose your plans, choose not to invest in your company and even sometimes demonstrate against you.

On the other hand, trust will influence a company's brand equity, stock price and license to operate. Customers will pay premium price for your products only if they trust you.

You may argue that no one is trusted nowadays. Governments are the least trusted in society but corporations fare much better. It is interesting to note that trust of governments, business or religious institutions varies greatly among countries depicting cultural and social differences. However, we must become trusted in every major market. Expectations of the population also change widely according to demographics. Representatives of the X and now the Y Generations have different expectations from corporations.

So, are we trusted as an industry?

Well, in Canada, according to a survey by Nanos Research, the pharmaceutical industry is in the middle of the pack. Hi-Tech and Telecom industries have the highest “trustworthy” scores. At the bottom of the trust index, we find the petroleum and tobacco industries.

Another survey held globally by Edelman showed the same result. High-tech companies are the most trusted, with pharmaceuticals in the lower mid-range sharing the same score as banks. Insurance sits at the bottom in this particular survey. Developing countries seem to trust our industry more than their industrialized counterparts. Maybe they are still in a position to better appreciate our contribution to their healthcare system while developed countries take pharmaceutical availability for granted. Canada shows one of the lowest scores globally at 47% compared to 54% in the U.S. I'm not sure what happened in Germany but this Edelman survey shows that only 29% of Germans trust our industry!

The positive perceptions of trust are most likely to be driven by the core products – medicines – that are produced by the industry.

Secondary drivers of trust are based on satisfaction with the medicines, the perception that the industry is regulated and the research into new medicines.

The same survey showed that negative trust drivers stem from the mere fact that Canadians consider the pharmaceutical industry as profit driven. The cost of medicines and perceptions related to the marketing of medicines also drove negative trust scores for the pharmaceutical industry.

In the last twenty years, our industry has introduced many versions of its code of conduct to better reflect the consensus of the times. Even after making numerous improvements to our code of conduct over the years, our industry is still being perceived negatively. This is not a reason not to celebrate the progress that we've made. The fact is that we have made giant steps in our marketing practices. But it is just a reminder that we need to continue to ensure that our codes of conducts always put patients first and that we are responsible in their application.
Because one of the best ways to obtain the trust of our constituents is to abide to strict compliance.

This conference is looking at best practices in terms of compliance and code of ethics.

It is important for our stakeholders to understand that the pharma industry has high standards of ethics in all our interactions with Health Care Professionals to ultimately better patient care. There are good reasons for which we have developed a solid framework for clinical evaluation packages, continuing health education, financial support, gifts, hospitality or advisory boards and product promotion. The industry has been acting in a coordinated fashion applying similar rules and principles worldwide in almost all markets.

When we first introduced our codes of conduct, many industry insiders probably thought that these changes were difficult. But nowadays, they have become part and parcel of the way we do business. Most companies now have a Chief Compliance Officer. Our own company has always been a strong supporter of compliance and we have worked in partnership with the compliance committee of Rx&D, our trade association in Canada, to ensure that our Canadian Code of Conduct is in harmony with Canadian public opinion.

But let's face it. What is perfectly acceptable for one person is totally wrong to somebody else and the subject of ethics is certainly a very subjective one. And at the end of the day, we are attempting to meet the needs of diverse groups with conflicting values.

There are still issues with our codes. The biggest one I can see is the fact that the pharmaceutical industry is regulated by the Code but physicians have their own code. This means that we often see a disconnect between what we can do and the expectations of our stakeholders. An example which may be familiar to Canadian guests is the ongoing case whereby paying for access to physicians is forbidden by our Code but some physicians are creative and ask for room rental fees for Health Education activities...

What can we do as an industry to get better? Are our mechanisms good enough? The voices of public opinion are saying no very loudly.

There is certainly a push for more transparency in everything we do. For example, Merck & Co. has committed to implement a system through which the public can learn about grants made to certain US based health care organizations. In the EU, we are also being transparent in accordance with the EFPIA code in disclosing grants to patient advocacy organizations, and requiring that experts who speak in public at the request of Merck or are authors in publications pertaining to Merck studies disclose that they are consultants with Merck.

The Australian association Medicines Australia announced recently the release of reports from member and non-member companies disclosing all educational events for healthcare professionals and related hospitality.

Some of their key results were the following:

• The report shows that 14,633 educational events for healthcare professionals were held or sponsored by 42 member companies;
• The total cost of events, including hospitality, speaker costs, event organizational costs, venue hire and other related expenses was $31 million;
• The total number of attendances is 385,221, with an average cost of hospitality of $43 per head;
• The Monitoring Committee at Deloitte found that the majority of the events were not in breach of the Code, but 52 educational events have been referred by the Monitoring Committee to the Code of Conduct Committee for adjudication.
• Only 52 of more than 14,000 educational events in the report have been referred for independent investigation, which means more than 99.6 per cent of events were compliant with the Code
• Companies found to have breached the Code of Conduct face fines of up to $200,000 per breach.

I hope that all our respective countries can boast a similar high compliance rate!
But you will also agree that we are not used to such a level of disclosure.

Lobbying has been an activity where our industry has been finger-pointed lately and many countries have already introduced legislation to better control these activities.

But we should not fall into the trap of believing that all the critics are always right and that we always have to give in to all adversaries. Is it true that by taking industry completely out of Continuing Health Education, the medical content would be of higher quality and unbiased? Absolutely not.

There is no room for undue influence. We have to listen to what our stakeholders are telling us.

We recently conducted a survey of compliance risks in our company and I must say that none of the issues raised in the survey were the ones that really affected the company in real life. And in case you have not followed the news lately, we have had our fair share of sensationalistic coverage. The lesson in this is that we must be careful not to micro-manage some issues and processes and forget at the same time the big picture. In other words: let's not do a very good job at doing the wrong thing or the unimportant thing.

And while our Code of Conducts are currently mostly focused on various marketing initiatives, we may have to expand them to include more pre and post-marketing activities and elements such as pre-approval clinical research or pricing.

The pharmaceutical industry is in the midst of radical change and so is the world. Are we in synch with the current times? We live in the era of YouTube, blogs and web sites such Café Pharma, MED Worm, or Pharmagossip where no information stays hidden and full transparency is imposed whether you want it or not. There are specialized media whose reporters are tracking the industry's every move. And they are getting their information nowadays from many sources, including your Congressmen and your employees.

I have been able to read many confidential emails about my own Company on the internet lately and so has the rest of the world.

I hope that this conference will allow ourselves to establish once and for all the importance of a strong Code of Conduct, to exchange and promote best practices and to identify what are the ethical questions we should be asking ourselves now.

I have a couple for you such as should the payment of fines by companies breaching the Code stay within the administration of our trade associations? Should we be more proactive to communicate our Code of conduct to physicians and the public? Does Wall Street encourage dysfunctional behaviours or is the media going awry or both? Are we putting too much pressure on our research scientists? There is a lot to talk about and one day will not be enough.

We are keenly aware that we are operating in a more difficult environment – one in which we face frequent challenges to our reputation. We draw resolve from the knowledge that we continue to have an unwavering commitment to ethics and integrity. We must communicate directly with our stakeholders to rebuild trust, ensure we are listening to their concerns and act upon them. We also must work on creating more openness about our business. This process will undoubtedly take time. However, our reputation is our most valuable asset, and we know that we must work to protect and enhance it with the same intensity we put toward delivering financial results.

And like the captain at sea, we cannot deviate even from one degree from our steady course; otherwise we will never reach our final destination.

And this final destination is the trust of our stakeholders and the public to be able to continue to operate. Since perception is reality, we often have to go to extremes to ensure that our industry does not cross the line of public interest. Thank you for taking your role seriously and for your positive contribution to society. Our industry is just too important for society. It is our responsibility to ensure that we continue to be able to work in a self-regulated environment that will allow us to develop new treatments that will bring hope and excellent health to patients.

Thank you.