Unbound The Strange and Very American Liberation of Big Pharma
THE MAN IN THE ARENA: WHY PHARMACEUTICAL COMPANIES BECAME SO AGGRESSIVE
In the world of bureaucratic Washington, D.C., few if any possess the gravitas and smarts to get away with quoting Teddy Roosevelt. Lewis Engman, Richard Nixon’s 1973 appointee as chairman of the powerful Federal Trade Commission (FTC), was one of the few. A Midwesterner with traditional Republican inclinations, Engman had “the gift,” as one friend later put it — people simply wanted to be around him. He was a handsome man, with a broad brow and piercing dark eyes, and he was a social creature, stylishly dressed and coiffed and noticeable on the D.C. cocktail circuit, where he could be seen in the company of many of the president’s closest advisers. Engman was a personable, if tightly wound, man as well, comfortable with business types and staff typists alike; when a young FTC appointee named Elizabeth Hanford (later Dole) had a minor accident and ended up in the emergency room on the day she was to be installed, Engman took his entire staff over to the hospital and swore her in while she was still in bed.
More importantly in a town of fiercely guarded opinions and fiefdoms, Lew Engman could take the heat of debate. He seemed to revel in it. Often he intentionally recruited lawyers with whom he did not agree. “The notion,” a former staffer recalls, “was that the tension would produce the best resolution.” That didn’t mean Engman was thwarted very often; yes, he could be imperious and even arrogant, but “he was so personable and passionate that you wanted to agree with the guy.” Frustrated with the slow pace of getting anything done in D.C., Engman loved to invoke TR’s famous “Man in the Arena” speech. “It is not the critic who counts; not the man who points out how the strong man stumbles or where the doer of deeds could have done better,” he would quote, his brow furrowing. “The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, but who knows great enthusiasms . . . so that his place shall never be with those cold and timid souls who knew neither victory nor defeat.” It was an appropriate mission statement for a young man charged with running the FTC, which oversaw the business of the world’s most powerful, if at the time troubled, economy. The FTC itself had grown increasingly controversial. For decades the commission had operated somewhat like a European or Japanese finance ministry, not simply policing industry’s outright frauds and cons, but also regulating competition itself. The agencies under its purview, from the Civil Aviation Board (CAB) to the Interstate Commerce Commission (ICC), were so cozy with their respective industries that it was all but impossible for an upstart entrepreneur to compete. Traditionally the FTC chairman, in a tacit admission of the powerful regional political interests that had created that coziness, remained mute on the situation. “The policy was never to criticize another government agency,” recalls Art Amolsch, who worked for Engman at the time and went on to become the foremost observer of the agency. “That’s why the FTC was always known as the Old Lady of Pennsylvania Avenue. It was averse to almost any change and inclined to say no to anyone who dared suggest otherwise.” For a brief period in the late 1960s and early 1970s, responding to lawsuits and studies by Ralph Nader over everything from unsafe cars to overpriced drugs, the commission had gone on a proconsumer binge under Chairman Miles W. Kirkpatrick, and mainstream business types, the core of the imperiled president’s political base, had railed against him during the 1972 election season. To calm them, in 1973 Nixon appointed Engman; he was supposed to “restore order.” In other words, to put things back where they were before the Naderites inside the commission got out of control again.
But Nixon, and whoever had done the personnel file work, misjudged Engman’s consumer credentials.
Although he was a classic 100- percent-free-trade, procompetition Republican, Engman had developed a strong proconsumer bent. As Time magazine would later put it, Engman saw the world as a “Ralph Nader out of Adam Smith.” You could best serve the consumer, he deduced, by opening up the marketplace.
With that in mind and the national economy in trouble — inflation was up and productivity was down — Engman went looking for ways to use the FTC’s power to make the country more competitive and to make American life more affordable. Quickly he diagnosed a novel cancer on the nation’s economic corpus: the regulatory agencies themselves. By making it so hard for small businesspeoppppple to enter their respective industries, the CAB and ICC were hurting the consumer and inhibiting innovation, thereby retarding long-term economic growth and keeping prices unnaturally high. In a brilliant, landmark speech at the normally staid Financial Analysis Conference in 1974, he laid out his thesis: “Much of today’s regulatory machinery does little more than shelter producers from the normal competitive consequences of lassitude and inefficiency . . . [it] has simply become perverted.” As a result, “the consumer is paying plenty in the form of government- sanctioned price fixing.” It was time, Engman said, to consider serious deregulation.
Engman also went after what he called “professional conspiracy.” He sued the American Medical Association over its ban on physician advertising — something he believed deprived consumers of the ability to get the best doctor for the best price. He went after state medical societies for their bans on the advertisement of prescription drug and eyeglass prices. In fourteen months he filed thirty-four antitrust actions. “The consumer was always the bottom line for Lew,” recalls Bob Lewis, who served on Engman’s staff. “‘Is this going to benefit the consumer?’ That was always the question he asked at the end of the debate about anything.” By the time he left the FTC in 1977, when a Democratic administration was about to take office, Engman had succeeded in making deregulation a mainstream Republican goal. At age forty-two, he was a GOP legend.
And so it was hardly surprising that, in the fall of 1980, with a new president named Ronald Reagan onboard who was committed to getting government out of every aspect of American life, Engman would again be sought for his leadership skills. This time the organization in need of help was the Pharmaceutical Manufacturer Associations. The PMA represented the nation’s biggest brand-name drug makers, who were often referred to simply as “big pharma” or simply “pharma.” (The organization itself formally changed its name to the Pharmaceutical Research and Manufacturers of America, PhRMA, in 1994.) The PMA believed that the industry was in a crisis, suffering from increasing costs, slipping sales, foreign competition, and government overregulation. It was a crisis so severe as to provoke pharma CEOs to wonder out loud “whether there will even be a U.S. pharmaceuticals industry in twenty years.” Then again, just about every major industry wondered something like that in the early 1980s, when it was widely believed that Japan was doing to U.S. industry what it had failed to do with bombs thirty-five years earlier.
Some, if not most, of pharma’s immediate cr...