A Brief History of American Pharma: From Snake Oil to Big Money

Mike Magee on the Dark Side of the Medical Industrial Complex

For more than a century, the most common symbol for all things medical in the United States has been the caduceus, the familiar winged rod with two snakes twined around it. It was adopted by the US Public Health Service in 1871 and incorporated by the US Army Medical Corps in 1902. The image was well-intentioned but based on a shaky knowledge of the ancient Greeks. The more obvious symbol for medicine—also used today but not nearly as often—is the rod of Asclepius, a simple staff (no wings) with a single snake. Asclepius, son of Apollo, was the demigod of medicine. In contrast, the caduceus was the symbol of the messenger god Hermes, patron of commerce and trade—as well as thieves, liars, and gamblers.

If there’s irony here, it’s a sad one, especially given that the joke would be on the American people. But when we assemble all the facts, it may be that using the caduceus, emblem of commerce and traders, to represent American medicine isn’t so off the mark after all.

Consider President Trump’s second nominee to serve as the head of the US Department of Health and Human Services, Alex Azar. At a time when public anger at drug companies and soaring drug prices has never been higher, Azar, the immediate past president of Lilly USA was picked to oversee much of America’s health care. During his tenure at Lilly, the company dramatically raised the price of insulin in the United States—by 20.8 percent in 2014, 16.9 percent the following year, and 7.5 percent the year after that.

Lilly’s biggest insulin product, Humalog, costs more now than it did when it was introduced in 1996, even though its brand-name exclusivity has expired. In 2007, the price was $74 a vial. In 2017, it was $2. Rounding out the picture, Azar’s Lilly also spent $5.7 million lobbying Congress and the Department of Health and Human Services in 2016 alone.

To take the symbolism further and associate all pharmaceutical executives directly with the snakes—or with the thieves, liars, and gamblers represented by the caduceus in ancient Greece—would be a clear overstatement. In fact, in my decade as a Pfizer employee, interacting with thousands of colleagues from the company and its competitors, I found most believed that their daily labor improved the lot of humanity. However, following through with the image of “intertwining”—as in the comingling of lobbying, political contributions and doctors, compliant politicians, and health care policy—the hidden realities are much different and provide a deeper understanding of what the Medical Industrial Complex is all about.

At first a competing power center, but now a close ally within the Medical Industrial Complex, the American drug industry arose during the same 19th-century milieu that gave rise to the American Medical Association (AMA). These were the days of medicine shows featuring snake oil salesmen who traveled from town to town to hawk commercial elixirs.

By the turn of the 20th century, this form of swindling and chicanery began to coalesce into a reputable industry. But the prior preponderance of dubious “patent medicines” was such that when legitimate medicines came along, provided by corporate-minded chemical manufacturers like Eli Lilly, George Merck, and Charles Pfizer, these manufacturers began to refer to their products as “ethical drugs” in order to create distance from all manners of cures being peddled at the time. Even so, the 1897 Sears, Roebuck catalog still offered a syringe and a small amount of cocaine for $1.50; and laudanum, a “whole opium” preparation, was seen as an all-purpose remedy and consumed the way Advil is these days.

Today, the manufacturing and sale of pharmaceuticals are a heavy industry, tightly regulated by the government, and yet the degree to which it has fundamentally risen above its snake oil roots is open to debate. This sector of the Medical Industrial Complex employs something on the order of 1,100 highly trained federal lobbyists, more than two for each member of Congress. The Center for Responsive Politics estimates that the drug companies spent $280 million on Capitol Hill in 2017 alone, a 12 percent increase over 2016 spending. They also poured $58 million into the 2016 election. All of which adds up to a very persuasive “medicine show.”

During the era when the AMA was founded, pills and tailored doses were still largely made by hand, tinctures were created by maceration or percolation, and ointments were combined with a mortar and pestle. Chemists and druggists developed their own specific products such as cough syrups or worm eradicators or ointments for scabies. But then technical innovations created incentives for large-scale production, beginning with the soft gelatin capsule, introduced in 1834; cocoa butter, introduced in 1852, which launched a worldwide surge in suppositories; and especially the subcutaneous injection, introduced in 1855, which allowed rapid absorption of medications like opioids and heroin.

The American drug industry arose during the same 19th-century milieu that gave rise to the American Medical Association.

The pioneers who moved the drug industry from fly-by-night to a more secure place in the community were often chemists like the young German immigrant cousins Charles Pfizer and Charles Erhardt, who arrived in Brooklyn in 1849 with a plan to produce products that were safe and effective. They launched their enterprise with an antiparasitic compound called santonin that paid the bills, but then they reached an entirely new level of success in 1880 when they began to produce citric acid, a natural preservative found highly concentrated in lemons, oranges, and limes that extended the shelf life of foods and beverages.

By 1917, when WWI all but eliminated the supply lines for natural fruit, an American food chemist named James Currie was experimenting with the mold Aspergillus niger, and he published a paper proving that it was an extremely efficient driver of citric acid production. Pfizer scooped up Currie after the war, and by 1919 the company was making a fortune producing the stuff, much of it being sold to makers of sugary beverages like Coca-Cola to balance the sweetness and create a tart, refreshing flavor.

Pfizer applied the same fermentation techniques to producing gluconic acid (used as a food preservative and cleanser) as well as ascorbic acid (vitamin C). Their expertise in fermentation grew, as did their plant, with deeper and larger fermentation tanks replacing shallow pans and flasks—knowledge and facilities that would come in handy 20 years later when the world was once again at war and looking to scale up production of a different mold that would serve as the world’s first “wonder drug,” penicillin. By then, the world of “ethical drugs”—those with ingredients displayed on their labels and distributed by the medical profession—was crowded with competitors.

In 1873, another chemist, Eli Lilly, set up a medicinal wholesale company in Indianapolis, Indiana. With three employees, including his then 14-year-old son, Josiah, Lilly expanded his business rapidly, with a sixfold increase in sales in his first two years.

A few years later, Lilly sent Josiah off to the new Philadelphia College of Pharmacy and Science, and the young man graduated in 1882, just as the company gained the rights to produce and sell its first proprietary medicine, Succus Alterans, used for the treatment of venereal disease. When Eli died in 1898, Josiah became president of the company. In 1907, Josiah’s son, Eli Junior, joined as the head of finance.

Eli Lilly’s first serious breakthrough came in 1895, when he discovered gel capsules as a way to package medicines for easy consumption. The capsules not only preserved the dose until it was ready to be consumed, but they also served therapeutic purposes by allowing timed release and improved absorption. By 1917, the company had mastered and refined the same straight-line production techniques that were being employed by Henry Ford—techniques capable of producing 2.5 million capsules a day. Raw materials came in one end, and with the aid of conveyers, chutes, and pulleys, they exited the other end in seven different sizes as finished products. Supply, as Lilly saw it, was now properly positioned to keep pace with growing demand.

Despite the distance companies like Lilly and Pfizer had traveled from the world of snake oil, they were still largely on the sidelines when it came to basic scientific research during the first three decades of the 20th century. This was partly the result of the AMA’s proprietary attitude regarding who was qualified to contribute. In 1915, the AMA’s Council on Pharmacy stated, “It is only from laboratories free from any relation with manufacturers that real pharmaceutical advances can be expected.” In typical “we alone are keepers of the flame” fashion, the physician leaders held to the belief—or at least espoused it—that profit and research didn’t mix.

But medicine was undergoing a revolution, and Eli Junior saw no reason why drug companies shouldn’t be a part of it. In 1910, Sigmund Freud had organized the International Psychoanalytical Society. In that same year the US Bureau of Mines, with the US Public Health Services, began a study of lung diseases in miners. Sickle cell anemia had just been described as a disease. The AMA began to attribute death by heart attack to “hardening of the arteries.” The American Society for the Control of Cancer (the forerunner of the American Cancer Society) was established with the aid of John D. Rockefeller, and the first X-ray machine was put into use.

Offsetting these medical advances, World War I killed 16.6 million people, including 6.8 million civilians. The Spanish flu followed, killing in 1918 and 1919 nearly 5 percent of the entire human population. Cholera, malaria, the plague, polio, smallpox, diphtheria, syphilis, gonorrhea, hookworm, and typhus plagued millions more. And while infectious diseases and traumatic injuries took the greatest human toll, and consumed the majority of public resources, by 1920, changing survival rates caused entrepreneurs like Eli Junior to start focusing on the chronic diseases that afflicted those well along in years.

Life expectancy for newborns in the US, with improvements in water, food, transportation, and housing, had risen from 47 years to 57 years in the two decades between 1900 and 1920. Eli Junior envisioned acute diseases giving way to those that would require long-term management and, most important, long-term intake of prescription medicines. He was fond of saying, as he did in December 1918, “Ideas don’t cure people. Drugs cure people. That’s why we must bring the research scientists and the drug manufacturers together.”

He was also keen on starting a medical research arm inside the company, and the man he found to drive the effort was George H. (Alec) Clowes, a bench scientist who had spent the previous 18 years at Roswell Park Memorial Institute, a cancer laboratory and hospital in Buffalo, New York. Eli Junior hired him and gave him free reign to find the next big discovery in medicine.

Almost immediately, on December 28th, 1921, Clowes sought out J.J.R. Macleod and Frederick Grant Banting at the American Physiological Meeting in New Haven, Connecticut. The diabetes researchers from the University of Toronto had been working with an extract secreted by the islets of Langerhans, groupings of specialized insulin excreting cells within the pancreas. By injecting this extract, called isletin, into a lab animal whose pancreas had been removed, they had managed to lower soaring blood sugar levels by 40 percent. The only catch was that purifying eight ounces of isletin, later known as “insulin,” required two and one half tons of beef or pork pancreas just to get started.

Clowes made the case that what the scientists needed were the resources of a commercial firm, and that Lilly would be more than happy to partner with this academic lab, bankrolling the research with full support not just for purification and large-scale production, but for dosage setting and marketing as well. As Clowes put it, “This will take corporate horsepower”—an observation that would be repeated ever after as the mantra for the Medical Industrial Complex.

The scientists rejected Clowes outright. Nonplussed, he rushed to the nearest Western Union office in New Haven and wired his boss a three-word report: “This is it.”

Hoping to provide their discovery at low cost to those needing it, the scientists had already sold the patent to the University of Toronto for one dollar. For almost a year, the university tried to scale up production on its own and failed miserably. Faced with unprecedented demand and little if any supply, the university called Clowes, who had been waiting patiently in Indianapolis. The university worked out a deal with Lilly to become sole distributor for one year, royalty-free, in exchange for a 28 percent of each batch. Again, the hope was that if drug companies acquired the rights at little or no expense, they would keep their prices low and even the poorest would benefit.

Accordingly, in those early days of insulin therapy, price was not a major concern, but the larger issue arose almost immediately and haunts the Medical Industrial Complex to this day—the question of fair and equal access to life-saving medicines.

In April 1919, a young girl named Elizabeth Hughes was diagnosed with diabetes. She was not just any Hughes—she was the daughter of Charles Evans Hughes, two-time governor of New York and an associate justice on the US Supreme Court, who had resigned from the bench to become Republican Party candidate for president in 1916.

The larger issue arose almost immediately and haunts the Medical Industrial Complex to this day—the question of fair and equal access to life-saving medicines.

The girl’s condition had grown perilous just as word of Banting and McCleod’s remarkable new drug got out. Judge Hughes went directly to University of Toronto president Robert Falconer and begged special privilege. Hughes, who would later return to the Supreme Court as chief justice, wanted this drug for his daughter no matter who else had to do without, and he was not above calling attention to the million-dollar grant made to the university by the Rockefeller Foundation, whose board included Hughes’s friend and fellow church mate John D. Rockefeller Jr. Elizabeth Hughes was the third patient treated.

The relationship between Lilly and the University of Toronto established the precedent of academic research institutions and pharmaceutical companies partnering to create massive supplies of high-quality medicines. What lagged behind was the creation of a body of law that would protect patients from abusive or fraudulent treatment while also ensuring equal access to the new medicines coming.

By the time Elizabeth Hughes died in 1981, at age 74, she had received more than 42,000 insulin injections, yet she expunged all references to diabetes in her father’s papers. Both to protect herself and to protect her father’s reputation, she went so far as to destroy all pictures of herself taken during the period of her declining health in childhood. In Judge Hughes’s official biography, a two-volume comprehensive summary of his life published under Elizabeth’s supervision, there is no mention of her illness whatsoever.

For Justice Hughes, a student of ethics, law, and religion, this represented an uncharacteristic ethical lapse. For the Medical Industrial Complex, his placement of personal needs and priorities above established rules and norms was just a small taste of the many lapses to come, when conflicts of interests—whether personal, financial, or political—would color life-and-death decisions.

Today, price is the greatest barrier to equal access to medicines, and price gouging is a fact of life—and often a matter of life and death—even with hundred-year-old medicines like insulin. Americans with diabetes pay more than the citizens of any other country, spending an average of $571.69 per month on diabetes costs. Even with insurance, this means that some Americans spend almost half their income just managing their condition. There are documented accounts of diabetics setting up GoFundMe campaigns to pay for insulin, then dying when they came up short. In 2017, a 26-year-old diabetic was found dead in his Minnesota apartment after rationing his insulin because he had “aged-out” of health coverage under his parents’ plan.

Multiple state attorneys general are currently investigating charges of price fixing by the original producer, Eli Lilly. The company is also named in a class-action lawsuit alleging that it colluded with two other drug companies, Sanofi and Novo Nordisk—the three together controlling more than 90 percent of the global market—to artificially inflate insulin US prices. One issue under examination is a pay-for-delay scheme in which Sanofi paid Eli Lilly to hold off launching an insulin similar to its Lantus brand.

You would think that patient advocacy groups would be up in arms, but many of these groups are, in fact, heavily subsidized by drug companies. And the most chilling aspect of all this is when drug companies defend their policies with the term “value-based pricing.” In other words, these are life-saving drugs, so it only makes sense to charge an arm and a leg. You want to stay alive, you pay the price. But then the Medical Industrial Complex is all about the health of the industry, not the health of all Americans.


From Code Blue: Inside America’s Medical Industrial Complex. Used with the permission of the publisher, Atlantic Monthly Press. Copyright © 2019 by Mike Magee, MD.

Mike Magee
Mike Magee
Mike Magee, MD, is a medical historian and journalist on the faculty of Presidents College at the University of Hartford. He has held similar roles at a range of academic institutions. He was a Honorary Master Scholar at the NYU School of Medicine and a Distinguished Alumnus award recipient from the University of North Carolina School of Medicine. Beginning as a country doctor in western New England, he rose to the highest level of his profession holding senior executive positions at Pennsylvania Hospital in Philadelphia, and as head of global medical affairs for Pfizer. He is editor of the blog HealthCommentary.org.

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