Saturday, December 8, 2007

Pharmaceutical Crackup?

The Wall Street Journal has a great article about the big players in the pharmaceutical industry, showing how it is dealing with its lack of progress in developing new drugs -- by more intensive marketing, taking over smaller, more innovative companies, and laying off workers. Even so, Wall Street is looking forward to lower profits. Here is the article & another on the layoffs.



Martinez, Barbara and Jacob Goldstein. 2007. "Big Pharma Faces Grim Prognosis: Industry Fails to Find New Drugs to Replace Wonders Like Lipitor." Wall Street Journal (6 December): p. A 1.

"Over the next few years, the pharmaceutical business will hit a wall. Some of the top-selling drugs in industry history will become history as patent protections expire, allowing generics to rush in at much-lower prices. Generic competition is expected to wipe $67 billion from top companies' annual U.S. sales between 2007 and 2012 as more than three dozen drugs lose patent protection. That is roughly half of the companies' combined 2007 U.S. sales."

"At the same time, the industry's science engine has stalled. The century-old approach of finding chemicals to treat diseases is producing fewer and fewer drugs. Especially lacking are new blockbusters to replace old ones like Lipitor, Plavix and Zyprexa."

"The coming sales decline may signal the end of a once-revered way of doing business. "I think the industry is doomed if we don't change," says Sidney Taurel, chairman of Eli Lilly & Co. Just yesterday, Bristol-Myers Squibb Co. announced plans to cut 10% of its work force, or about 4,300 jobs, and close or sell about half of its 27 manufacturing plants by 2010."

"Between 2011 and 2012, annual industry revenue will decline, estimates Datamonitor, a research and consulting firm. That would be the first decline in at least four decades.'

"Once it hits the market, however, the patent-protected drug is highly profitable: Typical gross margins are 90% to 95%.'

"The rise of generics wouldn't matter so much if research labs were creating a stream of new hits. But that isn't happening. During the five years from 2002 through 2006, the industry brought to market 43% fewer new chemical-based drugs than in the last five years of the 1990s, despite more than doubling research-and-development spending."

""There haven't been any new therapies that are proven to reduce death and disability for atherosclerosis since the introduction of the [cholesterol-lowering] statins" in the late 1980s, said Richard C. Pasternak, vice president of Cardiovascular Clinical Research at Merck. Atherosclerosis, a buildup of arterial plaque, is a major cause of heart disease."

"Biotech drugs are especially appealing because they face no competition from generics: No regulatory pathway yet exists in the U.S. for bringing to market generic biotech drugs. So until Congress creates such a pathway, no generic threat will exist to the $4,400 a month that Genentech Inc. charges for its cancer drug Avastin, or the $200,000 a year that Genzyme Corp. gets for Cerezyme to treat Gaucher disease. And biotechnology products tend to target specialized areas of medicine that don't require mass advertising or armies of salespeople."

"So big pharmaceutical companies have spent nearly $76 billion since 2005 to buy biotech companies, according to Health Care M&A Information Service, a unit of Irving Levin Associates Inc., a Norwalk, Conn., research company. While in 2005 there were 33 deals amounting to $16.5 billion, in the first nine months of this year there were 49 deals totaling $28.7 billion, including AstraZeneca PLC's $15.6 billion acquisition of MedImmune, which followed a bidding war against Eli Lilly, among others."

"The dearth of new products has led the industry to invest heavily in marketing and legal tactics that squeeze as much revenue as possible out of existing products. Companies have raised prices; the average price per pill has risen 63% since 2002, according to Michael Krensavage, Raymond James analyst. Companies raised advertising spending to $5.3 billion in 2006 from $2.5 billion in 2001 and since 1995 have nearly tripled the number of industry sales representatives to 100,000."

"The industry spent $155 million on lobbying from January 2005 to June 2006, according to the Center for Public Integrity, on "a variety of issues ranging from protecting lucrative drug patents to keeping lower-priced Canadian drugs from being imported." The industry also successfully lobbied against allowing the federal government to negotiate Medicare drug prices, the center said. The lobbying has drawn fire from politicians, doctors and payers, and damaged the industry's public image."

==========

Loftus, Peter and Sarah Rubenstein. 2007. "Bristol-Myers Cuts Jobs, Plants to Shore Up Profit." Wall Street Journal (6 December): p. D 6.

"Bristol-Myers Squibb Co. is the latest big pharmaceutical company to announce a restructuring in the face of looming generic competition and pipelines with few potential blockbusters. The New York drug maker said it will cut its work force by 10%, or about 4,300 jobs, and close or sell about half of its 27 manufacturing plants in a plan to save about $1.5 billion by 2010 and boost profitability."

"Bristol-Myers Chief Executive James Cornelius told investors that the company faces a "patent cliff" early next decade, when its popular antiblood-clotting drug Plavix will lose U.S. market exclusivity."


4 comments:

Robert D Feinman said...

There is a bit of slight of hand going on in this article. It implies that research by the drug firms has been lagging and that's why there are fewer new products in the pipeline.

It's true that there is less research, but it's because of the lack of government spending. The traditional path for discovery has been government -> research grants to universities and non-profits -> new discoveries -> commercialization.

The first break in the chain happened a couple of decades ago when the rules were changed on who owned the rights to a discovery made with government funds. Before, it was the people who paid for the research (we the tax payers), now it is the researcher. This discovery is quickly turned into a private enterprise, frequently with a portion of the stock going to the university. If it is promising then the firm may get bought up by one of the big players.

The second break in chain has happened more slowly as government spending has shifted away from R&D, infrastructure, education, etc. and into militarism and policing. Just this week a Dem sponsored appropriations bill that would have increased spending in these areas was filibustered by Republican senators.

The focus on militarism and meaningless financial trading has distorted national priorities and the US is loosing it leadership position in the world. We just don't realize it yet. Even an event like Katrina seems unable to wake people up to the hollowing out of our infrastructure.

Unknown said...

India yellow pages manufacturers suppliers exporters importers directory

Shag from Brookline said...

How about the pharma industry's progress with TV advertising? I wonder how many viewers take pharma's advice and call their doctors to see if [magic potion] is right for them? Are doctors annoyed by such calls or are they pleased by turning them into appointments for which they can charge? If alive today, Mark Twain would have a lot of fun with the cool way possible side effects are described in these commercials. Maybe George Carlin could do the job.

J.Goodwin said...

I'm surely not the only person who has actually asked their doctor about [insert drug here] only to find that it's for god only knows what condition, which is entirely non-applicable. They give you no idea what these drugs are even intended to treat.

Of course, Wall Street will regard the problem as the rise of generics and non-extension of patents, the response to which complaints has been the FDA's "streamlining" process where the drug firms pay a bribe to get their applications processed faster, resulting in a longer exclusivity period in the market.

Bah.