Sam Uretsky

Pharmas Lose Blockbusters

On Dec. 31, 2008, the New York Times carried a front page headline: “No Mug? Drug Companies Cut Out Goodies for Doctors.” Pharmaceutical Research and Manufacturers of America, an industry group composed of the largest pharmaceutical manufacturers has instituted a voluntary ban on the small gifts, the pads and pens and coffee cups that they’ve traditionally given to physicians. This is a lesson in the aphorism: don’t wish for anything, you might get it. Just when we want anybody who has a few spare dollars to start spending, the pharmaceutical companies are cutting back by about a billion dollars a year in promotional costs, a lot more when you consider the lay-offs in their sales force. The financial sector of the economy has gotten the most attention, but pharmaceuticals are undergoing major changes as well. At another time this would have been a good thing, but this may not be the best time for it.

It’s hard to say what’s good or bad in a rough economy. The Centers for Medicare and Medicaid Services reported that total health care spending rose 6.1% in 2007, slightly less than the growth of 6.7% in 2006. A large share of the reduced growth rate was due to an increase in the use of generic drugs, and that increase came, not from better education of physicians, but from the fact that the pharmaceutical manufacturers hadn’t developed anything new to replace the drugs going off patent.

On Jan. 15, Jeffrey Kindler, the CEO of Pfizer Inc, the world’s largest drug company, announced that it may fire as many as 2,400 of its sales representatives and sales managers because there are no new drugs to sell. Of course, Pfizer had already announced that it would fire 800 research scientists. These are the people who develop new drugs. The announcement of the new lay-offs drove the price of Pfizer stock up 17 cents per share on the New York Stock Exchange. Maybe it would have been smarter to keep those 800 researchers, and even hire a few more, but that’s not the way things work.

It’s hard to say whether the CEOs are villains or victims. Just about every industry has been subject to the Lake Woebegon effect: “All the women are strong, all the men are good looking, and all the children are above average.” The corporate panjandrums were taking in compensation packages that, with rare exceptions were hard to justify, but in return, they had to be sure that their companies out-performed both the market and the market segment. We can look back and wonder why the banks didn’t understand the implications of the sub-prime mortgages, the Big 3 automotive CEOs weren’t prepared for the pendulum swing away from SUVs, why corporate leaders in general weren’t prepared for the day the chickens were due home to roost. The answer, pretty much, is that they were too busy trying to keep their jobs by showing balance sheets with double-digit profits, even if it meant bad decisions, or cooked books. In the case of the pharmaceutical companies, it meant looking for blockbuster drugs at the expense of steady growth, or trying to turn an every day product into a blockbuster.

Merck is losing its corporate shirt on lawsuits over Vioxx, and Eli Lilly is considering paying a $1 billion fine for mispromoting its psychotherapeutic agent Zyprexa. Just as the economy has gone from bubble to bubble, the pharmas have gone from blockbuster drug to blockbuster drug, always looking for something that would generate over $1 billion a year in sales. Pfizer had Lipitor, Merck had Vioxx, but neither company had a new drug waiting to fill in after these drugs were gone.

The world as we’ve known it has broken down, and we’re going to a past that most of us have forgotten. It’s most obvious in the financial sector, where Citigroup and Bank of America are suddenly discovering that the all-in-one financial center is too cumbersome, and, like the Holy Roman Empire back in 248, works better in smaller portions. Some of the big pharmaceutical companies have already started to restructure, no longer looking for the next drug that will be as popular as a daily vitamin pill, and finding niche markets where they can make a difference. According to BusinessWeek, Abbott Labs has been the most drastic, downsizing from a focus on 13 areas in 2002 to just 5 today: immunology, oncology, neuroscience, diabetes and antivirals.

Our health will be the better for it. In the future, there will be fewer drugs that everybody takes, but more targeted research into conditions that are currently underserved. There won’t be as many television ads telling you to ask your Doctor—the methicillin-resistant Staphylococcus aureus market isn’t that big, and not that many people have acute myelocytic leukemia—but these are areas that deserve focused study.

But somewhere out there, there are 2,400 people whose marketable skills are pretty much confined to bringing pizza to surgical residents, and over 100,000 people who made a living convincing people to refinance their houses. Edwin Markham, in his poem “Man With a Hoe” wrote “How will the future reckon with this Man?”

Sam Uretsky is a writer and pharmacist living on Long Island, N.Y.

From The Progressive Populist, Feb. 15, 2009

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