Healthy Skepticism
Join us to help reduce harm from misleading health information.
Increase font size   Decrease font size   Print-friendly view   Print
Register Log in

Healthy Skepticism Library item: 12223

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.


Publication type: news

Rosen M.
2007: The best and worst of times for Big Pharma
Wisconsin Technology Network 2007 Dec 17

Full text:

We have all watched with certain incredulity and excruciating pain the demise of the U.S. auto industry, an industry which brought forward a new disruptive technology which revolutionized transportation throughout the world beginning in the early 20th century. In the early years of this industry there were many U.S. car brands and car companies that over the decades gradually were amalgamated into increasingly larger companies, or fell into oblivion.

Today, the U.S. car industry is in survival mode, shedding employees, plants, management, and brands. How it will survive remains yet to be seen, but radical restructuring will be required to its lower its cost structure and globalize its business. It cannot continue to focus principally on the large U.S. market and U.S. consumer tastes (which are also globalizing).

Some of the European car competition made it in the U.S. market and others failed. Brands and companies such as Mercedes, BMW, Saab (now U.S.-owned), (now U.S. owned), Jaguar (still U.S. owned at this writing) made it, while brands such Alfa Romeo, Renault, Fiat, Citroen struggled and eventually retreated from the U.S.

The Japanese car onslaught started at the low end of the market with three major brands, Toyota, Datsun (now Nissan), and Honda. These brands struggled in the U.S. and other world markets in the early days as quality was questionable (but the price was right). Over time, and amassing market share, these three companies, followed by other Japanese companies such as Subaru, Suzuki, Mitsubishi, etc., kept their tight hand on the small, inexpensive car segment of the market and improved on quality with larger cars.

In essence, the Japanese represented the “generics” of this industry with stripped down benefits and low price. But over time, they moved up to compete in the more expensive, higher margin part of the car business with more expensive, and higher quality cars, until the point where Toyota is competing worldwide with General Motors for dominance of this industry.

The Korean car companies followed the Japanese “generic car” strategy in the 1990s with low end cheap cars which enabled them to snare a key component of the marketplace and build market share. It helped to offer a 10 year product guarantee, an industry first, as a marketing ploy. Now the Korean car companies are firmly entrenched in the U.S. market and, like the Japanese moving up the quality (and pricing) stream.

The next onslaught of car companies will clearly be the Chinese and the Indians, and they may be attacking multiple segments at once: Chrysler with the Chinese company Chery on the low end, the Tata Group (if they win the bidding) with Jaguar, and another Chinese group with MG (to be produced in the U.S.).

U.S. auto industry vs. U.S. pharma industry

By now we are several paragraphs into a column that is normally about the life science industry (and occasionally rock n’ roll), and you are wondering where I am going. Well, lessons learned from the car industry are extremely relevant to the U.S. and world pharmaceutical (and biotech industry) today.

In fact, the U.S. Pharma industry is older than the U.S. car industry having gotten its start in the U.S. as early as the 1870s (the Japanese Pharma company Takeda actually started in the 1700’s), but really accelerated its growth during World War II when the U.S. Government asked for assistance in developing the first major antibiotic: penicillin.

Like the car industry, many well-known U.S. Pharma companies and brands have and will continue to disappear; names such as: Rorer, A.H. Robbins, G.D. Searle, Upjohn, Parke-Davis, Warner-Lambert, Lederle, Sterling-Winthrop, Richardson Merrell, Carter-Wallace, and others.

Like the car industry, U.S. Pharma is under siege by “generic” competition coming from Asia, including globalizing Japanese and Indian companies (China is still the sleeping Pharma giant-in-the-making).

The pharma industry, due to its much longer product development cycle (12-15 years versus 3-4 years in the car industry) and much higher regulation by governments around the world (the FDA and its multiple foreign counterparts), is inherently a much riskier business, and this risk is protected to some degree by intellectual property laws allowing these companies to operate like quasi-monopolies for 5-10 year period. However, when the monopoly time offered by patents ends, Big Pharma is today at full risk of rapidly losing business at a rate that would make car companies shutter.

A recent article in the Wall St. Journal (Dec. 6th) commented that between 2007 and 2012 more than 3 dozen drugs would lose patent protection wiping out $67 billion per year in annual Pharma sales during those years. The impact will be so great that the worldwide Pharma industry will actually decline in 2011 and 2012.

American Pharma companies like Pfizer, Eli Lilly, Merck, Wyeth, Schering-Plough, Abbott Labs, and Bristol-Myers Squibb, are at tremendous risk and exposure, but so are some of their European counterparts such as Sanofi-Aventis, GlaxoSmithKline, and AstraZeneca.

The Pharma industry has already announced job layoffs of at least 21,000 employees during 2007, and shedding of plants, R&D centers, offices, etc., in preparation for this huge downtick in profits and sales. And this is only the start! Pfizer is expected to shed close to 35,000 employees from its peak of almost 125,000 employees in 2003 to projected levels of around 80,000 in 2008, according to another WSJ article on December 11th. At least an additional 50,000 industry positions will be eliminated from Big Pharma over the next 10 years.

The beneficiaries of this patent expiration of major Pharma drugs will be firstly consumers in the U.S. and around the world, as costly medicines will become more affordable, and secondly, generic Pharma companies (some of which are American, an Israeli leader – Teva, and mostly Indian Pharma companies).

The first onslaught of generic drugs will focus on the traditional Pharma products, called “small molecule drugs” based on traditional chemistry. This type of product is at the core of Big Pharma’s drug pipeline and will radically reshape the companies named above.

But the second, almost equally devastating onslaught will face the “large molecule” drugs invented by the biotech industry which are now reaching the end of their patent life but are still protected by the FDA’s inability to come up with a regulatory process on how to approve these “biological” drugs. Companies like Amgen, Genentech, Biogen Idec, and some of the Big Pharma companies who were their marketing partners, will be severely impacted. We witnessed such impact earlier this year when Amgen announced its first-time ever employee-layoff.

These biotech giants have learned how to acquire and develop the newer large molecule drugs much quicker than Big Pharma, and already has the manufacturing and R&D infrastructure in place. Big Pharma shedding its traditional R&D and manufacturing infrastrastructure focused on chemistry and chemists. According to the WSJ again, the Pharma industry employed 140,000 chemists in 2003 which was down to 116,000 chemists in 2006. The number of biologists (critical for the discovery and development of “biological drugs”), however, is on the rise, from 112,000 to 116,000.

Big Pharma, in its panic to replace upcoming lost sales is trying all kinds of strategies, including:

• Product acquisitions.

• Company acquisitions.

• Ethical to OTC switch of products by regulatory authorities.

• Raising drug prices (63 percent since 2002).

Again, according to the WSJ articles, Big Pharma has spent $76 billion since 2005 to buy biotech companies. During the first 9 months of 2007, there were 49 deals totaling $28.7 billion (including the $15.6 billion acquisition of MedImmune by AstraZeneca).

Merck, in order to protect its blockbuster cholesterol-reduction drug Mevacor, has tried several times to seek FDA authorization to sell this product over-the-counter (OTC) without physician prescription. This Ethical-to-OTC Switch, while still representing a loss in sales and profits, provides a much safer and managed decline in profits and sales, and could provide a pathway for other similar drugs called statins with current annual sales of over $16 billion/year, sold by Pfizer and other companies (e.g. the drug Liptor).

Merck’s goal, in addition to managing product decline, was to attract to the marketplace millions of individuals who have no health insurance or could not previously afford such therapy.

According to a recent article in the Chicago Tribune, the cost of such therapy on an OTC basis would cost at least half of what it currently costs in a prescription format ($1- 1.50/day vs. $3-4/day for other prescription therapies). Unfortunately, the FDA hasn’t endorsed Merck’s strategy and turned down Merck for the third time this past week by a 10-2 vote.

It will be very interesting to see Big Pharma scrambling during the next few years, on the one hand shedding assets and people, and on the other hand acquiring companies and products. It will be equally interesting to see how the U.S. car industry fares as well.


  Healthy Skepticism on RSS   Healthy Skepticism on Facebook   Healthy Skepticism on Twitter

Click to Register

(read more)

Click to Log in
for free access to more features of this website.

Forgot your username or password?

You are invited to
apply for membership
of Healthy Skepticism,
if you support our aims.

Pay a subscription

Support our work with a donation

Buy Healthy Skepticism T Shirts

If there is something you don't like, please tell us. If you like our work, please tell others.

Email a Friend