Big Pharma – Corruption? Say It Ain’t So

To prepare for these blogs, I do research. That’s a fancy way of saying that I sit in front of my laptop and do a lot of Google searches (my preferred engine of choice). And, I’m noticing a few things lately.

First, there’s not a lot of good news out there for Big Pharma. OK, sure there’s a lot of marketing hype and spin meistering going on but not any really positive trends. Talk about biotechnology and its promise but not much on delivering on those promises.

Second, the usual bad news stories, patent expiration, generic competition, cost models out of whack, diminishing pipelines, and I’m sure I missed a few are still there. These stories go back for years, the beginning of the decade in some cases with more coming every year.

So imagine my chagrin when I came across a recent article from Natural News written by David Gutierrez posted on Kevin Trudeau’s website (http://www.ktradionetwork.com/health/who-issues-warning-about-big-pharma-corruption/ ) discussing the release of a fact sheet from the World Health Organization (WHO) discussing corruption and unethical practices in the pharmaceutical industry. These guys just can’t catch a break.

We seem to be moving from a period of public perception of an industry under siege to one that’s preying on the public. I suspect that except for BP’s current contribution to the public image of multinational corporations, Big Pharma might be getting more heat than they have been lately.

Now, let’s get back to that WHO report. WHO Fact Sheet No. 335 was first released back in December 2009. The actual report can be viewed at http://www.who.int/mediacentre/factsheets/fs335/en/index.html . The authors looked at what they call the medicines chain which included all steps in the development, marketing, and consumption of drugs and they claim that there is corruption in every step of the chain. In fact, they’ve included a pretty nifty chart (http://www.who.int/mediacentre/factsheets/images/medicines_20091209.gif ) diagramming each of those steps and the corresponding types of corruption that occur. (Rest assured, there will be future blogs about what’s going on here.)

The fact sheet states that all countries regardless of their developed status have issues. Developed countries are estimated to lose $23 billion US annually to dishonest healthcare practices. Certain practices would seem to lend themselves to certain countries and companies. I’ll hazard a guess and say that research and development and clinical trial fraud are probably more likely in the developed countries where much of this work occurs than with the less developed ones. Likewise, counterfeit drugs are a bigger for less developed countries lacking the necessary infrastructure to examine the drugs. And, I’m sure there are examples which contradict both scenarios.
In closing, I’m getting the sense that Big Pharma’s troubles are far from over and if anything they’re entering a new stage which may presage new ones coming soon.

As always, we welcome your feedback. Please contact us at larryrothmansblog@gmail.com. We look forward to hearing from you.

Contributed by Guy de Lastin

A Cautionary Tale

I’m going to run off the reservation a little today. (OK, maybe more than a little, but, I think the point is important.) The media has been full of stories for most of this year about several, large corporations (e.g., Toyota, BP, Massey) that have gotten themselves into a lot of trouble. (Check out Matt Krantz’s USA Today June 4, 2010 article, http://www.usatoday.com/money/markets/2010-06-04-disasterstocks04_ST_N.htm .) Now, you’re probably wondering why I’m blogging about these companies and what’s the relationship with Big Pharma?

The connection is cost cutting. Relentless cost cutting to the exclusion of all else. I’m not implying that these companies are alone in this. The mantra of cost cutting to enhance shareholder value has been around for at least a generation. It sounds seductively simple, unnecessary costs should be eliminated. The good costs are those that enhance productivity and everyone goes home happy. Right?

Here’s where I’ve always had a problem with this rather simplistic view of things. What’s a good cost? The financial analysts and media tend to look at earnings per share (EPS) and year over year profits. The fact that routine maintenance costs, expert staff, and training costs for the remaining employees have been reduced, if not outright eliminated, seems to be glossed over. And, let’s not forget about research and development expenditures which might go a long way to explaining the drying up of the product pipelines at drug companies lately.

Corporations have been becoming increasingly complex for a long time. Managing complexity as many of our readers know from firsthand experience is no simple matter. So, how can a simple measure like how much less have we spent than last year be used while the business is not exactly simplifying?

Product recalls may prove to be leading indicators in the long run of underlying problems. Of course, that assumes the products are being recalled in the first place. Take a look over at the FDA’s website for drug recalls (http://www.fda.gov/safety/recalls/default.htm ) and ask yourself how can these things happen to companies like Pfizer?

Where I’m going with all this is what should we expect to see with Big Pharma and their smaller brethren? I’ve blogged before about how large life sciences companies are collections of products and services that are almost impossible for one executive to manage.

The argument of synergy is often trotted out, but, I have yet to see a consistent track record for that one. In fact, I can’t even think of a good stand alone example of one. (I invite the readership to post with any that they may be aware of.)

In closing, I believe that we are seeing the start of a new trend for business and especially in the life sciences sector and that is, large, complex businesses struggling to understand what expenditures are necessary and which aren’t. Since figuring this one out is tough, I expect that we’re going to see declining profits for some time.

As always, we welcome your feedback. Please contact us at larryrothmansblog@gmail.com. We look forward to hearing from you.

Contributed by Guy de Lastin