The Journey Continues – Down the Rabbit Hole

After several weeks of visiting Big Pharma’s websites or those of their agents, I’m still shaking my head over what I’ve been finding. Namely, nothing. Last week I used the overused analogy about the Titanic. This week, I followed the Avandia story and thought maybe I would finally find a company that I might be on the cusp of finding a company, GlaxoSmithKline (GSK) in this case, finally having to recognize reality. Well, with apologies to Lewis Carroll, I was wrong and went down the rabbit hole.

First, a quick recap. This past week, the FDA placed serious restrictions on GSK’s diabetes drug, Avandia, while, the EMA instituted a recall. (Details can be found at the website Avandia Recall News (http://avandiarecallnews.com/ ).) So, in my innocence, I thought that maybe GSK’s website (http://www.gsk.com/index.htm ) might have some insight and reflection on what’s going on. As you’ve probably guessed by now, I got that one wrong.

At GSK’s website, I found contact information for patients, medical professionals, investors and the media. There was also a statement and video from Dr. Ellen Strahlman, GSK’s chief medical officer. (I wonder where their CEO, Andrew Witty, is in all this.) It had the air of being slapped together. In fairness, I guess that would be the first reaction. But, as I went over the website, I found what I’d found earlier at other Big Pharma websites and that was a complete lack of concern over where the industry is going.

GSK’s three strategic priorities (http://www.gsk.com/mission-strategy/index.htm ) are plastered all over their website. But, I find them to be the usual corporate fluff that doesn’t seem to be focused on the industry’s problems. The website is not as well laid out as some of their competitors and its message was confusing to me.

For me, my journey has, so far, not been very encouraging. This week’s visit is the capstone of this trip. Here’s a major drug company facing a global recall on one of its major products and it’s being treated like a minor appliance recall would be in another industry. Sure, I get the fact that for legal and regulatory reasons many things cannot be said. But, where’s the awareness that a very different regulatory climate is forming out there and this is even before U.S. healthcare reform kicks in. Where’s the leadership? Either at a company level or in the industry? I don’t see it.

I don’t mean to be an alarmist but I believe that we’re seeing another major industry preparing to roll over and go to the bottom. I’ll continue with this blog stream for a while longer because I want to learn if anyone in the industry is thinking about this.

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

On the Cyberroad

I think that I’ve finally managed to break away from Pharmaceutical Research and Manufacturers of America (PhRMA) (http://www.phrma.org/ ) and its world view. Now, I’m continuing my journey across the Internet looking for Big Pharma’s story.

This week I wanted to move away from Big Pharma’s lobbyists and other front organizations. I went to the websites of two large pharmaceutical companies, Merck and Pfizer. These are two major players in the industry and seemed like a good place to start.

I’ll start with Merck (http://www.merck.com/ ). The usual trappings of a Fortune 500 company were there along with what I’m coming to expect at a large pharmaceutical company. Looking at the site, one could get the impression that this is an altruistic organization worried about patients, the environment, and helping small businesses. (Alright, I admit it, I’m a little bit cynical.)

But, I found what I came looking for, Merck’s pipeline (http://www.merck.com/research/pipeline/home.html?WT.svl=content ). I have to admit from a purely technical perspective, this was done very nicely. Now, let’s talk about the content.

Phase II, Phase III, and Under Review drugs are listed in addition to research areas. Three categories of drugs can be highlighted, biologics, small molecule, and vaccines. Clinical trial results can be linked to for drugs in Phase III and Under Review.

I’m the last guy who can say what’s a good drug or a bad drug from a financial perspective. And, Merck’s site doesn’t include financial forecasts for these potential drugs probably for very good SEC and FDA reasons. Although, I’m probably not going too far out on a limb here by saying that internally Merck is forecasting the financial potential of these drugs.

But, except for a mention to now looking at biologics, there’s nothing about what their philosophy is or why they are doing what they do. Yes, they talk about doing good things and saving lives and that’s about it. I just don’t see an exciting story that tells me that these guys are going to be tomorrow’s breakout story.

Let’s take a quick look at Pfizer’s site (http://www.pfizer.com/home/ ). Here we have all the state of the art social media, Facebook, Twitter, YouTube, and LinkedIn. When I went looking for their pipeline I found a twenty-two page PDF document (http://media.pfizer.com/files/research/pipeline/2010_0127/pipeline_2010_0127.pdf ). (They really could learn something from Merck.)

Like at Merck’s site, I couldn’t find any reference to where Pfizer saw it’s future heading. From both sites I came away with a picture in my mind of countless lab techs all over the world mindlessly droning away at testing compounds for some vague end. I’m reminded of players at a roulette wheel in a casino. Play enough numbers long enough and sooner or later, you’ll win. Didn’t this get Wall Street in trouble a while back?

My journey so far hasn’t shown me any insights yet into why Big Pharma will turn around. If they have any, they should bring them to the fore better than they’ve done so far. Come back next week to see what I’ve found.

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

Big Pharma – Why the Doom and Gloom?

OK, last week, I announced the end of Big Pharma. CNBC and the Wall Street Journal haven’t called me yet. (And, if they ever do, you’ll know that it’s been really slow week in the markets.) I suspect that many of my readers (you’re out there somewhere) probably dismissed me as either a crank or a sensationalist. But, for that faithful minority who have kept the faith, I can say that there is a method to my madness. In this blog, I’ll write about some of my reasons for taking this position.

First, I’d like to return to GlaxoSmithKline’s problems with Avandia. Shelley DuBois has written an interesting article about this at CNNMoney.com (http://money.cnn.com/2010/07/13/news/companies/avandia_fda_panel.fortune/index.htm ). In particular, she raises the point of what does it mean for future drug investments if after eight (8) years on the market a drug can be pulled by the FDA, not to mention the potential for litigation. This is important because it hits right at the heart of today’s drug business – making money. If a reliable cash flow can’t be forecast, investors will seek a higher return to offset the risk. However, potential returns aren’t infinite. I make the point to reinforce that business as usual is over for the pharmaceutical companies.

Next, here’s another interesting blog (http://www.alternet.org/story/146471/8_invented_diseases_big_pharma_is_banking_on ) by Martha Rosenberg at AlterNet.com. She has two points that in particular stand out for me. She notes the move of Big Pharma away from its current big molecules to vaccines and biologics and the resistance being encountered from the anti-vaccine movement and how it may be returning to inventing new diseases for the drugs that it’s just happened to have developed. Martha then proceeds to list and describe eight new diseases that we may soon see being advertised on television soon. ( I also like how Martha snuck in the fact that a former CDC director, Julie Gerberding, is now the president of Merck vaccines.)

I’m using these two sources to substantiate my case that Big Pharma’s revenue model is dead and future growth will be unsustainable. If greater risks without offsetting higher returns are to be the future then new private sponsorship of drug development will wither away. Healthcare reform will act as a ceiling to potential returns.

Healthcare reform will also act as a brake, or at least introduce uncertainty, into “new” diseases being introduced for reimbursement anytime soon. A move to prevention as opposed to treatment on the part of the public could cause new drugs to be less successful upon introduction than in the past.

In closing, I see much turmoil ahead for pharmaceutical companies. Let’s watch earnings announcements over the next several years and see what happens.

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 Shot Across the Bow III

This week, I’ll be finishing my commentary on Andrew Bary’s recent cover story in Barron’s (The article is available online only for subscribers, a short preview is available at http://online.barrons.com/article/SB50001424052970203296004575320891909686872.html .) about the future prospects for drug stocks.

I started this series of blogs because after reading the article for the first time I was astonished at the lack of analysis of what simply appeared to be regurgitations of pharmaceuticals’ public relations flacks. The other interesting aspect of the article is the long term view that I takes. When the dates that Andrew is writing about finally come around no one’s going to remember either this article or him. I wish I could get writing gigs like that.

Last time I left off just as Andrew was about to tackle Roche. He quotes unnamed “bulls” as saying that this company has the best potential of the nine companies he’s writing about. He assumes the stock could rise 30% simply from earnings growth in the next several years. OK, why? Or, better yet, given all that we know that is out there working against this industry why should we expect earnings to simply “increase”? Especially since maybe $1 billion in annual revenues could be at risk if the FDA reconsiders its previous approval of the breast cancer drug Avastin. Check out the Bloomberg Businessweek article for more details (http://www.businessweek.com/news/2010-07-16/roche-avastin-trials-not-as-good-as-early-tests.html ).

Next up, Andrew tackles GlaxoSmithKline. This one is going to be easy. (You can tell that I’m enjoying this can’t you?) Now, Andrew couldn’t have known that the Avandia story (http://www.cbsnews.com/8301-504763_162-20010767-10391704.html ) would have broken so soon after he wrote his article. In fairness, his comments about the drug are probably his most insightful in the entire article. But, once again, he misses the obvious to follow lemming-like the unnamed bulls that he appears to be so enamored with. What gives here?

Andrew reviews three more companies in his article, Lilly, Bristol Meyers Squibb, and Astra-Zeneca. I won’t prolong the torture by going through these one by one. But, the same themes are there. A long term look at 2015, the current dividends are good, or yeah, there’re problems but there’s always tomorrow. (I’m expecting Annie to get some credits here.) Can this guy really believe all this?

I think Barron’s and Andrew really missed an opportunity here. I’m also disappointed with Barron’s, they typically run tougher pieces that challenge the conventional thinking.

It’s not like this hasn’t happened before in the U.S. economy. The auto and banking industries are good current examples. The personal computer industry is a slightly older example and the mainframe computer industry in the Sixties is another good example. How many of you out there remember Snow White and the Seven Dwarves? (Larry will tell you, I’m a serious student of history.)

One more thing, I’ll take a look back on this article in 2015 and see just well Andrew called this one.

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

Pharmaceuticals – Under Siege?

Lately, I’ve been blogging about the general malaise that life sciences, and in particular, Big Pharma, are finding themselves in. Last week, I even compared poor Mike Huckman to a canary in a mine. (Apologies there, it seemed like a good idea at the time.)

The recent full court press by the Federal government against Goldman Sachs, first a civil suit, then a criminal investigation, got me wondering what the Beltway Gang was up to with their another one of their favorite bête noirs, Big Pharma. Seems that the Federal Drug Administration (FDA) has decided to breathe new life into its Office of Criminal Investigations. A recent article by Alicia Mundy in the Wall Street Journal (http://online.wsj.com/article/SB10001424052748703862704575099942109582112.html ) outlines the FDA’s plans to re-energize itself and the focus of its prosecutions.

Are we seeing yet more evidence of an industry under siege? There’s definitely a more activist administration in Washington, D.C. these days. And Big Pharma has all the characteristics of a great target. Unpopular with the public, aging business model in need of an overhaul, and recipients of large amounts of public largess (i.e., Medicare). Makes me think of the financial services industry. I wonder if we’re going to see Big Pharma’s chairpersons appearing before Congress en masse anytime soon?

But, maybe we won’t see everyone trooping down to the Capitol anytime soon. Here’s why. First, Congress is enjoying themselves too much with the financial services industry. (Big Pharma should consider themselves fortunate in not having a poster child for egregious behavior like Bernie Madoff.) Next, Big Pharma hasn’t provided a lightning rod for public outrage yet. Sure, they’ve had the occasional Vioxx but they haven’t tried to melt down the economy or anything comparable yet.

In ancient China, there was a form of execution cum torture known as the death by a thousand cuts. I won’t go into the details (there are other blogs for that) but you get the idea. This is what Big Pharma is experiencing now. Every day seems to bring another cut/issue. Nothing big by itself but cumulatively they have an effect. Resources are drawn away from things like research and development. Innovation is throttled because of a risk adverse culture developing. Management attention is distracted from running the day to day business let alone forward looking strategic planning.

Once upon a time, Big Pharma was one of the glamour industries. Overtime, they became one of the last men standing. Now, Big Pharma is on the cusp of being another also ran. Globalization and commoditization are bringing down another industry.

I’ll continue to pursue this line for awhile. Unfortunately, I don’t see any significant changes anytime 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

FDA Recalls Pfizer's Antipsychotic Drug Geodon due to Overdosing in Clinical Trial

Our colleague, Lee Howard of "The Day" newspaper in Connecticut wrote the following article that appeared in his newspaper this week (http://www.theday.com/article/20100421/BIZ02/304219875/-1/BIZ). He was kind enough to ask for our view and we in turn are publishing that article:


"Pfizer Inc. has received a warning letter from the U.S. Food and Drug Administration reproaching the company for failing to monitor properly studies of its antipsychotic drug Geodon that led to excessive doses being administered to 13 children and at least 20 adults.

The letter, addressed April 9 to Martin Mackay, president of Pfizer's PharmaTherapeutics Research & Development division and first reported Tuesday by the Reuters news service, said the FDA had found an internal company report dated Nov. 7, 2006, that indicated "dosing errors" had occurred.

The initial seven overdoses, for a medication trial in 2006 that the FDA redacted in its warning letter but which Pfizer confirmed was Geodon, were blamed on a lack of proper training. But six more children in another study more than a year later received excessive doses as well even after personnel were retrained, according to the FDA.

One patient received overdoses for 30 days, and others reported tremors and other side effects from the mistake, the agency said in its letter, available online at www.fda.gov/ICECI/EnforcementActions/WarningLetters/ucm208976.htm.

"We conclude that you did not adhere to the applicable statutory requirements and FDA regulations governing the conduct of clinical investigations," the agency added.

Among the FDA's findings:

• Pfizer failed to officially designate someone sufficiently trained in medical issues to answer questions that would lead to informed consent, as required by regulations.

• Pfizer monitors visited one of the studies nine times but never picked up on the overdoses; instead, a company data management unit made the discovery.

• Pfizer failed to keep study investigators informed about new observations regarding reactions to the drug, especially about adverse effects and safe uses.

Pfizer said in a statement through its director of worldwide communications, Kristen E. Neese, that it is "committed to fully addressing FDA's concerns."

Neese pointed out that many of the FDA's insights about the drug-trial problems were first uncovered and reported by Pfizer itself, as part of its monitoring and quality assurance processes.

"Since that time, Pfizer has instituted several new measures designed to improve monitoring and execution of clinical trials, including our oversight of clinical investigators," Neese said.

Neese said Pfizer will identify to the FDA in the next two weeks several clinical-trial enhancements that the company believes will present similar issues in the future.

Larry Rothman, a blogger on the drug industry and chief executive officer of Pharma Flex, a temporary staffing firm in Fort Lauderdale, Fla., said warning letters regarding clinical trials are rare. Generally speaking, he said, trials are very closely monitored both because of potential hazards to patients and because drug companies must show rigor in their administration of the experimental medications to get statistically meaningful results.

"This is a very unusual event," he said, "but it looks like Pfizer did their best to fix it."

The warning letter to Pfizer followed at one-month investigation last year by two FDA inspectors. Pfizer subsequently acknowledged problems with its clinical investigations, but a July 2009 response letter to the investigation "did not contain a detailed outline of procedures or processes that would be implemented to present future occurrences," according to the agency.

The FDA also noted that the failure to properly monitor its investigations was a repeat violation, since the agency had sent a similar letter to the company after a 2005 inspection that showed widespread overdosing of study subjects."

Pharmacaeutical Outsourcing - Another Shot Across the Bow

I admit freely that I have been fascinated by the topic of outsourcing in the life sciences sector, especially the pharmaceutical group. (Larry actually thinks it’s unhealthy, but, I think he worries too much.) So, when the New York Times (NYT) recently published a report (http://www.nytimes.com/2009/02/19/business/19clinic.html?emc=eta1 ) discussing an article (http://content.nejm.org/cgi/content/full/360/8/816 ) in the latest issue of The New England Journal of Medicine (NEJM) about the outsourcing of clinical trials offshore and the issues that are raised by this.

The NEJM and the NYT focus more on the ethical and safety concerns raised by these practices. I won’t rehash what they wrote, Natasha Singer’s article in the latter is an excellent piece of reporting and when you have the time, read the original NEJM article. Despite being written by several medical academics at Duke University, it’s a very readable article for the layperson. (I offer myself as proof.)

I want to focus on the economic and business aspects of this practice. (OK, I admit it, I’m a capitalist.) While there are some questions about the statistics used, there is definitely a trend to move clinical trials offshore. Despite protests to the contrary, I suspect that pharmaceutical companies feel that there is less FDA oversight and other forms of government regulation when they move offshore. Also, some of the countries selected may prove to be somewhat less litigious than American trial lawyers tend to be.

Lower costs, the perennial reason for outsourcing and offshoring is certainly another good reason for doing so.

But, what are the long term implications for the US pharmaceutical industry? Once again, we see a key US business differentiator that contributed to past American supremacy in the global drug industry being packed up and sent offshore. Besides the jobs lost, the early access to innovative treatments lost to Americans and the potential to enhance these differentiators are gone.

The major long term consequence is that US pharmaceutical manufacturers are assisting in the development of future competitors. The FDA should also stop and think about this for a bit. Once the genie is out of the bottle and new drugs are being developed, tested, and marketed abroad in a big way, the FDA is not going to be able to control policy as they have in the past.

In my recent blogs, I’ve been talking about changes in the life sciences sector and their long term implications. In particular, I’ve been hammering Big Pharma about the similarities to Big Auto. We’re seeing more evidence with this NEJM article. By itself, it’s not earth shattering. But, taken with everything else that’s going on, the future doesn’t look good for Big Pharma.

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

FDA Section 912 -- A Bonanza or Distraction to Big Pharma??

Larry and I have repeatedly blogged about the declining state of Big Pharma’s pipeline and their poor future prospects. I’ve been curious, what happens next? Where does Big Pharma go to keep its revenues and earnings growing? There is an obscure FDA amendment that may potentially provide a net incremental revenue source for the industry.

Recently, the National Health Alliance (NHA), a nutritional health community political organization, published an article entitled Stealing Nature’s Thunder, Will Big Pharma be allowed to monopolize natural nutrition? (http://www.nha2004.com/index_res.asp?w=1280&h=800 ) expressing concern that large pharmaceutical companies could stake out exclusive turf in natural compounds and food supplements by simply conducting clinical trials. This move is not without precedence already and likely can be expanded so that "everyday" remedies become prescription and/or more regulated. To a public already suspicious of the drug companies this is just adding fuel to the fire.

Section 912 is contained in the Food and Drug Administration Amendments Act of 2007 and is viewed with considerable suspicion by the health food industry, their customers and supporters because it could permit natural compounds to be treated, and regulated, like drugs. The article mentions substances like oat bran fiber, fish oil, probiotics, CoQ10, and various vitamins, minerals, and herbal products which could move into the captive orbit of Big Pharma.

This article caught my eye because I’ve been trawling the Web and media for ideas about what pharmaceutical companies could do next to supplement their vanishing pipelines. Section 912 could be used by drug companies to extend their reach, or is it grasp, over substances traditionally viewed as natural remedies.

Companies with strong research and development groups and marketing, not to mention legal staffs, would probably benefit most from this type of move. Of course, if traditional purveyors of these natural products could find themselves at a disadvantage if they find themselves in the cross-hairs of the Food and Drug Administration (FDA). Not having the aforementioned resources would place natural remedy providers at a considerable disadvantage.

I think that we’ll see more activity in this area as we move into the next decade. The usual practices of buying up competitors, after having their purchase prices driven up in bidding wars, laying off workers, consolidating operations, and then rolling jobs offshore will probably be in use.

OK, now here’s the catch, what does Big Pharma know about natural remedies? Not a lot, I’ll wager. Some of the cynics out there among you may say that they don’t know much about the drug industry either. This will turn out to be yet another distraction from Big Pharma’s core businesses. Further, given the new administration in Washington, D.C., rolling over a successful, American industry, wrapping it up, and then rolling it offshore probably won’t make many new friends there. So, maybe this won’t come to play, but, the moths can’t seem to help themselves as they are drawn to the flame.

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

Obama’s Won, Now What?

OK, I’m getting ahead of myself, but only by a little. I understand that I have to wait for the votes to be cast and then counted for the rest of the world to know what I do today – Barack Obama will be the next President of the United States.

I’m going to leave the significance of this momentous event to the historians and the pundits. I want to talk about what this means to the people who read this blog. What happens to the Life Sciences/Pharmaceutical Industry now that we have a new Democratic President? Actually, a lot depends on what happens in the Congress and the Senate. If the Democrats can achieve a filibuster proof majority in both Houses then President-elect Obama is sitting in the catbird seat. Without these, a lot’s possible but it won’t be as easy.

Let’s start with Big Pharma. In my last blog, I forecast tough times ahead, if not an actual overhaul of the business model:

We may see a very significant decrease in private funding of major new drugs.

Mergers or acquisitions? Especially with target companies valuations falling? Not likely, unfortunately, given the state of the markets, mergers and acquisitions, except in the financial services industry, are practically nonexistent.

New drug pipelines that are already running dry. The FDA has not exactly been setting records for new drug approvals despite record R&D spending by Big Pharma. Are we to believe that the promised "new regulations" will help or hinder FDA cycles--we would strongly suggest that things will get worse for a while and approvals will be even more difficult and slower.

We think that 2009 will probably show declining revenues for the major drug companies, dramatically so if the ambitious plans for universal health insurance and concentration of buying power occurs--in fact Obama may be a breath of fresh air here compared with the McCain campaign promises (more like threats) toward big Pharma. Profits will depend on how well they manage their cost cutting programs. I won’t even go into what the foreign exchange markets’ impact could be.

Next, let’s talk about outsourcing companies. Here the damage may be even bigger than just the pharmaceutical industry. With a new President talking about giving preferential tax rates to companies that bring jobs back to America, folks might not be so quick to outsource/offshore jobs as they once were. (Remember that filibuster-proof Congress?). The other side of that equation is the possibility that R&D done offshore certainly will be more cost attractive and therefore may still be compelling.

Now, let’s talk about consulting firms. These guys are normally pretty good at playing it whichever way it lays. There is a unique problem this time, two things are working against them:

First, I don’t think the drug companies have figured out what to do next. They won’t spend until they do.
Second, with cost cutting (efficiency) programs being put in place as a response to declining revenues, there is another good reason not to spend money on consultants without laser4 focused projects. So, there is another industry segment could be in for a hard time.

This will be my final blog entry before Election Day. Assuming I’m right about the outcome, we’ll have a lot to talk about in the next few months. If I’m wrong, I’ll get over it and figure out what could happen next.

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

What’s Going to Happen after Election Day?

Less than a week to Election Day. I’m going to stick my neck out, Larry loves it when I do, and predict that it’s going to be Obama. Not exactly good for McCain, but, he only has himself to blame. He neglected to notice that the Cold War was over. But, there will be bad news for others, such as Big Pharma. (OK, there probably would have been bad news even if McCain won.)
Earlier, I had written about how neither of the two candidates would be good for the drug industry. I wasn’t the only who thought so. In fact, I recently came across an opinion article in the online edition of The Wall Street Journal , WSJ.com - Opinion: How Obama Would Stifle Drug Innovation, by a Dr. Scott Gottlieb outlining how Obama’s policies could curtail drug research.
Dr. Gottlieb presents the proposition that in order to pay for affordable medical care for younger people, Obama would have to introduce controls over newer, more effective drugs for diseases such as cancer. While I agree with him that the next administration will attempt to rein in drug prices, I’m a little skeptical about a new front opening up in the ongoing generational conflict.
I do subscribe to the argument that preventative healthcare can lead to reductions in the incidence of diseases such as diabetes. We’ve been told for years that not smoking reduces the likelihood of lung cancer and emphysema. Reduce or eliminate the illness and you eliminate the need for expensive treatments. Funding improved healthcare for younger people can avoid more expensive solutions later on. Not to mention the improved quality of life for those concerned. To say nothing of the improvements to the American landscape afforded by a major reduction in obesity.
I also have reservations about the idea that drug companies should charge whatever the market will bear for their drugs. If tomorrow someone discovers a cure for AIDS, does anyone really think that they would be permitted to charge whatever they wanted? Third world countries have already been breaking drug patents when they felt that public need outweighed the profit motive. Precedent exists for this. Defense contractors have been limited to “fair” profits for their products in time of war.
The success rates for new drugs mentioned by Dr. Gottlieb seem to suggest that the current model of private funding may have outlived its usefulness. Great risks require great rewards. I think that I’ve already shown that great rewards are going the way of the dodo bird. If government funding can split the atom, send a man to the moon, and, maybe, just maybe, avert another Great Depression, then finding a cure for cancer may not be beyond the realm of possibility.
Whatever happens after Obama wins next week, Big Pharma’s days of unchallenged domination of drug development are numbered. In fact, they may devolve into generic manufacturers of products developed by government research programs.
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