The Rise of the Chinese Mega Pharmaceutical Company

If there was any doubt that the growth of the pharmaceutical industry is moving to Asia, there is nothing more concrete than the following showing Harbin Pharmaceuticals new Headquarters building shown in this link:

http://ibankcoin.com/news/2011/09/10/shock-photos-china-rubs-transfer-of-wealth-in-americas-face/

While controversial in its opulence, there is no mistaking the increase in both demand and meeting this demand with home grown Chinese businesses, for example, here is some interesting information from Harbin's website which amply demonstrates that this is a serious competitor on the horizon both in the region and potentially globally:

Harbin Pharmaceutical Group Co., Ltd. is a state-owned joint venture after restructuring through capital and stock increases in 2005. It sets up two public companies listed on Shanghai Stock Exchange (i.e., Harbin Pharmaceutical Group Holding Co., Ltd. and Harbin Pharmaceutical Group Sanjing Pharmaceutical Co., Ltd.), and 27 wholly-owned, holding and joint-stock companies. The registered capital totals 3.7 billion yuan, the total assets amounts to 14.65 billion yuan, and the ownership interests reach 8.96 billion yuan. Staffed with total 18, 382 employees, the Group has 12 affiliated pharmaceutical companies. 
　　Harbin Pharmaceutical Group Co., Ltd. integrates pharmaceutical manufacturing, trade, and scientific research as a whole, covering the seven industrial fields of antibiotics, chemical pharmaceutical preparations, non-prescription drugs and health-care products, traditional Chinese medicines, bioengineering medicines, animal vaccines and veterinary drugs, and pharmaceutical circulation. Its products are of more than 1,000 varieties, over 20 kinds of dosage formulations, and 7 major series, involving antibiotic bulk drugs and powder for injection, Chinese patent drugs, Chinese medicine powder for injection, and comprehensive preparations. The Group has an annual output capacity of 13,000 tons of antibiotics and intermediates, 3 billion of western medicine powder for injection, 400 million of point injection, 20 billion of tablets, 12.5 billion of capsules, 3 billion of oral liquid, and 45 billion of animal vaccines. The affiliated manufacturers of the Group have all passed GMP certification, the main circulation enterprises, GSP certification, and General Pharmacy Factory, Sanjing Medicine Co., Ltd., and some other subordinated enterprises, the certifications of ISO9001, ISO14001 and OHSAS18001. Harbin Pharmaceutical Group Co., Ltd. has established more than 130 sales offices spreading over 30 major cities in the country and 200 retail chain pharmacies to form the marketing network with wide coverage and strong functions.

Source:  http://www.hayao.com/Corporation/hpgc.asp?cInfoId=194&dInfoId=259

More to come as we discuss the inferences for the industry

Harbin Pharmaceuticals New Headquarters Building

Fellow Travelers

After several weeks of visiting various websites for pharmaceutical companies and their front organizations, I’ve gotten a little tired of reading the same old, same old over and over again. To recap for those of you joining late, I’ve been out on the cyberhighway visiting Big Pharma’s and their trade groups’ websites looking for any sign of their being aware of the impending financial disaster about to overtake them. Needless to say, I haven’t found much.

I’ve always thought that I was reasonably knowledgeable about what goes down in the life sciences industry. But, I’ve been shocked by the sameness of the various sites that I’ve been visiting and the total lack of any sense of awareness of the industry’s impending problems.

I spent some time with Larry this week going over the results to date. We feel that we’ve done sufficient research so far and don’t think that blogging about additional site visits are going to add much at this time and we don’t want to run the risk of boring our readers. So, we’re going to change our approach a bit. We’d been planning this anyway but we’re going to speed things up a bit. (But, if any of you out there are aware of any pharmaceutical sites that we should visit, please send them in.)

Starting this week, we’re going to start looking for the analysts and other industry pundits are saying. We also want to go back and do something that we haven’t done for a while – live interviews with some people whom we’ve met with before.

This week while doing my research, I came across Derek Lowe’s Seeking Alpha website (http://seekingalpha.com ) and an article that he wrote titled Big Pharma’s Future Death Spiral (http://seekingalpha.com/article/162227-big-pharma-s-future-death-spiral ). The author summarizes and comments on a presentation called The Pharma Titanic: It's Time to Root for the Iceberg given by Stefan Loren of Westwicke Partners, a Baltimore based financial firm. (What’s with all these Titanic analogies?) Stefan does a very good job of hitting on the major issues confronting Big Pharma. In particular, he not only discusses the vanishing product pipeline issue but goes into how poorly new product research and development have been managed. Derek’s comments are also very good. I recommend visiting the site and reading the article.

I came across another interesting link to Stefan’s work (http://www.chemoutsourcing.com/ChemOutsourcing08final.pdf ). The link shows a Powerpoint presentation entitled Is the Pharmaceutical Industry Exposing Itself to Unacceptable Risk by Expanding Offshore Outsourcing? The presentation is a very good summary of current trends and future outcomes. And, while not all gloom and doom, Stefan hints at a very different future.

I’m encouraged by articles like these because some people connected with the industry don’t have their heads in the sand. (Although, they generally don’t work for pharmaceutical companies.) We’ll continue to seek out these folks and hope to visit with some of them in the future.

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

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

I Now Understand Why the Titanic Hit the Iceberg

Since I began this journey across the Internet looking for Big Pharma’s story about how they’re viewing and dealing with the issues coming at them. To date, what I’ve found has not been very encouraging. The industry seems oblivious to the threats heading its way. I’m reminded of the RMS Titanic sailing along in the dark, oblivious to the lurking iceberg until, wham! , impact, and we all know what happened eventually to Leonard DiCaprio.

Larry suggested that I visit some of the smaller firms to see if the same lack of concern is prevalent. That’s where we’re going this week.

I started with one of the generics, Teva Pharmaceutical Industries Ltd. (http://www.tevapharm.com/ ). OK, they’re one of the threats, but, I wanted to see what their view is. Interestingly, it’s not terribly different from the larger pharmaceuticals’ and industry associations’ websites that I’d visited earlier.

There is one significant difference between Teva’s website and the others visited. That’s a page (http://www.tevapharm.com/about/generic.asp ) that gives a fairly good summary of what the generics industry is all about. But, nothing gives a clue about the competitive threat that generics present to Big Pharma. It’s almost like they’re embarrassed to bring the subject up. So, what gives?

Next, I went to Amgen’s website (http://www.amgen.com/ ). I found this site to be a bit more focused on the science behind drugs and in particular their approach to research. Their pipeline page (http://www.amgen.com/science/pipe.html ) presents the molecules (sounds scientific right?) under study and which modalities are being used. But, again, there’s not a lot about the future of the industry. The closest I came to an industry overview was a presentation to financial analysts (http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9Mzk2MzUyfENoaWxkSUQ9NDAyMjU0fFR5cGU9MQ==&t=1 ) that hints at some of the issues that I’ve been railing about for months. But, that’s about all that I get.

I understand that publically traded companies have stock exchange and SEC rules about what they can say, how they say it, and when they say it. Yet, the cookie cutter approach that I’ve seen across various websites visited so far is inexplicable to me. I’ve heard the joke about how large corporations all use the same consultants hence they’re all alike. I just never thought that it would be true. If their websites are all alike then what about their strategies and business models?

Everything that I’ve seen so far only reinforces to me the storm which is waiting to break over Big Pharma. Momentum, or, is it inertia, seems to be drawing the pharmaceutical industry into a Black Hole from which there will be no escape.

I’ll be looking for more behind this story in future blogs and continue looking for evidence of coming demise of 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

Still on the Cyberroad

I’m still on the cyberroad looking for Big Pharma’s story. Larry made a very telling observation when I sent him my last blog for his editorial review (You didn’t really think he lets me post a blog without some form of adult supervision now did you?). He found it interesting that these companies weren’t talking about their survival.

He’s right. That’s what’s been missing here for me. Big Pharma isn’t showing any evidence that they think they are in trouble. Despite what has happened to the U.S. mainframe computer and auto industries, to name just a couple of recent, high profile examples, Big Pharma seems oblivious to what’s going on around them. I once read that Hegel, the German philosopher, had said that history repeats itself as tragedy reenacted as comedy. In which case, Big Pharma may be getting an Emmy soon for the sit-com that they’ve got in the works.

What I’ve seen so far on my journey reminds of the teams in the NFL. The team colors, the players’ names, and the hometowns are different but they’re all playing the same game by the same rules and everything always looks vaguely familiar. That’s what is most unsettling for me in this blog series.

This week, I visited Bristol-Meyers Squibb’s (BMS’s) website (http://www.bms.com/pages/default.aspx ). Another nicely done coding job, doesn’t have some of the flash of Merck’s (http://www.merck.com/ ), but, it does the technical job. I just didn’t get a sense of anything being amiss. I know I’m not the only one who feels that there’s trouble brewing in the pharmaceutical industry. (And, there are others too besides Larry who agrees with me.) Here’s another example of that complacency.

BMS’s pipeline (http://www.bms.com/research/pipeline/Pages/default.aspx ) looks like they’re keeping busy. I can’t comment on the specifics. But, I do promise that I’ll come back at some future date and look at these pipeline pages and see what it all means. Like for example, how much redundancy is there across all these pipelines? Another question, what types of markets are there? Finally, who’s going to pay for all these drugs?

When I look at sites like these, I see buzz words like big and small molecules, and biopharma. Everyone wants to take care of everyone and make them all well again. The altruism is stifling.

Please don’t get me wrong. I’m not writing this blog to be negative. I started out in search of originality and so far I’m coming up empty.

In future blogs, I’m going to visit a few more pharmaceutical companies before I go down a different path and look for some of the analysts and other commentators on the industry to validate my findings and see if I’ve missed something somewhere. Likewise, my beloved readers, please send me any links that you feel I should check out as I continue my journey looking for Big Pharma’s story.

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

First Stop – Hey, I Didn’t Get too Far

As our readers may recall, I’ve begun a journey across the Internet looking for evidence from Big Pharma that there really is a good story out there for them and that they’re just going through a slump right now like everyone else. Well, imagine my chagrin when I found myself back at where I first started, Pharmaceutical Research and Manufacturers of America (PhRMA) (http://www.phrma.org/ ), one of Big Pharma’s lobbying groups.

On Wednesday, August 25, 2010, I caught a segment about drug prices on ABC World News with Diane Sawyer (http://abcnews.go.com/WN/cost-brand-drugs-soars-hurting-elderly-americans-fixed/story?id=11478210 ). The story was based on a recent AARP report (http://assets.aarp.org/rgcenter/ppi/health-care/i43-watchdog.pdf ) which stated that the prices of brand name drugs used by elderly Americans were increasing more rapidly than inflation. The correspondent cited that such drugs rose in price by 41.5% in the five year period from 2004 to 2009 while the Consumer Price Index rose by 13.3%.

Now, here’s where it starts to get interesting. ABC asked for an interview with PhRMA and was refused. Submitted written questions were ignored. But, PhRMA did issue a statement, and I’m quoting directly from ABC here, “called the AARP report "distorted and misleading" for not including cheaper generic equivalents which account for 75 percent of prescriptions filled.” Did you get that? Big Pharma’s lobbyists are taking credit for lower drug prices because of generics! You can’t make this stuff up.

I went to PhRMA’s website to see this for myself (http://www.phrma.org/news/news/phrma_statement_aarp_report ). One thing I want to do is to thank ABC for clarifying PhRMA’s statements because I had to read it about half a dozen times before I understood what they were trying to say. The report even claims that increases for drugs were the lowest since 1961. I didn’t go back and check their sources and I can only speak anecdotally about what I hear going on around me with family and friends and I have a hard time with that.

This is where I start to question the long term viability of Big Pharma as well as their ability to get out of their own way. I’ve blogged before about the threat of generics to Big Pharma’s brand name drugs. Check on Google and you’ll find many links to this topic. This was a factor in Big Pharma’s future even before there was a World Wide Web. Now, when their backs are to the wall, they justify themselves by citing the lower prices of generics. Are we seeing a shift here? Is Big Pharma moving to a commodity type model? Might we see more consolidation in the pharmaceutical industry? Could possibly Big Pharma not realize this themselves? Follow my journey for the next several weeks and we’ll see.

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

Pharmservices Blog Named among Top 10 Pharmaceutical Blogs in the World!

We have been informed that the blog "Pharmatching" based in Germany had selected our blog included on their “Best Pharma Websites List”, the 10 top sites in their opinion. This marks the second time in two years where our blog has been cited as among the best in the world - we are truly humbled.

The entire list can be seen at https://www.pharmatching.com/blog/2010/08/the-best-pharma-life-sciences-biotech-websites-part-1/ . Pharmatching wrote of us:

This Blog discusses issues related to the politics, finance and technology and their impact on the industry. Always great thoughts and interesting views.

We would like to thank both Pharmatching and you, our readers, for following us and letting us know that we’re adding some value. Additionally, much of the credit for the high quality of our blog is due to my colleague, Guy de Lastin. Guy has continued to provide thought provoking, well researched articles that have attracted many to our blog.

We’ll continue to write about Big Pharma and the challenges that the entire life sciences sector faces. Stay tuned as we go out onto the Web to see what Big Pharma is actually saying about themselves in our next series of blogs.

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

Larry

More Visits to Big Pharma

In my last blog, I went looking for Big Pharma. I came across one of their lobbying groups, Pharmaceutical Research and Manufacturers of America (PhRMA) (http://www.phrma.org/ ), and didn’t find much of a story. So, I decided to head over to the other major Big Pharma lobbying group, Biotechnology Industry Group (http://www.bio.org/ ), and see what they had to say.

I found another site without content, at least relevant to an explanation of how an industry will grow out of its slump. The site is busy with all the de rigueur flash for a modern website. Although, I didn’t see Twitter, Facebook, or any other social media application. (But, I’ll bet they’ll be there soon.)

Like PhRMA’s site, there’s a lot going on but no general theme. One link looks suspiciously like a paid advertisement. Overall, this site reminds me of the saying that a horse is a camel designed by committee. There’s something for everyone. The prerequisite “green” sections are even there but don’t seem to tie together.

This is what I think is wrong with Big Pharma today. There is no direction. Everything is reactive, trying to please whomever the particular gods of the moment happen to be. Let’s hope they don’t get the idea that human sacrifice is needed. Nope, sorry, it’s been done. Just look at the layoffs of all the talent from many major pharmaceutical companies over the past several years. They’ll soon find that their best and brightest have been sacrificed to false gods as others have found throughout history.

I’m starting on a journey with this series of blogs. I’ll be traveling around the Web looking for Big Pharma’s story in its own words. But I want to get past the publicists’ hype. If you read the blurbs coming out of the executive suites, everything is fine. Pipelines are strong, healthcare reform is a non-issue, and on and on. I’m reminded of what IBM dispensed from Armonk when John Akers was still in charge.

My trip will go past the type of sites that I’ve been to lately. I’ll be looking for the real story because I know it’s there. Big Pharma is an industry in a state of flux as this blog has been reiterating since its inception. I believe that time is running out for Big Pharma. They’re going to hit the proverbial “tipping point”. Yes, the coffers are still full of cash, but revenue is beginning to sputter, and while cost cutting can keep the bottom line looking healthy for a while even a first year investment analyst knows that game gets played out eventually.

So, keep an eye on this blog as I go in search of Big Pharma’s future.

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

Visiting Big Pharma

For those of you who have been following my blogs (and Larry and I are grateful to all of you, feel free to refer us to your friends), you know that I talk about “Big Pharma” a lot. Sometimes I think I get a little carried away and give folks the impression that Big Pharma is a group of people who get together in Starbucks for a latte every once and again.

I’m not sure anyone has an exact definition of who or what is in Big Pharma and it’s probably a lot like the one for art – I’ll know it when I see it.

So, I went looking for Big Pharma. Who knows, I thought to myself, maybe I’ll end up with a latte.

Stopping at one of my favorite Web research tools, Wikipedia (http://www.wikipedia.org/ ), to see what I could find I went looking for this nebulous group. Well, it turns out that there’s an entry and I’m happy to say Big Pharma is alive and well if not drinking lattes. Interestingly, keying in “Big Pharma” in the Wikipedia search field yields, drum roll please, the “pharmaceutical lobby.” I have to admit that for the all the advertising money that Big Pharma spends they’re really ought to look for some better talent if this is the best that they can get for their money. (Larry, maybe you should think about coming out of retirement, there’s money to be made here.)

According to Wikipedia, the top twenty pharmaceutical companies are represented by two trade groups, an expensive way of saying lobbyists. Being the wanderer that I am, I visited one of these trade groups’ websites. I selected Pharmaceutical Research and Manufacturers of America (PhRMA) (http://www.phrma.org/ ). I must admit I was somewhat underwhelmed. Here’s why.

The site has all the requisite bells and whistles that are expected these days, Twitter, RSS syndication, electronic newsletters, even Facebook. What I couldn’t find a lot of was content. Oh, sure, there were many words. But, I couldn’t escape the sense that this was a very defensive site. (Spoiler alert – here’s where I go into my spiel about Big Pharma going away.)

PhRMA’s mission statement on the site says their goal is “is to conduct effective advocacy for public policies that encourage discovery of important new medicines for patients by pharmaceutical/biotechnology research companies.” What does that mean? Seriously, I’m not playing dumb here. I feel that they are trying to be all things to all people with this site.

If Big Pharma is really introducing new products and driving for revenue growth then why all the self justification? Does Big Pharma know something that we don’t?

Tune in next week for the next installment of my blog.

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 – More Doubts

If you’ve been following my blogs lately then you know that I’ve announced the end of Big Pharma as we know it and since I’ve been trying to prove it. When I started this series, I thought that this might prove controversial but as I’ve been researching and blogging, I’ve come to realize that I’m probably not alone here.

Another point that I’m realizing is that some of these warning signs have been around for awhile. Maybe not with billboards and newspaper advertisements but the signs are there if you look closely enough. (Larry does say that I have too much time on my hands.)

For example, while researching, a fancy way of saying surfing the Net, I came across a report on the Federal Trade Commission’s (FTC’s) website (http://www.ftc.gov/reports/pharmaceutical/drugexsum.shtm ) entitled The Pharmaceutical Industry: A Discussion of Competitive and AntitrustIssues in an Environment of Change. The report is dated June 25, 2007 and is meant to address possible antitrust practices but I believe is a clue to how Big Pharma’s practices will work against it in the long term. Also, note that this is over two years before healthcare reform legislation was passed and even before most people even thought that Barack Obama had a chance of becoming President of the United States.

The report notes four changes in the pharmaceutical industry and discusses them from an antitrust perspective. I don’t wish to blog about that but what these changes mean to an industry that’s going through a period of elimination and consolidation.

First, the report notes that information technology is becoming a driver of competitive advantage for drug companies. My take is that early innovators who can make the big investments here will pull ahead of their competitors.

Second, the authors make the point that pharmaceutical companies could then segment their pricing strategies to different categories of users because of this technology. Here’s where I feel that since these buyers will be either the government or medical insurance providers that this will work against the drug companies. As I’ve blogged before many times, the drug companies can’t squeeze their suppliers and employees for cost reductions without the same ultimately happening to them. What goes around comes around.

The final two points discuss the antitrust implications of vertical and horizontal consolidations. These points are indications of an industry going through shake-out and consolidation. There’s no rocket science here. Go back to the nineteenth century when the first trusts were being established in the railroad and oil industries to see some of the first examples.

These points are interesting and I’m not the report’s authors thought about it the way that I am. But, I feel my points are valid. Please check the report out for yourself and let me know your thoughts.

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