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

Big Pharma – When Will the Music Stop?

My recent blog series on Barron’s article on Big Pharma (The article is available online only for subscribers, a short preview is available at http://online.barrons.com/article/SB50001424052970203296004575320891909686872.html .) got me thinking about what’s going on with Big Pharma. Looking at the company level gives one picture, the day to day struggles of individual companies. Sometimes looking at that level misses the bigger picture.

Stepping back from the company, we arrive at a level where the seismic forces at play with Big Pharma can be observed. Geologists are fond of saying that North America and Europe are slowly moving towards each other again. And, if we all live long enough, say a couple of hundred million years give or take, then we can see it. (Larry won’t be able to get all those frequent flyer miles anymore.) Fortunately, or unfortunately if you’re either Big Pharma management or its shareholders, we’re not going to have wait nearly as long to see the end results in the pharmaceutical industry.

Whatever comes out of this process on the other end will be very different from what came in at the beginning. I’m predicting the end of Big Pharma. Yep, you heard it here first folks. Big Pharma is going away. No, pharmaceutical companies will still be around. But, the corporate behemoths that strode the Earth invoking hope and fear among all who laid eyes on them will be gone like the Olympic gods of yesterday.

I have two observations about this.

First, many are still in denial about what’s going on. Like Andrew Bary in his Barron’s article, they’re not seeing the big picture. Moody’s recent downgrading of its earnings expectations to negative for Eli Lilly (http://www.fiercepharma.com/story/moodys-cuts-outlook-eli-lilly-negative/2010-05-24 ) recognizes the current problem but still misses the future ones. The myth of long term earnings improvements is based on the myth of the future drug pipeline. It never ends! Whatever happened to provocative business journalism and rigorous financial analysis?

Next, what replaces Big Pharma? I still believe that fragmentation and geographic dispersal will result from the changes that are underway. There is historical precedent for this. Remember IBM and DEC? Once upon a time they dominated the computer industry. In fact for one brief, shining moment, IBM had it all. Then the personal computer and local area networks came along and, poof, the magic was gone. Not only that, but many of the personal computer players came and went even more quickly. And, now? Now, Lenovo sits in China with the remnants of IBM’s personal computer division. All that in about a generation.
Take a look at a blog (http://stocks.investopedia.com/stock-analysis/2010/playing-big-pharma-with-cros-crl-prxl-ppdi-mrk-kndl-cvd-iclr0706.aspx ) about contract research organizations (CRO’s) that I’ve come across recently and you may see some of the same trends unfolding with pharmaceuticals.

So, how long do you think it will be before some of those big, corporate campuses owned by Big Pharma in New Jersey are going to be subdivided and leased out to the start-ups of their now unemployed corporate occupants?

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 – 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 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 Shot Across the Bow II

This week, I’ll be continuing 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 have taken a somewhat contrarian position to Andrew’s. Here are the rest of my comments.

Andrew chides the bears’ position about drug stocks and then proceeds to review a number of pure drug play stocks. Along the way he nods toward the bulls by telling them to take Warren Buffet’s (whom I think is living on his reputation for a while now, be careful of financial advisors who raffle off lunch with themselves for charity). But, honestly, every racetrack in the country has touts giving the same advice on how to play the ponies.

Andrew’s comments about Merck don’t really provide any insight on why there should be hope for a change anytime soon there. He talks of “promising” drugs acquired in the Schering-Plough acquisition and Merck’s “historically…productive labs”. Again, no new insights. Every stock prospectus ever issued (at least since the SEC’s been around) says that past performance is no guarantee of future performance. So, why should any of this make Merck a better investment. Then there’s the projection of a potential stock price in the mid-40’s from today’s 36 per share “if the pipeline pans out”. That’s a nice, safe, long term projection that is so far out that it should be perfectly safe to make. Also, it doesn’t do too much for an investor today.

Next up, my man Andrew tackles Sanofi. He gets it right about this being “underappreciated” but it’s where he goes from there that I disagree with. His faith in their drug pipeline seems to be based primarily on the CEO’s blandishments. Again, Andrew gets it right about the immediate challenges that this company faces but looking past 2013, he thinks things could be wonderful. Why? Because of their “vaccines and insulin products”. What type of margins will these products have? They sound like the type of products that national healthcare programs would pay for. The same programs that are playing hardball on pricing. I don’t know where Andrew plans on being a few years from now, but, I’ll wager it won’t be at Barron’s.

Pfizer and Novartis are the next drug stocks reviewed by Bary. He’s not as optimistic about the former, reality has to set in sometime, and with the latter, he gives a rosy forecast for 2015.

I’ll have more to blog about this article in my next blog. I find it rather disappointing that a major publication like Barron’s can expend as much printer’s ink as they did for this article and it doesn’t really add anything new to the debate.

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

I don’t often get worked up over other writers’ work but a recent cover story by Andrew Bary in Barron’s about the rosy prospects for drug stocks set me off. (The article is available online only for subscribers, a short preview is available at http://online.barrons.com/article/SB50001424052970203296004575320891909686872.html . By the way, a subscription to Barron’s online edition is a very cost effective, environmentally friendly thing to do. Both Larry and I subscribe.) Here’s what got me going.

Andrew’s premise is that far from being dead, Big Pharma is on the cusp of a resurgence that could see some stocks rise by 30%. OK, now, those of you who have been faithfully following this blog know that I think anything but that about Big Pharma. The article was to me nothing more than a compilation of Big Pharma press releases. Sorry Andrew.

Let me explain why I feel this way. And, in fairness to Andrew, I’m not disputing his facts, I just see things differently, very differently.

First up, Andrew writes of the shift to vaccines and biologics. No argument there but will the profit margins be there? Also, given where healthcare reform is headed in this country and the budget shortfalls for many governments around the world (e.g., Greece, Ireland) how much money can actually be made here? Then there’s competition. What will happen when all the major pharmaceutical companies pile on? Profit margins will only get thinner. Biologics sound expensive and with their apparent manufacturing complexity can manufacturers really handle this and still make a profit?

Next, the writer quoting an analyst implies that drug stocks may be at their lows. I’ll admit that contrarianism would make the case that a buying opportunity may exist here but I don’t believe so. Contrarianism can’t trump fundamentals. (There’s a PhD dissertation in here somewhere.) And, the fundamentals aren’t good here.

Then, the dividend argument is played. (The older I get the more I can’t believe how these old bones keep getting gnawed.) Yes, dividend payouts are high for some of these companies. The argument is given that cash flows are strong. Yes, they are today but what about tomorrow when they dry up and cash balances are drawn down. Unless of course, some bright spark decides to borrow to continue paying those dividends. Shareholders of General Electric, and General Motors once used to look forward fondly to those quarterly dividend checks which don’t come anymore or are far smaller than they once were.

I’m not finished here. I’ll be back in the next several blogs to continue to dissect this article because I feel it needs to be put into perspective.

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

Europe – Big Pharma’s Next Big One?

Lately, Big Phama hasn’t had much in the way of good news. And, I’m afraid that this week’s blog won’t do anything to improve that impression.

The European Union’s (EU) recent problems with its Euro currency and fiscal problems in Greece and other smaller countries will only continue to put pressure on the profits of drug companies.

A recent article by Stephen G. Brozak and Lawrence F. Jindra, MD, How the Euro’s Woes Could Impact Health of Biotechnology, the Pharmaceutical Industry and the Average American, (http://wbbsec.com/index.php?option=com_content&view=article&id=140:how-the-euros-woes-could-impact-health-of-biotechnology-the-pharmaceutical-industry-and-the-average-american&catid=58:news-articles&Itemid=80 ) highlights the impact of foreign exchange losses on overseas revenues in addition to lower sales because of straining national healthcare systems. One point that I disagree with them about is when they say that life sciences companies will have to raise prices in the U.S. to offset foreign losses. I don’t think it will be that easy. First, American insurance companies and government providers won’t roll over and take price increases without a fight. Next, the U.S. consumer is still having a rough time. Household and disposable incomes are recovering (some economists would argue that they are in a cyclical downward trend with no end in sight) so those price increases may only drive more customers away.

I suspect that the various EU national healthcare systems will probably take advantage of their control over drug and other medical products to not only reject price increases but to roll prices back. At a minimum, they may just decide to restrict the quantities purchased. Even the Indian Ministry of Commerce is forecasting difficult times ahead for its country’s drug industry (http://pharmexcil.org/data/media_files/Indianpharmaexp_media_file_266.pdf ). Not a good outlook for the global healthcare industry.

Another interesting point from Brozak’s and Jindra’s article is that the number of small biotechnology companies, the engines of new drug development, have decreased from 400 in 2009 to 300 in 2010. They hint at the impact on future revenues when the pipeline is drying up.

Unfortunately, for a while now, I’ve been somewhat negative about prospects for the life science’s industry. We are continuing to see fundamental changes in this industry as it downsizes after at least a generation of outsized growth which wasn’t sustainable. I’ll continue to blog about what’s happening and where this all may be going.

Flashback: I just want to reference back to a prior week’s blog on Offshoring – Gone Too Far? Recently, MSNBC carried a story by Christopher Bodeen of the Associated Press (http://www.msnbc.msn.com/id/37624923/ns/business-world_business/ ) about ongoing labor unrest in China by workers seeking higher wages. Apparently, some are seeking pay increases up to 20%. Let’s see what that does to the offshoring trend! I’ll keep an eye on this developing 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

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

Offshoring – Gone Too Far?

One question that Larry and I get all the time is when do we think the offshoring trend will reverse and all those jobs will start coming back home to the U.S.?

Well, we don’t have a date but we think we’re seeing some signs that we’re close to the high tide mark.

Earlier, we blogged that when the cost differential between manufacturing in this country versus overseas begins to narrow the offshoring incentive will begin to disappear. We may be getting close to this event.

Recently, the media have been full of stories about worker suicides at manufacturing facilities in China because of low wages and poor working conditions. In particular, Foxconn Technology, manufacturer of iPhones and iPads among many other globally recognized brands has been receiving a lot of attention. See Elaine Kurtenbach’s Associated Press article from MSNBC for a good write-up (http://www.msnbc.msn.com/id/37436341/ns/business-world_business/ ).

Even the Chinese Communist Party (CCP), never particularly worried about the status of its own downtrodden masses, seems to be concerned about the current state of affairs.

I’ve always been of the opinion that global offshoring and outsourcing has been based on a fallacy. That fallacy being that global companies could always find increasingly cheaper, educated pools of workers to happily provide world class products and services. The early adopters profited from this. Latecomers either had to pay more or move onto labor forces that were further removed both geographically and culturally from consumers.

I know of one global company whose outsourcing/offshoring teams are simultaneously chasing lower wage costs eastward across Europe and westward across Asia. They’ll probably collide somewhere in Kazakhstan sometime in the next few years. And then what? (Am I the only reminded of the “greater fool theory” from Wall Street?)

The game’s over folks or it soon will be!

I predict that the United States will begin to start bringing jobs back home. There will also be hiring to offset the additional job cutbacks in the pursuit of greater profits. China and other offshore destinations are not the only ones having to deal with a troubled work force. Eve Tahmincioglu, an MSNBC contributor, wrote an article this week concerning the rise in workplace suicides in the U.S. (http://www.msnbc.msn.com/id/37402529/ns/business-careers/ ). Economic problems are blamed. But, could what we’re seeing here in this country simply be the flip side of the coin that we’re seeing in China? What happens when American workers stop fretting about their economic situation, taking it out in themselves and decide to do something about it? Unions and confrontation with management have a long history in the U.S.. Maybe that 9.9% unemployment number may start to come down.

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

Medical Devices – Sideshow Marginalization?

One morning the other day, I was rushing to prepare to leave for work (Yes, I do have a real job.) when I stopped to check The Weather Channel (http://www.weather.com/ ). Impatiently waiting for commercials to go by, I suddenly saw Andrew Thicke of Growing Pains fame (http://www.imdb.com/name/nm0005484/ ) touting diabetes testers for CCS Medical (http://www.ccsmed.com/english/index.asp ). There was something about the commercial and Alan’s spiel that reminded me of other commercials highlighting powered wheelchairs (I still can’t get that tune out of my head.) and Lee Majors’ Bionic Hearing Aids (https://www.hearingaidtv.com/ ).

If you’ve been following my recent blogs concerning what’s been happening in the life sciences industry, in particular its slowing momentum, you’ve probably noticed that I believe the wheels are starting to come off the industry’s bus. Commercials like these, admittedly not from the industry leaders, highlight this trend for me.

The direct-to-consumer (DTC) advertising campaigns of recent years seem to a new phase or maybe it’s a new low. What started as Sixties-like art films morphed into light, romantic comedy skits with side effects voice over’s thrown is as an afterthought and, now, appear to be moving into a new phase more like the Home Shopping Network (http://www.hsn.com/ ).

For me, another sign of commoditization of an industry is mass marketing on the cheap. No disrespect to either Alan Thicke or Lee Majors, but I doubt that they are earning from these product endorsements what they used to in their salad days.

I also think that this is a sign of worse to come for television viewers. In a variation of Gresham’s Law, ‘Bad commercials drive out good.’ (If there was ever anything like a good commercial.) For those requiring proof just look at what reality TV has done to television.

Once upon a time, Stryker (SYK, http://www.stryker.com/en-us/index.htm ) had television commercials that were what one might call high brow. I wouldn’t call them exactly community service but you get the idea. I haven’t seen these for a while. Maybe they’ve been pulled or I’ve lowered the standards of my television watching. Something tells me that Stryker wasn’t getting the desired bang for their buck.

So where could this trend lead? Will we one day see a cable channel dedicated to pharmaceuticals and medical devices? Will we see the television favorites of years past hyping products? Would Sally Field suit up as the Flying Nun again? (http://www.webmd.com/osteoporosis/guide/sally-field-osteoporosis-story ) Lee Majors has great brand potential with the Bionic Man. Lindsay Wagner (http://www.imdb.com/name/nm0905993/ ) could even make a comeback!

OK, maybe I’m pushing the edge of the envelope here but you get the idea. Standards are continuing to drop in the life sciences area.

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 – Back to the Future

One of my favorite quotations has always been from George Santayana, “Those who do not remember the past are condemned to repeat it.” You may ask why am I suddenly so philosophical?

Well, while preparing to write this blog (yes, contrary to popular belief, I do research for my blogs, it’s not all just flow of consciousness) I googled “pharmaceutical companies issues” and received back the usual gazillion replies.

As I started to go through the list one by one from the top (I really hope that my readers, assuming I have any, appreciate what I do for them) I noticed two things.

First, we’re not alone. The topics that we’ve been blogging about for several years now, declining profits, stagnating product pipelines, and an industry in crisis are being written about by many people. And they’re writing a lot.

Next, and this surprised me, people have been writing about this for a long time. I mean years.

Larry and I have been talking about these issues for a while now. But, it was only about when we started this blog that our thinking began to coalesce around these issues. But, there were people out there before us. Long before us.

One writer in particular, Bianca Piachaud, wrote a particularly good article (http://findarticles.com/p/articles/mi_m2242/is_1634_280/ai_85370544/?tag=content;col1 ) all the way back in March 2002 for Contemporary Review on the issues facing the pharmaceutical industry which is still relevant today. Think about that. That’s over eight years ago!

Dr. Piachaud made one particularly prescient observation that the past eight years has borne out. She noted that the unsustainability (I may have made up a word here) of pharmaceutical profits because of increasing competition from generics, government policies, and the increasing costs of finding new drugs. There is even a reference to the cost cutting programs being put into place (and which may have gotten some pharmaceutical companies into recent trouble) to try to fend off the inevitable.

I also found in this article, the first rational explanation of why the product pipelines are stagnating. Dr. Piachaud highlights the increasing diminishing returns from research as technology with its costs becomes a larger part of the work undertaken. She also notes the contributions of administrative inefficiencies and increasing bureaucracy (think of Sarbanes-Oxley and healthcare compliance costs) in lowering profits.

The unsettling aspect of Dr. Piachuad’s article is that there doesn’t appear to be any good news soon for the pharmaceutical industry. We may be moving through the middle game preparing for the end game.

Dr. Piachuad has a doctorate from the Aberdeen Business School, the Robert Gordon University, Aberdeen. She is also has written Outsourcing of R&D in the Pharmaceutical Industry published by Macmillan (http://us.macmillan.com/author/biancapiachaud ).

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 - How Much Excess Capacity Is Too Much?

Scanning news headlines earlier this week, I came across an article about Pfizer (PFE) laying off another 6,000 employees as part of its post-Wyeth acquisition cost cutting program. (See Melly Alazraki’s blog at http://www.dailyfinance.com/story/company-news/pfizer-plans-manufacturing-job-cuts/19481620/ .) Being a curious sort of guy, I went onto Google and searched for references to Pfizer layoffs. I found many other links to layoffs all over the world. Durham, NC; NYC; Plattsburgh, NY; Collegeville, PA; Ireland; and Puerto Rico were just a few of the locations that I found where layoffs were taking place.

Pfizer originally announced layoffs approximating 20,000 jobs from its Wyeth acquisition. (http://blogs.wsj.com/health/2009/10/15/pfizer-wyeth-deal-wraps-up-layoffs-to-follow/ ) This week’s announcement in addition to the layoffs announced eight plant closures and reduced operations in six others. (http://www.thestreet.com/story/10759832/1/pfizer-wyeth-combo-leads-to-more-layoffs.html?puc=tscmarketwatch&cm_ven=tscmarketwatch ) Obviously, a lot of extra capacity is being wrung out of the industry. Which could make one wonder what sort of career opportunities might exist in pharmaceuticals in the future?

Clifford S. Mintz, otherwise known as the BioJobBlogger (http://www.biojobblog.com/promo/about/ ) has written a very interesting and relevant blog (http://www.biojobblog.com/2009/11/articles/biojobbuzz/pfizerwyeth-layoff-update/ ) about what’s been happening in the pharmaceuticals industry. He maintains that the traditional vertically integrated industry model is coming to an end with new drug development coming from outside Big Pharma with only marketing and distribution functions remaining.

The points made are good ones. Previous blogs here have echoed similar feelings. What I can’t stop thinking about is where does this all lead? Recent history has taught us that the twin phenomena of the twenty-first century, globalization and the Internet, are driving out middlemen. I remember my old Economics 101 professor teaching that perfect markets require perfect knowledge resulting in zero profits. (Professor, apologies, it’s been more years than I care to remember. All errors in restating your lectures are my fault.) Aren’t the pharmaceutical companies transforming themselves into middlemen?

In my simplistic view of the world, there will be manufacturers and sellers. In order to survive middlemen will have to become large enough to take advantage of economies of scale. There probably won’t be a need for many players in this space. In fact, economic reality may dictate that will only be a small number of global players. (Oligopoly, anyone?)

Consolidation and closure of manufacturing plants with the consequential elimination of jobs is a sure sign of excess capacity in an industry. And, once those plants and jobs are gone, they won’t be coming back any time soon, particularly in the United States. Here’s why. Given local zoning and environmental ordinances in many American communities, building and running a modern manufacturing plant is an expensive and time consuming proposition.

I’ll continue to follow this theme going forward. I suspect that we’ll see more signs of an industry undergoing consolidation.

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 4E Principal” for Determining an Outsourcing Partner

As a member of the Scientific Advisory Board of Sciformix (www.sciformix.com), the management team thought it would be useful if we were to describe the case for doing business with their company, the value proposition and the practical reasons that accounts for the success of their business. I thought it may be useful to our readership to republish this and share some of our thoughts.

Describing why outsourcing/out-tasking is such a huge success is a straightforward challenge. It is rooted far more deeply than labor arbitrage which is the core reason most companies choose to use an outsourcing “partner”. There are unprecedented shifts in the way Bio-pharmaceutical companies are conducting their business today, partially forced by macroeconomics, politics, population growth and aging and the “flattening” of the globe that provides opportunity and challenge unknown before today.


There is an enormous pressure on management to perform the concurrent miracle of significant cost reductions coupled with simultaneous productivity improvements in order to thrive in our business. While workloads are inexorably increasing, there are daily headlines describing massive layoffs and facility closings in our industry. No corner of the business, regardless of the geography is immune from these pressures.


One of the few growth areas for budgets is the amount of outsourcing/out-tasking/off shoring that the Bio-Pharmaceutical Industry has undertaken. While the industry has been late out of the starting blocks, the lost time is being rapidly made up. Variations on the theme are diverse and include captive centers, joint ventures with global outsourcing companies, the major expansion of use of Clinical Research Organizations (CRO's), use of diverse geographies and any other creative aspects companies can create.



Our point here is to outline four key areas of consideration for outsourcing the drug safety and adjacent functions to a company such as Sciformix. We call it “The 4E Principal” which encompasses the “whys” of doing business together, each company's priorities will differ. The 4E's are Effectiveness, Efficiency, Economics and Employees and we will describe what we mean by each of these:


Effectiveness: In the area of drug safety, effectiveness encompasses results that are of high quality, compliant with appropriate regulations, consistent from batch to batch and well documented. With the large variation in the number and kind of testing that needs to be done and the education updates that are required, it is a significant challenge for the sponsor company to comply effectively. As Sciformix is focused on this area, day after day, the effectiveness we bring to your company is likely to be significantly better than you experience today.





Efficiency: Ideally your lab is running at or near 100%, however the reality is such that “peaks and valleys” are the norm profoundly impacting productivity and increasing unit costs. As a specialized outsourcing partner, companies such as Sciformix provide a predictable, attractively priced alternative to the classic in house staff-many companies tend to adapt a hybrid model that couples both in house expertise with external capability and bandwidth.





Economics: The economics of external drug safety capability are driven by labor arbitrage, that is to say that if external costs are less than 50% of that of in house capability and quality is equal to or better than current models, than the decision is very straightforward. As with investment policies in the financial world, 90% of the value is achieved with the initial decision, further incremental economic benefits are possible, but not as compelling once the major decision to go external is made. Currently, Sciformix can demonstrate cost benefits of greater than 50% compared with either in house or on shore based providers while providing a superior result.





Employees: The key driver for having an external provider for drug safety functions is based on the cost and upkeep of employees-including non-productive time, continuing education, vacations, holidays, benefits, etc. all of which add up to high overhead costs that are virtually eliminated when working with Sciformix.

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

Good By Mike! (Canary in the Mine?)

I learned this week that Mike Huckman of CNBC and Pharma’s Market (http://www.cnbc.com/id/15837675 ) is leaving for a PR firm. His last day is May 7th. I’ve always enjoyed reading his blog which set a very high standard and was always topical. Unfortunately, since his blog is part of a corporate website, we probably won’t see his past blogs much longer. I encourage readers to check out his blog before it disappears. Mike, good luck and thank you for all your past journalistic contributions!

OK, now, what’s on with my aside about Mike being a canary in the mine? In the old days, really old, like before black and white television without remotes, coal miners would take canaries with them into the mines to give early warning about the buildup of dangerous gases. Canary falls over dead, miners skedaddle, you get the idea.

Don’t worry. I’m not suggesting that anything that drastic is going to happen to Mike. But, what I am suggesting is that when a journalist of his caliber who has been covering the pharmaceuticals industry for the last several years for a major media outlet to go into another line of work, you have to ask yourself what’s going on.

Lately, I’ve been blogging about the lack of momentum and direction in Big Pharma. Mike’s departure seems to me to be yet another sign of an industry in trouble. (No, I’m not talking about the media industry. I don’t cover that. For more on that industry, check out Julia Boorstin’s Media Money blog (http://www.cnbc.com/id/15892686 ) on CNBC.) Mike covered an important industry for a major news network. Now, he’s going off to join the corporate rat race. (Yes, I know that CNBC has its own corporate rat race but you get the idea.) There may be a replacement but somehow I suspect that it’ll be a young wannabe on a part time basis.

Less newsprint, no new products, declining revenues and profits, and no drama don’t make for a good situation for Big Pharma. The auto industry is in a lot of trouble but everyone wants to know what will happen next at General Motors. Will the Chinese, or won’t they, buy Hummer? Will Toyota survive? Soap operas are made of this stuff. Ratings will thrive. Phil LeBeau (Behind the Wheel (http://www.cnbc.com/id/16008341 ) at CNBC) won’t be leaving anytime soon. Big Pharma lacks that kind of plotline.

I’m starting to feel a little lonely out here. To say nothing of trying to divine where this industry is going. But, I enjoy this and Big Pharma is certainly a challenging assignment. Good luck to Mike and everyone else out there covering life sciences!

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."

Big Pharma – Will It Get Any Better?

I’m still on this kick that life sciences and Big Pharma, in particular, are stuck and aren’t getting better anytime soon. I’ve been out trolling the Net looking for any hints of anything that might indicate either I’m wrong or there’s a turnaround coming soon. And, guess where this is going, I’m not finding much. In fact, I’m not finding anything. (I’m not counting spin doctoring materials churned out by Big Pharma. If you read those you’d run out and load up on their stocks.)

What I am finding tends to support what this blog has been saying for a while, Big Pharma’s not going anywhere anytime soon but down. I’d like to call out a blog which I recently came across whose author, Pharmboy a member at Phil’s Stock World, has recently posted a blog entitled “The Calm Before the Storm – Big Pharma Is Gonna Have Big Problems and Pfizer is the Biggest” (http://seekingalpha.com/instablog/6284-philip-davis/60352-the-calm-before-the-storm-big-pharma-is-gonna-have-big-problems-and-pfizer-is-the-biggest ) that gives a detailed analysis of the trends affecting the industry.

Pharmboy (that’s a great name for a blogger isn’t it?) predicts that Big Pharma revenues will stop growing by 2014. He notes as this blog has that growth will have to come from acquisitions and explains how picking the right science will be essential for making the right investments. This is an important point, because some of the larger pharmaceutical companies are run by what I call professional managers, MBA types with a good handle on numbers, marketing, branding, and the like but who really don’t have a clue about the basic sciences let alone the complex, advanced theories that are behind modern drugs. The recent financial meltdown on Wall Street shows what happens when senior management loses touch with their products.

The blog also lists the major drugs coming off patent in the next several years and estimates that these represented $49.9 billion in 2009 revenues. One point where Pharmboy differs from this blog is that he believes some of the pharmaceutical companies, Novartis (NVS) and Merck (MRK) actually have good drug pipelines while Abbott’s (ABT) is weak but could be augmented by acquisitions.

Pfizer (PFE) is singled out for criticism for paying too much for Wyeth (WYE) and not keeping an eye on the science. He also writes about the inefficiencies and lack of innovation in a larger organization like Pfizer.

I’ve called out Pharmboy’s blog because it’s a very good summary of the issues facing Big Pharma today. What I want to know is when will the main stream media begin to take a closer look here as well? Finally, how about the financial community? When will they begin to challenge the valuations 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

Life Sciences Industry – What’s Going On?

Maybe I’m numb or going through withdrawal after the passage of the Patient Protection and Affordable Care Act but things seem to be awfully quiet in the life sciences industry lately. I look at other industries, financial services, automotive, and things are hopping. Even railroads have mergers and acquisitions going on.

While I can’t admit to exhaustive research in the life sciences industry, I just haven’t seen a lot of momentum behind anything lately. There are no blockbuster products, no big mergers and acquisitions, or no big research ideas. (I apologize to all those researchers slaving away but they really need to get better publicists.) Business seems to be atrophying. What’s going on?

Are we looking at an industry that’s going away? Now, I’m sure some of you are wondering what I’m rambling about this time. Am I maybe overreaching here? I don’t think so. History’s on my side. Remember the personal computer industry? That went through a similar cycle of boom and bust, if somewhat more accelerated. Once upon a time the media was full of stories about new products, companies, and ideas. Not to mention the personalities? Anyone remember Adam Osborne? (In case you’re curious, he died back in 2003 in India.) Today, the industry’s products are commodities manufactured in China. Some might even argue that with new innovations like iPads or PDA’s personal computers are going the way of the buggy whip.

When I visit Mike Huckman’s blog (http://www.cnbc.com/id/15837675 ) I don’t see any trends developing. (No criticism of Mike is intended, whose blog is one of my favorites (I wonder if he will continue as he is rumored to be leaving CNBC for a PR firm this month), he can only write about what’s out there.) There almost seems to be a defensive posture in the industry. Products are being recalled, regulators are becoming more aggressive, and healthcare reform weighs on the industry.

So what does this mean? If the personal computer industry is any example then consolidation, lower prices, and possible business failures are safe guesses. Maybe this is life science’s high water mark. Or, maybe not. One thing’s for sure, the life sciences industry is in a state of flux. Big time.

All the old rules seem to be changing now. At least as far as life sciences go. The challenge will be identifying what will be the clues to the turnaround, if there is a turnaround.

I’m going to make another one of my predictions. The life sciences industry is going to go way for a while. A long while. The industry’s business fundamentals are askew. Globalization isn’t helping. The regulators are struggling. My blog last week about Myriad Genetics (MYGN) and its legal problems is another piece of evidence. Healthcare reform is beginning in the States. A new generation of companies and managers are needed. I’ll be following 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