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
Showing posts with label President Barack Obama. Show all posts
Showing posts with label President Barack Obama. Show all posts
Saturday, August 14, 2010
Tuesday, March 16, 2010
Healthcare Reform: Watching Paint Dry
I’m fascinated by the healthcare reform debate that’s currently underway in the U.S. both inside the Houses of Congress and without. Last week, everyone in the country became experts in the arcana of the Senate’s reconciliation rules. This week, we’re all becoming familiar with President Obama’s travel schedule. Oh, and, let’s not forget the furies that have been unleashed at the health insurance providers. (I loved that move on the part of the President. A friend of mine who is a rabid opponent of healthcare reform rallied to that one. As he said, “Who doesn’t hate the health insurance companies?”)
The absence of Big Pharma from this debate is obvious. As I blogged last week, they appear to be in the President’s camp but their silence is deafening. Given all that’s at stake here I find that response, or, more accurately, lack of one, puzzling.
Maybe, just maybe, healthcare reform is not all that it’s knocked up to be for Big Pharma. The argument advanced by some (see Janet Adamy’s and Greg Hitt’s article in the Wall Street Journal, http://online.wsj.com/article/SB125590875879693189.html?mod=rss_whats_news_us ) that the drug companies will profit from all the sales to customers who couldn’t afford their wares reg Hitt, previously. That assumes Big Pharma has something to sell. This blog has noted previously the struggling new product pipelines at many drug companies. Now, the generic manufacturers may have something to crow about but I doubt their more upscale brethren will.
OK, you don’t buy the drying up pipeline argument. You say that new product development is not a straight line always headed up. You believe that research and development is a fitful, creative process with long dry spells frequently the result. I buy that. There is historical precedent. Now, let’s stop and think who’s going to be footing the bill for all this. The Federal government and the insurance companies. Am I the only one who thinks that these august institutions won’t figure out a way to squeeze volume purchase discounts from the drug companies? The drug companies are doing it to their own suppliers and even their own employees. Or, the Federal government could fall back on their old standard – price controls.
Here’s where I’m going with this. I don’t believe that healthcare reform will be beneficial to Big Pharma and other life sciences companies. Yes, more products may be sold to more people but at lower prices. Doctors will probably be second guessed over treatments. Stories have been around for years of nurses paid by health insurers second guessing physicians over treatments and medications. These practices will only continue and grow in all likelihood.
I’ve stuck my neck out now and given my position. There may be a vote on healthcare reform in the next week. If it passes, and the jury’s still out on this one, then I think we’ll see an interesting time for Big Pharma in the next several months.
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 absence of Big Pharma from this debate is obvious. As I blogged last week, they appear to be in the President’s camp but their silence is deafening. Given all that’s at stake here I find that response, or, more accurately, lack of one, puzzling.
Maybe, just maybe, healthcare reform is not all that it’s knocked up to be for Big Pharma. The argument advanced by some (see Janet Adamy’s and Greg Hitt’s article in the Wall Street Journal, http://online.wsj.com/article/SB125590875879693189.html?mod=rss_whats_news_us ) that the drug companies will profit from all the sales to customers who couldn’t afford their wares reg Hitt, previously. That assumes Big Pharma has something to sell. This blog has noted previously the struggling new product pipelines at many drug companies. Now, the generic manufacturers may have something to crow about but I doubt their more upscale brethren will.
OK, you don’t buy the drying up pipeline argument. You say that new product development is not a straight line always headed up. You believe that research and development is a fitful, creative process with long dry spells frequently the result. I buy that. There is historical precedent. Now, let’s stop and think who’s going to be footing the bill for all this. The Federal government and the insurance companies. Am I the only one who thinks that these august institutions won’t figure out a way to squeeze volume purchase discounts from the drug companies? The drug companies are doing it to their own suppliers and even their own employees. Or, the Federal government could fall back on their old standard – price controls.
Here’s where I’m going with this. I don’t believe that healthcare reform will be beneficial to Big Pharma and other life sciences companies. Yes, more products may be sold to more people but at lower prices. Doctors will probably be second guessed over treatments. Stories have been around for years of nurses paid by health insurers second guessing physicians over treatments and medications. These practices will only continue and grow in all likelihood.
I’ve stuck my neck out now and given my position. There may be a vote on healthcare reform in the next week. If it passes, and the jury’s still out on this one, then I think we’ll see an interesting time for Big Pharma in the next several months.
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
Sunday, February 28, 2010
Healthcare Reform: What Did We Learn from the Healthcare Summit?
OK, President Obama trooped everybody into Blair House the other day and I don’t know what he was expecting to achieve but unless he’s a lot more cynical than he’s letting on, I don’t think he got what he wanted.
I caught some of the U.S. Healthcare Summit on the evening news and I found it worrying for three principle reasons. First, the theatricality of it all was discouraging. I lost track of the number of copies of proposed healthcare legislation that had been trucked into the conference room by the Republicans to make some point or other. (I wonder if the environmentalists will calculate how many trees were killed to make those points.) Next, the lack of seriousness by many of the participants seemed obvious to me. Yes, there were many pious sounding talking points and other sound bites but too many participants were there only to be seen in front of the cameras. Finally, the lack of any obvious solution or solutions was apparent to me. There seemed to be even a lack of agreement as to what the problem is. Overall, President Obama’s Healthcare Summit, however well intentioned, was a bust in my view.
But what did we learn from this meeting other than how not to throw one of these shindigs? Plenty, in my opinion. However, I will only focus my comments on points which I feel are relevant to the healthcare industry.
One topic that seemed to be coming out as more of an issue is the rising cost of health care itself. One commentator this week said that healthcare costs are rising at twice the annual rate of inflation. (Sorry, I didn’t record the attribution.) Healthcare insurance providers such as WellPoint justify their recent premium increases with this argument. (See http://www.nytimes.com/2010/02/25/health/policy/25health.html?sudsredirect=true ). I’ve also noticed that the media is giving more coverage to this topic as well. CNN’s Dr. Sanjay Gupta had an interesting piece yesterday where he went through the costs of the materials used in his operating room. (See http://www.cnn.com/video/#/video/health/2010/02/24/gupta.medical.cost.breakdown.cnn ). As Dr. Gupta shows, seemingly minor objects quickly become very expensive and it all adds up.
Different reasons are given for rising healthcare costs. Some cite the rising cost of malpractice insurance for doctors and hospitals. Others talk about the rising costs of research and development, in particular, the costs and time associated with getting new drugs through the FDA’s regulatory process. Like most things in life, there’s probably no one answer here. All the points noted here and many more not are going to be responsible.
As I’ve blogged recently, I believe that something more fundamental going on here with healthcare in the United States. The validity of the free market system in dealing with these issues is at stake here along with the government’s role in the lives of its citizens. I’ll be blogging more about this as we go through this year.
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 caught some of the U.S. Healthcare Summit on the evening news and I found it worrying for three principle reasons. First, the theatricality of it all was discouraging. I lost track of the number of copies of proposed healthcare legislation that had been trucked into the conference room by the Republicans to make some point or other. (I wonder if the environmentalists will calculate how many trees were killed to make those points.) Next, the lack of seriousness by many of the participants seemed obvious to me. Yes, there were many pious sounding talking points and other sound bites but too many participants were there only to be seen in front of the cameras. Finally, the lack of any obvious solution or solutions was apparent to me. There seemed to be even a lack of agreement as to what the problem is. Overall, President Obama’s Healthcare Summit, however well intentioned, was a bust in my view.
But what did we learn from this meeting other than how not to throw one of these shindigs? Plenty, in my opinion. However, I will only focus my comments on points which I feel are relevant to the healthcare industry.
One topic that seemed to be coming out as more of an issue is the rising cost of health care itself. One commentator this week said that healthcare costs are rising at twice the annual rate of inflation. (Sorry, I didn’t record the attribution.) Healthcare insurance providers such as WellPoint justify their recent premium increases with this argument. (See http://www.nytimes.com/2010/02/25/health/policy/25health.html?sudsredirect=true ). I’ve also noticed that the media is giving more coverage to this topic as well. CNN’s Dr. Sanjay Gupta had an interesting piece yesterday where he went through the costs of the materials used in his operating room. (See http://www.cnn.com/video/#/video/health/2010/02/24/gupta.medical.cost.breakdown.cnn ). As Dr. Gupta shows, seemingly minor objects quickly become very expensive and it all adds up.
Different reasons are given for rising healthcare costs. Some cite the rising cost of malpractice insurance for doctors and hospitals. Others talk about the rising costs of research and development, in particular, the costs and time associated with getting new drugs through the FDA’s regulatory process. Like most things in life, there’s probably no one answer here. All the points noted here and many more not are going to be responsible.
As I’ve blogged recently, I believe that something more fundamental going on here with healthcare in the United States. The validity of the free market system in dealing with these issues is at stake here along with the government’s role in the lives of its citizens. I’ll be blogging more about this as we go through this year.
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
Sunday, February 21, 2010
Healthcare Reform: What’s Next?
I’m finding the current spate of political infighting over U.S. healthcare reform to be probably the most fascinating that I’ve ever seen. What’s more, I think that we could see fundamental changes in this country unlike any before in our history. Here’s way.
First, healthcare costs are spiraling out of control. I’m not sure why. I know that my primary care physician knows that he’s not profiting. A very competent professional in his early fifties, he claims to be making only 60% of what he expected to when he graduated from medical school. He blames rapacious health insurers. Recent health insurance increases (http://www.marketwatch.com/story/health-care-shocker-policy-premium-goes-up-69-2010-02-19?reflink=MW_news_stmp ) by some providers were justified because of healthcare costs, such as excessive testing by physicians, were rising. Some providers said that the loss of premium paying customers because of tough economic times caused them to raise the rates of their remaining ones. That kind of beggar thy neighbor (or, customers in this case) never works long term. Interestingly, on last evening’s news, one provider told a correspondent that they were running at a loss and angry about being lumped by a critical President Obama in with firms earning record profits and still increasing rates. My ignorance in this matter doesn’t bother me, I’m obviously in good company. What does bother me is the complete lack of any understanding by anyone as to what the root cause of the problem is. The resources that are consumed here won’t be available to reinvest in the economy.
Next, the growing U.S. national debt is going to limit the government’s options in addressing the problem. Check out the U.S. Debt Clock (http://www.usdebtclock.org/ ) to see some really scary numbers. A Federal government unable to afford any sort of healthcare reform, even smaller, affordable, initiatives may find itself thrown back on policy reforms only, or, even marginalized. Worse case, the U.S. standard of living could begin an irreversible decline for the first time in history.
Finally, the coming conflict between free enterprise and the public welfare as represented by a national healthcare policy. With limited resource available, the public will begin to resent for profit organizations (i.e., businesses) taking away monies which could have been used to provide healthcare services. Big Pharma will eventually have to explain why when they use volume purchasing to drive down suppliers’ profits, it’s capitalism, but, when the government tries to do it with prescription medicines it’s socialism.
So, there’s a lot going on here. Unfortunately, no silver bullet exists for this situation. I don’t believe that this is just a simple government funding debate going on here like we’re seen before. We may be seeing some fundamental changes to the American way of life coming out of this. And, the healthcare industry is going to have to figure out how to deal with 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
First, healthcare costs are spiraling out of control. I’m not sure why. I know that my primary care physician knows that he’s not profiting. A very competent professional in his early fifties, he claims to be making only 60% of what he expected to when he graduated from medical school. He blames rapacious health insurers. Recent health insurance increases (http://www.marketwatch.com/story/health-care-shocker-policy-premium-goes-up-69-2010-02-19?reflink=MW_news_stmp ) by some providers were justified because of healthcare costs, such as excessive testing by physicians, were rising. Some providers said that the loss of premium paying customers because of tough economic times caused them to raise the rates of their remaining ones. That kind of beggar thy neighbor (or, customers in this case) never works long term. Interestingly, on last evening’s news, one provider told a correspondent that they were running at a loss and angry about being lumped by a critical President Obama in with firms earning record profits and still increasing rates. My ignorance in this matter doesn’t bother me, I’m obviously in good company. What does bother me is the complete lack of any understanding by anyone as to what the root cause of the problem is. The resources that are consumed here won’t be available to reinvest in the economy.
Next, the growing U.S. national debt is going to limit the government’s options in addressing the problem. Check out the U.S. Debt Clock (http://www.usdebtclock.org/ ) to see some really scary numbers. A Federal government unable to afford any sort of healthcare reform, even smaller, affordable, initiatives may find itself thrown back on policy reforms only, or, even marginalized. Worse case, the U.S. standard of living could begin an irreversible decline for the first time in history.
Finally, the coming conflict between free enterprise and the public welfare as represented by a national healthcare policy. With limited resource available, the public will begin to resent for profit organizations (i.e., businesses) taking away monies which could have been used to provide healthcare services. Big Pharma will eventually have to explain why when they use volume purchasing to drive down suppliers’ profits, it’s capitalism, but, when the government tries to do it with prescription medicines it’s socialism.
So, there’s a lot going on here. Unfortunately, no silver bullet exists for this situation. I don’t believe that this is just a simple government funding debate going on here like we’re seen before. We may be seeing some fundamental changes to the American way of life coming out of this. And, the healthcare industry is going to have to figure out how to deal with 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
Monday, February 15, 2010
Healthcare Reform: Where’d It Go?
I’ve been a little distracted lately (busy Holidays, snowstorms, colds) but I stopped the other day and U.S. healthcare reform was gone. Poof! Not there anymore. Now, Larry always kids me (you are kidding Larry, aren’t you?) that when distracted I can miss a lot. But, I must’ve had one heck of a lot better New Year’s Eve than I’d realized.
I went to my usual haunts to see if anyone had any perspective on this. Mike Huckman at CNBC (http://www.cnbc.com/id/15837675 ) and Pharmalot (http://www.pharmalot.com/ ) didn’t mention it. (My apologies if they did and I missed it.)
OK, don’t worry, I’m not going to drag this out. I had heard about Scott Brown’s (http://www.brownforussenate.com/ ) election in Massachusetts. (Ted Kennedy’s old seat no less.) The irony of that victory has not been lost on me. I wasn’t as much surprised by Brown’s victory as how the national discussion on healthcare reform has practically shut down. Despite some noises from Nancy Pelosi and other supporters, there’s virtually nothing compared to prior to Congress’s late Christmas Eve recess.
What’s going on here? Further, what does it mean for Big Pharma? I’m going to go out on a limb here with my views.
First, the Democrats obviously couldn’t arrive at a consensus within their own party about what healthcare reform was all about. (I’m not going to go into the political missteps that cost them Ted Kennedy’s seat.) There were no killer ideas. What began as a high minded crusade to overhaul healthcare in America became a mad, undignified dash for the finish line replete with all sorts of cloakroom deals to make it all happen. No one had any reason to cross the aisle or to worry about why they hadn’t. I suspect that President Obama is probably relieved that he no longer has the Supermajority for this one. We just don’t have any good ideas to implement major healthcare reform. Consensus on smaller issues like tort reform or health insurance regulation may be possible but that’s going to be it for now. We may see this happen as the November midterm elections draw near.
Next, what about Big Pharma? I don’t think that the current status quo concerning healthcare reform is good for them. The topic isn’t going away. Both sides are going back into their corners to get ready for the next round. Uncertainty prevails. The Tea Party movement will play the role of spoiler this year possibly foretelling what will happen in the 2012 Presidential election. Decisions on future drug development not to mention how capital markets will value these companies are only several of the possible issues here.
I’ll be blogging on this theme for a while. With the Congressional elections coming and the White House trying to find common ground with the Republicans, there will be plenty of good material here.
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 went to my usual haunts to see if anyone had any perspective on this. Mike Huckman at CNBC (http://www.cnbc.com/id/15837675 ) and Pharmalot (http://www.pharmalot.com/ ) didn’t mention it. (My apologies if they did and I missed it.)
OK, don’t worry, I’m not going to drag this out. I had heard about Scott Brown’s (http://www.brownforussenate.com/ ) election in Massachusetts. (Ted Kennedy’s old seat no less.) The irony of that victory has not been lost on me. I wasn’t as much surprised by Brown’s victory as how the national discussion on healthcare reform has practically shut down. Despite some noises from Nancy Pelosi and other supporters, there’s virtually nothing compared to prior to Congress’s late Christmas Eve recess.
What’s going on here? Further, what does it mean for Big Pharma? I’m going to go out on a limb here with my views.
First, the Democrats obviously couldn’t arrive at a consensus within their own party about what healthcare reform was all about. (I’m not going to go into the political missteps that cost them Ted Kennedy’s seat.) There were no killer ideas. What began as a high minded crusade to overhaul healthcare in America became a mad, undignified dash for the finish line replete with all sorts of cloakroom deals to make it all happen. No one had any reason to cross the aisle or to worry about why they hadn’t. I suspect that President Obama is probably relieved that he no longer has the Supermajority for this one. We just don’t have any good ideas to implement major healthcare reform. Consensus on smaller issues like tort reform or health insurance regulation may be possible but that’s going to be it for now. We may see this happen as the November midterm elections draw near.
Next, what about Big Pharma? I don’t think that the current status quo concerning healthcare reform is good for them. The topic isn’t going away. Both sides are going back into their corners to get ready for the next round. Uncertainty prevails. The Tea Party movement will play the role of spoiler this year possibly foretelling what will happen in the 2012 Presidential election. Decisions on future drug development not to mention how capital markets will value these companies are only several of the possible issues here.
I’ll be blogging on this theme for a while. With the Congressional elections coming and the White House trying to find common ground with the Republicans, there will be plenty of good material here.
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
Thursday, February 19, 2009
Pfizer-Wyeth Redux--We Can't Help It!
I’m back on the Pfizer-Wyeth again. I can’t help myself. I feel as if l’m in that dream we’ve all had of being in a slow motion crash again and again. Here’s why.
Let’s start with the overall economy. Since last autumn, we have CEO’s either being excoriated in the press or by Congress. Obviously, there have been some serious shortfalls in abilities here. Now, let me ask a question, just because Big Pharma hasn’t been dragged up to the Hill yet by Congress doesn’t mean that they won’t be. (Doesn’t mean that they will be either, but old Guy’s sticking his neck out again.) Honestly, there’s some good potential here. Have we seen anything yet from Big Pharma’s CEO’s to distinguish them from their colleagues in banking or automobiles? This is where I’d really like to get some reader feedback.
Next, let’s talk about sticking the collective heads in the sand and hoping that problems will go away. Let’s face it. Barack Obama has won the election. He took the oath of office (twice) and he’s now the President of the United States (POTUS for you acronym freaks out there). Despite some Republican protests, President Obama’s stimulus package has been passed and signed. So, anyone who doesn’t think healthcare reform isn’t coming soon to a hospital near you had better wake up and smell the coffee. Especially, if they’re in the drug or medical device businesses.
Another one of my favorite gripes about the healthcare industry, and most other industries as well, is it’s fascination with mergers and acquisitions. Don’t get me wrong in the right circumstances, with the right reasons and for the right price, these types of deals can make a lot of sense. But, please notice the qualifiers that I listed. There generally aren’t too many deals that meet those criteria and then, if there happens to be a bidding war then any value goes right out of the window. How many M&A deals over the last thirty years, in any industry, have lived up to their oft overhyped potential?
Finally, let’s get down to basics. Business is all about making things and then selling them. Good products and services with good customer service attract customers who pay their bills and come back to buy more. While you’re at it, hire good employees, treat them right, and improve your productivity as a consequence. But, Big Pharma seems to be ignoring this model. Many of them are moving to a portfolio model of buying new drugs, outsourcing everything that they can, and making their profits on the resulting margins. Not bad business if you can get it, but how many companies can be in that kind of a business. Possibly a few, but, certainly not as many as are in the pharmaceutical industry today.
Oh, and let me add that with few exceptions they are optimizing the "blockbuster" model that no longer works. And, has anyone explained the law of large numbers to these people--combining two multi -10's of billion dollars business into one, taking on "synergy targets" has been at best short on results albeit high on promises.
So, let’s see what happens this year. If I’m wrong, I think I’ll find out soon enough.
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
Let’s start with the overall economy. Since last autumn, we have CEO’s either being excoriated in the press or by Congress. Obviously, there have been some serious shortfalls in abilities here. Now, let me ask a question, just because Big Pharma hasn’t been dragged up to the Hill yet by Congress doesn’t mean that they won’t be. (Doesn’t mean that they will be either, but old Guy’s sticking his neck out again.) Honestly, there’s some good potential here. Have we seen anything yet from Big Pharma’s CEO’s to distinguish them from their colleagues in banking or automobiles? This is where I’d really like to get some reader feedback.
Next, let’s talk about sticking the collective heads in the sand and hoping that problems will go away. Let’s face it. Barack Obama has won the election. He took the oath of office (twice) and he’s now the President of the United States (POTUS for you acronym freaks out there). Despite some Republican protests, President Obama’s stimulus package has been passed and signed. So, anyone who doesn’t think healthcare reform isn’t coming soon to a hospital near you had better wake up and smell the coffee. Especially, if they’re in the drug or medical device businesses.
Another one of my favorite gripes about the healthcare industry, and most other industries as well, is it’s fascination with mergers and acquisitions. Don’t get me wrong in the right circumstances, with the right reasons and for the right price, these types of deals can make a lot of sense. But, please notice the qualifiers that I listed. There generally aren’t too many deals that meet those criteria and then, if there happens to be a bidding war then any value goes right out of the window. How many M&A deals over the last thirty years, in any industry, have lived up to their oft overhyped potential?
Finally, let’s get down to basics. Business is all about making things and then selling them. Good products and services with good customer service attract customers who pay their bills and come back to buy more. While you’re at it, hire good employees, treat them right, and improve your productivity as a consequence. But, Big Pharma seems to be ignoring this model. Many of them are moving to a portfolio model of buying new drugs, outsourcing everything that they can, and making their profits on the resulting margins. Not bad business if you can get it, but how many companies can be in that kind of a business. Possibly a few, but, certainly not as many as are in the pharmaceutical industry today.
Oh, and let me add that with few exceptions they are optimizing the "blockbuster" model that no longer works. And, has anyone explained the law of large numbers to these people--combining two multi -10's of billion dollars business into one, taking on "synergy targets" has been at best short on results albeit high on promises.
So, let’s see what happens this year. If I’m wrong, I think I’ll find out soon enough.
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
Wednesday, February 11, 2009
Healthcare Reform – Will Big Pharma Get a Reprieve?
Has Big Pharma gotten a temporary reprieve from threatened reforms from President Obama? Last week’s withdrawal by Tom Daschle from consideration as the Secretary of Health, Education, and Welfare and his office’s admission that there was no immediate replacement doesn’t bode well for quick reform.
Also, given the problems President Obama is having gaining bipartisan support for a stimulus package that everyone agrees is needed, think what will happen when he tries to push healthcare reform through the Houses of Congress.
A cynic might say that Treasury Secretary Timothy Geithner was approved despite his tax problems because everyone felt that he was the man and this was his moment. The same cynic might also say that Tom Daschle knew that Congress wasn’t ready for him and this was certainly not his moment.
What does this mean for Big Pharma? One pending issue that some of us have been writing about is what happens when President Obama gives the go ahead to Medicare to negotiate volume purchase discounts for prescription drugs with the pharmaceutical companies. Revenues will certainly contract. I don’t think volume increases will offset the price decreases unless there is a new, national commitment to really overmedicating the country.
Now, if the Obama Administration is too distracted to go after healthcare reform then Big Pharma may get a temporary reprieve this year. This will be a good thing for Big Pharma. Many drug companies have major patents expiring this year and their replacements are not exactly setting the world on fire. Getting pounded on their remaining products would not have been a good thing.
I’m going to stick my neck out and say that this year’s, 2009’s, revenues will probably be safe from Federal tinkering. Going a little further out, 2010 and beyond, I think the risks increase significantly. Here’s why. First, the economy is not going to improve any time soon. The Republicans are on the defensive and when their constituents start screaming about government assistance because they’ve lost their jobs, homes, savings, etc. then we will really start to see bipartisan support. Especially, as we start to draw closer to the midterm elections in 2010. Next, once the Federal government really lets loose and starts to spend, someone’s going to realize that we’re spending too much. That means other someone’s are going to start finding places to save money. Medicare spending for prescription drugs is a great place to start. Even John McCain hates Big Pharma. I recently saw an article which indicated that the Obama Administration is reviewing the U.S. nuclear arsenal. They’re getting serious. The sacred cows are going to be gored.
Big Pharma’s going to have a tough year in 2009. President Obama’s current troubles may buy them a little time but it will come back with a vengeance next year.
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
Also, given the problems President Obama is having gaining bipartisan support for a stimulus package that everyone agrees is needed, think what will happen when he tries to push healthcare reform through the Houses of Congress.
A cynic might say that Treasury Secretary Timothy Geithner was approved despite his tax problems because everyone felt that he was the man and this was his moment. The same cynic might also say that Tom Daschle knew that Congress wasn’t ready for him and this was certainly not his moment.
What does this mean for Big Pharma? One pending issue that some of us have been writing about is what happens when President Obama gives the go ahead to Medicare to negotiate volume purchase discounts for prescription drugs with the pharmaceutical companies. Revenues will certainly contract. I don’t think volume increases will offset the price decreases unless there is a new, national commitment to really overmedicating the country.
Now, if the Obama Administration is too distracted to go after healthcare reform then Big Pharma may get a temporary reprieve this year. This will be a good thing for Big Pharma. Many drug companies have major patents expiring this year and their replacements are not exactly setting the world on fire. Getting pounded on their remaining products would not have been a good thing.
I’m going to stick my neck out and say that this year’s, 2009’s, revenues will probably be safe from Federal tinkering. Going a little further out, 2010 and beyond, I think the risks increase significantly. Here’s why. First, the economy is not going to improve any time soon. The Republicans are on the defensive and when their constituents start screaming about government assistance because they’ve lost their jobs, homes, savings, etc. then we will really start to see bipartisan support. Especially, as we start to draw closer to the midterm elections in 2010. Next, once the Federal government really lets loose and starts to spend, someone’s going to realize that we’re spending too much. That means other someone’s are going to start finding places to save money. Medicare spending for prescription drugs is a great place to start. Even John McCain hates Big Pharma. I recently saw an article which indicated that the Obama Administration is reviewing the U.S. nuclear arsenal. They’re getting serious. The sacred cows are going to be gored.
Big Pharma’s going to have a tough year in 2009. President Obama’s current troubles may buy them a little time but it will come back with a vengeance next year.
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
Wednesday, January 28, 2009
Wrapping Up the Indian Outsourcing Industry – For Now
I’ve been blogging about the Indian outsourcing sector for the last few blogs and I’m going to wrap it up with this one, at least for a while. I'm sticking with my point of view that all this questionable business will have an impact on Life Sciences companies considering and/or using these companies in conjunction with their outsourcing/globalization programs. I want to wait until after second quarter earnings come out and see where the big four Indian outsourcers are at before I continue blogging.
I have a few reasons for wanting to conduct a temporary cease fire about the outsourcers:
First, I want to write about other topics. A lot’s happening in the world right now, especially in the life sciences sector, and one thing I like about this gig is being able to research and write about different topics.
Second, some of the events that I’ve been blogging about are still unfolding. Satyam is a case in point. There’s a new board of directors trying to figure out how to plug the hole left in the balance sheet after over a billion dollars or so disappeared from it. Then there’s trying to figure sort out all the potential suitors circling Satyam like sharks around an overboard sailor. According to Business Line, iGate Corp is purportedly interested. Given the current state of the global banking industry, Satyam may have trouble obtaining short term financing. If clients beginning to leave then the cash needs will become even more desperate. I think by early summer something’s going to have to give on that one.
Next, the expanding global recession is going to start hurting the customer base. Large outsourcing deals are expensive. Positive payback, either return on investment or discounted cash flow, generally takes two to three years at best for large projects. So, new large projects probably won’t be coming down any too soon. That means that future revenue growth will be off. Throw in stiffer competition squeezing profit margins and here’s another industry in trouble. Don’t be so smug sitting there, thinking that I don’t know what I’m talking about. I’m old enough remember the computer timesharing business. That was pretty hot for quite a while before it imploded. Sure, different times, different circumstances, but, the end is the same, highflyers streak across the sky like shooting stars and burn out as quickly.
Finally, with every major economy on the planet struggling to put their unemployed back to work, shunting jobs offshore won’t be viewed as a patriotic duty. I’ve blogged earlier about President Obama campaigning on keeping jobs here in the US. He may actually agree with the Republicans on this, or, at least enough in the Houses of Congress to pass his legislation. But, this too will take some time. Also, those healthcare executives who will suddenly rediscover their patriotism may also be worried about the risk arising from terrorism and be somewhat reluctant to move too many jobs overseas for the time being.
So, these are my reasons for leaving India for a few months. I’m confident that will be a lot more to write about in the six months or so.
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 have a few reasons for wanting to conduct a temporary cease fire about the outsourcers:
First, I want to write about other topics. A lot’s happening in the world right now, especially in the life sciences sector, and one thing I like about this gig is being able to research and write about different topics.
Second, some of the events that I’ve been blogging about are still unfolding. Satyam is a case in point. There’s a new board of directors trying to figure out how to plug the hole left in the balance sheet after over a billion dollars or so disappeared from it. Then there’s trying to figure sort out all the potential suitors circling Satyam like sharks around an overboard sailor. According to Business Line, iGate Corp is purportedly interested. Given the current state of the global banking industry, Satyam may have trouble obtaining short term financing. If clients beginning to leave then the cash needs will become even more desperate. I think by early summer something’s going to have to give on that one.
Next, the expanding global recession is going to start hurting the customer base. Large outsourcing deals are expensive. Positive payback, either return on investment or discounted cash flow, generally takes two to three years at best for large projects. So, new large projects probably won’t be coming down any too soon. That means that future revenue growth will be off. Throw in stiffer competition squeezing profit margins and here’s another industry in trouble. Don’t be so smug sitting there, thinking that I don’t know what I’m talking about. I’m old enough remember the computer timesharing business. That was pretty hot for quite a while before it imploded. Sure, different times, different circumstances, but, the end is the same, highflyers streak across the sky like shooting stars and burn out as quickly.
Finally, with every major economy on the planet struggling to put their unemployed back to work, shunting jobs offshore won’t be viewed as a patriotic duty. I’ve blogged earlier about President Obama campaigning on keeping jobs here in the US. He may actually agree with the Republicans on this, or, at least enough in the Houses of Congress to pass his legislation. But, this too will take some time. Also, those healthcare executives who will suddenly rediscover their patriotism may also be worried about the risk arising from terrorism and be somewhat reluctant to move too many jobs overseas for the time being.
So, these are my reasons for leaving India for a few months. I’m confident that will be a lot more to write about in the six months or so.
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
Monday, January 19, 2009
President Obama and US Jobs – What Happens Next?
We have a new President, Barack Obama. “Things” have changed and will continue to do so. What I want to blog about today is what this could mean for US jobs, in particular, in the life sciences sector.
Big Pharma has been offshoring the jobs of its employees for years now. Sometimes, to third party vendors, sometimes through the fiction of captive centers. Either way, jobs have left the country. Also, let’s not forget all the cash that some of them keep offshore to avoid US taxes. A lot of investment and jobs could be funded with it.
President Obama ran and was elected on keeping and creating jobs in America. The details still need to be worked out, but, I suspect that some combination of tax policy and government spending will be used. Other less formal methods of persuasion may be used as well. For example, how much longer will President Obama continue to meet the CEO’s of large corporations who are sending jobs overseas and laying off Americans here at home. I’ll wager that Democrats in both Houses will be raising the same point themselves soon.
The continuing global recession will impact the life sciences sector as well as the rest of the economy. Unfortunately, for life sciences, it’s going to get involved in government policy and funding just like the auto and financial services sectors. (Please see my earlier blogs comparing life sciences to Big Auto.) The old line firms, Big Pharma, have only been deluding themselves for some years now. Cost cutting has maintained profit levels but once patents expire with no new blockbusters to replace them and generics begin to erode market share then some of those companies will start to go away.
Here’s where we may see Big Pharma starting to find ways to hire more people here in the States. Either that or they may begin to break up. Given that CEO’s and their staff are the last ones to realize that the game is over, we’ll probably start to see other desperate measures. Remember that overseas cash that I mentioned earlier? We may see Big Pharma lobbyists trying to get some tax breaks in Washington promising jobs creation or return from abroad in exchange. Of course, the question is what would these people do? Hiring back office people doesn’t add to the bottom line although it may improve employee morale among the existing overworked staff. Hiring sales rep’s only works when there’s something to sell. Hiring R&D types to produce something to sell is not a bad idea, but, given how long it takes to develop new drugs and then do trials, there won’t be any immediate relief here.
In closing, maybe Big Pharma may add jobs to curry favor with a new administration desperate to put people to work, I just don’t think they’ll last.
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 has been offshoring the jobs of its employees for years now. Sometimes, to third party vendors, sometimes through the fiction of captive centers. Either way, jobs have left the country. Also, let’s not forget all the cash that some of them keep offshore to avoid US taxes. A lot of investment and jobs could be funded with it.
President Obama ran and was elected on keeping and creating jobs in America. The details still need to be worked out, but, I suspect that some combination of tax policy and government spending will be used. Other less formal methods of persuasion may be used as well. For example, how much longer will President Obama continue to meet the CEO’s of large corporations who are sending jobs overseas and laying off Americans here at home. I’ll wager that Democrats in both Houses will be raising the same point themselves soon.
The continuing global recession will impact the life sciences sector as well as the rest of the economy. Unfortunately, for life sciences, it’s going to get involved in government policy and funding just like the auto and financial services sectors. (Please see my earlier blogs comparing life sciences to Big Auto.) The old line firms, Big Pharma, have only been deluding themselves for some years now. Cost cutting has maintained profit levels but once patents expire with no new blockbusters to replace them and generics begin to erode market share then some of those companies will start to go away.
Here’s where we may see Big Pharma starting to find ways to hire more people here in the States. Either that or they may begin to break up. Given that CEO’s and their staff are the last ones to realize that the game is over, we’ll probably start to see other desperate measures. Remember that overseas cash that I mentioned earlier? We may see Big Pharma lobbyists trying to get some tax breaks in Washington promising jobs creation or return from abroad in exchange. Of course, the question is what would these people do? Hiring back office people doesn’t add to the bottom line although it may improve employee morale among the existing overworked staff. Hiring sales rep’s only works when there’s something to sell. Hiring R&D types to produce something to sell is not a bad idea, but, given how long it takes to develop new drugs and then do trials, there won’t be any immediate relief here.
In closing, maybe Big Pharma may add jobs to curry favor with a new administration desperate to put people to work, I just don’t think they’ll last.
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
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