There's trouble ahead for Pharma...

Pharma, Drug Industry, or as many of us fondly refer to it as "Big Pharma" is headed for trouble. There are four main sources of trouble for the industry and while this is no uncommon knowledge, it is worth repeating here:

1. Size:

No one wants to admit it, but pharmaceutical companies have bloated to sizes that are unfathomable within the realms of meaning or logic. Once companies get this big, all they care about are Excel files in which employees are mere cells if not columns. Every effort to fight costs is seen as an exercise in employee reduction.

Recently, I came across a rather depressing rebuttal to Scientific American's "1,000 Scientists in 1,000 Days", by Josh Bloom, a former employee of Wyeth, with a PhD in Chemistry and more than a few years of experience to boot, that complained about the jobs moving to cheaper locations.

While he paints a sobering picture and may create the impression that building careers in science and engineering may not help kids in the future, the point that the layoffs in big pharmaceutical companies have gotten out of control.

Consequences of size

The large scale of the organizations in question exponentially worsen the problems they face. Instead of taking responsibility, executives appear to stake out defensive walls and target large swathes of employees and lay them off. It is not surprising then that scientists like Josh Bloom appear disenchanted.

2. The buck-passing routine

Blaming the FDA or the federal government or pretty much any other entity but themselves has become a favorite with executives in some of these companies. With Senators and Congressmen acting as mouthpieces to their donors, the executives and the organizations, this has only become too easy. The Supreme Court has not helped with its irresponsibility in assuming that a laissez-fair state of donations is somehow constitutionally acceptable.

Company executives should exercise and assume strategic vision and indulge in creative solutions, not pass the buck and appear spineless.

3. Loss of exclusivity - the patent "cliff"

With many patents about to expire in the near future, about 110 drugs will lose their exclusivity between 2012-2014. This represents a significant loss of income for various pharmaceutical organizations. Before you herald your sympathy though, you should realize that the fact that the companies will be affected by the patent "cliff" was in open view, and should not come as a surprise to anyone.

Relying way too much on one and only one strategy - exclusivity to "blockbuster" drugs has led to the issue at hand, again something that these high priced bell-hops executives should have hedged against with alternates.

Simply acquiring companies and slashing jobs has of course been the only and ineffective alternate.

4. Conservative R&D

"Throughout the centuries, there were men who took first steps, down new roads, armed with nothing but their own vision." -- Ayn Rand

Cheesy? Yeah, maybe, but here is the deal. Drugs were released, not by MBAs equipped with pretty PowerPoint slides, but by people who struggled through starting companies and double mortgaged their homes. When these companies became acquired by larger organizations, R&D turned to becoming conservatives.

In trying to come up with new drugs, organizations have adopted the same age-old strategies, and used smoke-screens instead of real and deliberate attempts at innovation. This of course, has meant that only 21 molecules were introduced last year, as opposed to 26 the year before.

The Dendreon success story

When Provenge finally won approval, it should have served as an eye opener for many pharma executives that status quo is not a good R&D strategy. There are so many avenues available in genetic repair, personalized medicine and others that remain unfunded or under-funded because everyone wants "someone else" to do it, so that they can swoop in later on, acquire them and lay people off..

Companies that buck the trend and take risks to forge new paths will succeed while others will be left behind to acquire their way to oblivion.

5. Falling, falling, falling...

So, between 2009 and 2010, R&D investments fell over 3%, down from $70bn to $68bn. While that might seem small, according to Reuters, it is bound to fall more.

There are fewer IPOs slated for biotech organizations this year.

Investment in biotech start-ups is also down.

Conclusion

It is time that pharmaceutical companies got serious and set the right priorities. Companies need to trim fat, starting at the top. Stop passing the buck and take responsibility to make sure investors get positive returns on their investments. Make sure there is enough R&D funding and finally, remember they are in the business to improve people's health...

References:

1. Some numbers:

http://www.reuters.com/article/2011/06/26/pharmaceuticals-rd-idUSL6E7HO1BL20110626?feedType=RSS&feedName=rbssHealthcareNews&utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+reuters%2FUShealthcareNews+%28News+%2F+US+%2F+Healthcare+News%29&utm_content=Twitter

2. On vanishing science jobs:

http://www.nypost.com/p/news/opinion/opedcolumnists/america_vanishing_science_jobs_V3TzWwPRZsmTh1sGmtVr8L?fb_comment_id=fbc_10150227908749349_17158421_10150228481934349#f2951ecb507bb

3. Scientific American's 1000 scientists in 1000 days:

http://www.scientificamerican.com/page.cfm?section=calling-all-scientists

4. Genetic Editing:

http://www.guardian.co.uk/science/2011/jun/26/doctors-breakthrough-repairing-genetic-defects

5. On passing the buck:

http://chaaraka.blogspot.com/2011/06/on-scott-browns-unfactual-rant.html

http://www.boston.com/news/nation/washington/articles/2011/06/27/biotech_industry_lobbies_against_medicare_cost_panel/