Pharma Execs: Cost Cutting Is Not A Top Priority
7 CommentsBy Ed Silverman // November 12th, 2008 // 7:18 pm
Speeding new meds to market and reinvigorating research are top priorities for drugmakers, not cost cutting, according to an Ernst & Young survey. While many big drugmakers have announced plans to make major strategic shifts, there’s little to no evidence yet that any have done so. In fact, most still haven’t made organizational changes needed to accomplish those shifts, the Associated Press reports.
Indeed, the few changes that drugmaker disclosures and earnings reports indicate already have begun are hardly revolutionary: boosting sales of drugs that face generic competition in emerging markets such as China and India, trimming US sales forces, and outsourcing functions such as information technology and payroll, the AP writes.
“Many of them have not ventured very far down the path of what their (stated) new business model is going to be, and some are still struggling to choose a direction,” Mark Hassenplug, global pharma sector market leader at Ernst & Young, tells the AP. “The companies are trying to go back to the drawing board and rethink what they want to be as an organization.”
Asked to name their top one or two initiatives to boost future growth, 40 percent chose cutting costs, less than half of the 92 percent who said so in a similar survey in 2007. This year, 66 percent cited invigorating R&D, and expanding into new markets and restructuring marketing each drew 40 percent, the AP writes.
The survey found the top pressures on execs include: getting new meds approved for sale, cited by 72 percent; producing medicines that patients and payers will value over existing ones, including cheap generics (47 percent); and shifting to serve new “customers,” including patients, insurers and government agencies all concerned about costs, instead of just doctors (36 percent).
The study, based on in-depth interviews with 40 senior execs at 15 large and midsized drugmakers, was begun in the spring and completed in early September, just before the financial crisis hit. While drugmakers generally are cash-rich, they now have to look for safe places to place their money and their stock prices have fallen, so the financial crisis has become “a new catalyst” pushing some to try to accelerate planned changes, Hassenplug says.
Like other industries, pharma until recently has been loath to change, he says, even though they have seen their biggest problems mounting for years. Those include blockbuster drugs losing patent protection; a meager pipeline of comparable sellers; resistance to prices from insurers, government agencies and patients; and safety scandals that prompted a tougher stance from the FDA.
Strategies companies are discussing to reinvigorate pipelines include narrowing their focus to specific disease areas, shifting from drugs for the saturated mass markets such as heart disease to those for smaller numbers of patients with no good treatment options, and partnering more with biotech companies and small pharmaceutical companies.
The slow progress on those and other changes raises the question of how the public can have confidence drugmakers can pull this off, according to analyst Steve Brozak of WBB Securities. “The people that got them in this position are the same people that are going to have to lead them out of this,” he tells the AP, adding that the report confirms that the business model of large drugmakers not only is broken but can’t be resurrected.
Michelle Tantaros
There is a small generic pharmaceutical company located in Middlesex, NJ by the name of Corepharma LLC. This company has a practice of hiring people from abroad (specifically India),sponsoring these people, and paying them a fraction of the salary that American people are making for the same position. This is out-sourcing right under the American people’s noses and it’s happening in our own backyard. They are paying these people well under industry standards for jobs that the American people should be doing. In our economy today it’s an outrage that this is being permitted to happen. Americans are losing jobs and not able to support their families while companies like this are hiring non-American’s to do our work. It’s no wonder that our economy is suffering and it’s an outrage. These jobs should be going to the American people and not people who are sponsored from other countries, such as India, to do our job. These peopel are not even American citizens and they are willing to take our jobs for pennies, leaving us out of work with no way of supporting our families. This company is 98% Indian and more than half of their employees are sponsored from India – why is this being permitted to happen? How is this helping our economy?
BPW
Gee, I thought fleecing the American public was their #1 priority. Silly me.
Nathan
People always talk about a “new business model” for pharma, but it isn’t clear to me what that means. Our business model is this: We design/test the drugs (that costs money) then we sell the drugs (that makes the money).
Short of giving up on R&D and moving to just a sales organization, I don’t see how much of anything can fundamentally change. Several major companies have announced R&D reorganization that refocus efforts away from saturated markets and high-risk areas (cardiovascular, infectious diseases, and hormone therapy) That was pretty recently - probably after this survey was conducted. GSK seems to be doing a “fundamental restructuring” of its R&D every 5 years. (CEDDS, now “independent business units”) It’s unclear to me that these “fundamental changes” have led to anything useful.
The bottom line is this: Pharma is just a very, very difficult business to be in. For a variety of reasons that most of us are aware of, designing new drugs and getting them approved is very, VERY challenging these days. No amount of “fundamental changes” in our business model is going to alter that reality.
Doc
Michelle,
The sooner every American citizen and politician realize we are competeing in a global economy, the sooner reality can come to the US. Corp taxes are the 2nd highest in the world and other facts of life in this country are making us non-competitive in many areas. The bigger issue is that we don’t have enough math and science majors to fill needed spots in the US economy. Most kids want to be sports, music or movie stars it seems.
Nathan
Doc writes: “The bigger issue is that we don’t have enough math and science majors to fill needed spots in the US economy”
Are you crazy? Have you TRIED getting a job as a scientist these days? There are just way too many PhDs in chemistry, biochemistry, molecular biology, etc to fill the very few jobs available. One of the few “bright spots” seems to be academics. There seem to be a large numbr of profs retiring leaving openings for junior faculty.
Mark
Michelle wrote:
“This company has a practice of hiring people from abroad (specifically India),sponsoring these people, and paying them a fraction of the salary that American people are making for the same position.”
This makes no sense. If a company sponsors an immigrant for employment, they HAVE to pay the “prevailing wage”, which is determined by the labor certification board. If they don’t they can be sued and the “lost wages” recovered.
If you have evidence that this company isn’t paying the prevailing wage, please contact the USCIS.
An FDA Reviewer
The situation for native US scientists, engineers, and IT people is well known. Academics from major business schools have looked into it and published papers debunking statements that Bill Gates and others have told Congress in hearings. As for profs leaving, don’t count on it there’s already too many in the pipeline one pharmacy school I applied to told me they got over 200 applications for the same position. People are being hired as TAs forever and so on.
As for hiring at less than the prevailing wage, it happens all the time and is also documented. Most of these jobs are specialized and the labor certification board doesn’t even have a category for them. Plus how are you to prove what they are being paid? Is anyone going to give you their pay stub? This same thing is happening in the Federal government. FDA is forcing native US citizens who do their jobs and replaces them with H1-B visa holders who are used to corruption in government and have absolutely no problem with simply copying and pasting company’s summaries (that are even now in FDA’s review format, per FDA request (QBR format). The posting of these jobs H1-B visa holders are usually in some out of the way place where no one is likely to look.
What we need is a national database with codes for these jobs and not letting people get away with writing excessively restrictive requirements where US citizens can go to and apply for these same jobs if they have even roughly comparatable qualifications.
Along with an automatic notification whenever someone applies to hire an H1-B or H2-B visa holder.
Sen. Grassley’s been looking into this issue. I think I’ll write him.
An FDA Reviewer