“The drug giant Pfizer Inc. has agreed to acquire the Pharmacia Corporation for stock that it valued at about $60 billion, in a deal that would make it by far the most dominant drug maker in the world, the companies announced today….
Drug companies, under intense pressure from politicians, employers and managed care companies to limit price increases, are having a hard time finding breakthrough products that would assure the robust earnings growth investors demand. Pfizer’s acquisition of Pharmacia, resulting in a company that would still control only 11 percent of the global market, is likely to hasten the industry’s continued consolidation.” NY Times
Related: This analysis of pharmaceutical industry research and development woes from The Economist [blink courtesy of David Brake] delves more deeply into one of the strong pressures behind acquisition and merger in the industry, as the New York Times story above suggests.
Essentially: pharmaceutical company shares are falling faster than the Dow. Several drug giants are among the companies whose ‘creative accounting practices’ and anti-competitive behaviors are taking them dangerously close to regulatory discipline if not grand jury scrutiny. As the industry is more concentrated and the profit-and-loss statement relies more and more heavily on one or just a few big-earning medications in a company’s stable, it becomes disastrous to face expiring patents and generic equivalents — as with the ongoing desperation of Eli Lilly to cushion itself over the loss of Prozac profits — or product glitches — such as the recent sea change around HRT or unacceptable side effects found late in a drug’s R&D cycle or even not until post-marketing surveillance. There is thus more and more pressure on drug companies to develop the next new blockbuster, while development costs, especially the costs of necessary clinical trials, are climbing. “(I)t is not that (the pharmaceutical companies) have become much worse at delivering new drugs, but rather that they have not become much better.” One estimate is that each company has to develop roughly three new drugs per year for the balance sheets to remain healthy; current R&D performance is around half that level.
Under such circumstances, I keep saying, prescribing physicians and the drug-consumer public should be alert to the ways in which drug company profitability requires that they shove questionable advances down our throats… literally. Although I would be the first to resist a cost-containment effort that would reduce patient access to a truly superior pharmaceutical, one should always question one’s doctor on the advantages the Next Great Thing s/he’s prescribing has over the tried and true, gold-standard medication with the same purpose.