28 December 2009

Big Pharma Is Sick

Some have blamed it on the tyranny of the quarter.

In the relentless bid to meet analyst expectations with each earnings announcement, pharmaceutical companies are pressured to pull out all the stops to goose their numbers.

Their resultant behaviour (collectively speaking) has often been appalling.

This month's issue of Bloomberg Markets (http://www.bloomberg.com/news/marketsmag/) carries a damning report on the state of Big Pharma, and the common practice in recent years of off-label marketing: promoting the use of drugs in ways that have not been approved by regulators.

Pfizer, in particular, is tainted. Already hammered with a US$430 million fine in 2004 for pushing doctors to prescribe the epilepsy drug Neurontin for unauthorized purposes, it was again hauled up for the same crime in September this year - for the off-label marketing of Bextra and other prescription drugs. This new felony generated the largest single criminal fine in US history -- $1.19 billion -- plus another $1 billion in civil penalties.

Incredibly, the rap sheet goes on: Eli Lilly, $1.42 billion. Serono, $704 million. Purdue Pharma, $634 million. Scherling-Plough, $435 million. Cephalon, $425 million.

The widespread off-label promotion of drugs for unapproved uses without adequate evidence that the medicines work has caused substantial harm and even death to some patients. But as large as the penalties are for Big Pharma's off-label transgressions, they are small compared to the drug companies' annual revenues. Indeed, some firms appear to regard them as just another cost of doing business -- in much the same way as certain animals periodically shed their skin, then move on with life.

As a regional marketer in two previous lives, I can imagine the tremendous performance pressures those responsible for off-label marketing must have experienced. As a detached commentator and future patient, I am outraged that these transgressions were allowed to happen.

By condoning if not instigating such behaviours, senior management at these companies have lost the moral authority they sorely need to inspire and lead their troops up the performance curve. They will find it harder to recruit and retain top talent. (Yes, it matters what company you put on your CV -- and the brand associations those names conjure.) And even though the consuming public tends not to look at the pharma company behind the drug, the investing public will consider the value assigned to the stock -- a figure that's bound to be affected by the values ascribed to the company.

Thankfully, while these firms zig, a few exceptions have chosen to zag. GlaxoSmithKline and Astro-Zeneca have so far side-stepped the current quagmire; and I must imagine there are other companies that have managed to stay on the straight and narrow. Disclosure: I worked on the GSK business for a portion of this year, so will admit to some degree of first-hand knowledge and bias. GSK had a problem in 2000 with a ghostwriting program for articles targeted at medical journals; but that's behind them, and their current leadership team has worked hard to embed integrity within its corporate culture.

Pharma companies depend on their intellectual property and patent pipeline for growth. A close study of the advanced development pipelines of the top 15 companies in 2008 delivers a forecast that by 2015, more than 2/3 of this cohort will be smaller in size. When blockbuster drugs lose their patent protection and become inexpensive generic options, the pressure to resort to off-label marketing and other forms of questionable behaviour can only increase.

It will take a strong brand with moral fibre to keep on the high road. We should stay tuned -- and healthy.

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