Party May Be Over For Big Pharma

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Party may be over for Big Pharma

By Thomas Ginsber


Reynold Panettieri Jr. is sitting pretty, flush with drug-company money for his research on asthma at the University of Pennsylvania.

Edward Garvey, on the other hand, is miffed, having lost his pharmaceutical marketing job in New Jersey because of corporate cost cutting.

These are the clashing realities of the global pharmaceutical business today, with the Philadelphia region one of its hubs. Companies are gambling ever bigger sums of money on blockbuster products, with painful consequences when they falter.

Now, after nearly two years of safety controversies, regulators are asking tougher questions about drugs. Criticism by patient advocates is growing. Stocks are sagging. Profits are off.

The slump - rather, the hugely profitable industry's version of a slump - even has a name, thanks to one blockbuster flop that has come to epitomize the safety and financial pitfalls.

"We're in the post-Vioxx environment," said Herman Saftlas, an equity analyst at Standard & Poor's, referring to the pain-reliever that Merck & Co. Inc. recalled on Sept. 30. "There will never be a time again like the '90s; it's not on the horizon. It was the gay '90s." He said they were "unusually strong years. It was their version of the dot-com era."

Whether the glory days are gone for good, or just detoured, is unknown. But Vioxx and the slump now have intensified a long-running debate over the "blockbuster business model" that underpins Big Pharma - the sprawling companies such as GlaxoSmithKline P.L.C. and Merck that spend billions to invent, test, produce and market drugs under one roof, all predicated on creating billion-dollar products with big profits.

"They are very, very short on blockbusters now, and it's the blockbusters that support this industry," said Patricia Weeks, a Temple University vice president and former president of the Association of University Technology Managers, which works closely with drug companies. "I don't think Big Pharma can sustain itself anymore like this."

Looming over the industry is the likelihood that the Food and Drug Administration will start demanding more proof of safety and will slow down approvals, even as more drugs face generic competition and marketable breakthroughs remain years off. The FDA itself is facing more scrutiny, including demands to separate drug-safety reviews from drug approvals. The Bush administration said yesterday it was creating an independent Drug Safety Oversight Board to review FDA decisions. The Pharmaceutical Research and Manufacturers of America, an industry trade group, declined to comment on the move after opposing changes in the past.

"The FDA is going to start calling out drugs where there is a safety issue. The companies with those products will find themselves under more scrutiny," said Anthony DePadova, who has worked as medical director of several drug companies in New Jersey and Pennsylvania, asking they not be named.

The implications may be weighty for the Philadelphia region, where five of the world's biggest drug companies have headquarters or major operations: Merck in West Point and Blue Bell, Montgomery County; GlaxoSmithKline in Philadelphia, Upper Merion and Upper Providence, Montgomery County; Wyeth also in Upper Providence; AstraZeneca P.L.C. in Wilmington; and Johnson & Johnson, which owns several regional companies, including Centocor in Malvern.

Surrounding them all are smaller drug and biotech companies, and scores of service and research firms.

All together, pharmaceutical and biotech companies employed more than 82,000 people across Pennsylvania, New Jersey and Delaware in 2003, most of them in sales, marketing and research, according to the Milken Institute, a nonprofit research group.

Layoffs appear to be growing. Drug companies announced more than 8,700 job cuts nationwide in November, December and January, the biggest three-month figure for the sector since 2003.

That was the year Big Pharma fell to No. 3 on the Fortune 500 list of most profitable industries, surpassed by banking and mining. It had been No. 1 for at least four previous years.

Things have not improved much since. The American Stock Exchange Pharmaceutical Index is currently down 31 percent from its high over five years and 11 percent over the last year.

Analysts are predicting a rise in mergers, partnerships and licensing deals as companies scour for profitable products and cost savings. Viren Mehta of Mehta Partners in New York projects that Big Pharma's sales growth will slow to 5 percent a year in coming years, half as fast as the last decade.

"Growth will be lower. Wall Street does have to change its expectation of what the pharmaceutical industry will achieve," said Fritz Bittenbender, president of Pennsylvania Bio, a regional trade group.

Garvey has felt it already. The New Jersey resident was laid off in June as a senior manager for a major drug company with operations in New Jersey and Pennsylvania. He asked that its name not be printed.

"I'm still trying to recover," said Garvey, 37, blaming new managers bent on cutting costs and a general industry obsession with blockbuster drugs.

"The blockbuster is the product you get when everything goes right. But how often does everything go right?" Garvey asked. "Having a lot of midsized drugs is better than a few blockbusters. You cannot replace blockbusters when they fail."

Garvey is looking for another job in the drug business, despite the threat of downsizing. "The mid- and low-level employee is taking on more and more work," he said.

The pain is all around. Merck, Glaxo and Wyeth have reported cutbacks in recent months. Local recruiters say the handwriting has been on the wall since Vioxx.

"I'm sure there will be more layoffs," said Josh Albert of Management Recruiters of Willow Grove, specializing in pharmaceutical staffing.

The cutbacks may be healthy for the business. Layoffs are centered in marketing and sales staffs, estimated to number between 80,000 and 100,000 nationwide, compared with about 150,000 physicians for whose attention they are fighting.

"When you get to almost one sales rep for every doctor, that's too much," said Mark Bard, president of Manhattan Research, a pharmaceutical marketing consultancy.

On the other hand, spending on research is rising inexorably. The paradox of Big Pharma is that it spends more - not less - in pursuit of profitable products during tough times, even though returns may be growing elusive. That may mean a windfall for researchers in pharma hubs such as Philadelphia, Boston and San Diego.

Panettieri, the Penn researcher, said that, even as the industry stumbled in recent years, corporate funding has grown to about 20 percent of his budget for research into the genetic causes of irreversible adult asthma. Analysts say such work on gene-specific drugs may hold the key to the next pharmaceutical boom.

"During a slump, I do think they look for alternative discoveries, and that would entail coming to the big universities," Panettieri said, adding that funding contracts prohibit him from naming the companies.

He said the whole idea of corporate support "is wonderful. It's a win for everybody around the table. As federal money shrinks, corporations can chip in."

Temple University, Thomas Jefferson University, and Fox Chase Cancer Center also report a steady increase in clinical trials and research funds, increasingly supplied by biotech firms bankrolled by Big Pharma.

"What do you do when you're down? Where do you go to find new ideas? Universities are full of them," said Terry Fadem, Penn's director of corporate alliances.

As for patients, the industry will have to confront safety concerns head-on, several experts said.

"Every drug is a poison, and every poison is a drug," DePadova, the pharmaceutical medical director, said. "Pick the right dose and the right person, and it can have benefit."