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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

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December 10, 2010

Have Pfizer's Investors Had Enough?

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Posted by Derek

It's taken a while, but have Pfizer's long-suffering investors finally had enough? FiercePharma has a roundup of stories that suggest that some of the institutions are upset over the abrupt departure of Jeffrey Kindler this past weekend. The quote that leaps out is one from an unnamed hedge fund manager who calls the current board "value destroyers".

Who'd disagree? But who would think that it would take this long for such people to realize the value that's been shredded over the years by Pfizer's acquire-acquire-acquire strategy? Here's ten years of Pfizer versus the S&P500. Up until 2004, with a couple of brief excursions, Pfizer stock basically tracks the index. After that, it lags badly. Over a decade of hard work on Wall Street, analyzing Pfizer's prospects, peering into their books, assessing their portfolio, weighing the chances for each drug, the ramifications of each acquisition: in vain. All in vain, because you'd have done far, far better with the money by parking it in an index fund and walking away to do something more meaningful with your time. Not that you wouldn't have lost money doing that; the S&P 500, damn it all, is down over a ten-year span. But you'd have lost a lot more if you'd listened to Pfizer's press releases or anyone who recommended that you buy their stock.

I've been complaining here about Pfizer's strategy since at least 2003, but it's not like I'm happy about being right. So many people have had their lives disrupted by Pfizer's acquisitions, and there's been so little return on all of it that it's hard to feel good about anything associated with the company's recent history.

And now that all these gigantic deals have been done, the employees have been jerked around, and the facilities closed, what are these big investors proposing to do about it? An angry committee has been formed to discuss strategic barn-door-closing initiatives, but the horses are over the horizon.

Comments (54) + TrackBacks (0) | Category: Business and Markets | Drug Industry History


COMMENTS

1. Ed on December 10, 2010 9:13 AM writes...

Your chart ignores reinvested dividends, does it not? (the major driver of long-term stock market returns) And at 3-4% over 10 years, that's sure to narrow the gap a lot.

Still hardly stellar performance of course, but income investors might not be grumbling too much.

Permalink to Comment

2. David P on December 10, 2010 9:16 AM writes...

Pull that back another 5 years to 1995 and you see how much Pfizer stock has fallen - it used to be so much higher than the S&P.

Then on the left, news ticker on who Pfizer will acquire next. Are they learning?

Permalink to Comment

3. Jerck on December 10, 2010 9:22 AM writes...

Derck; you are right on spot! Employees are really jerked around and a pretense is given that something meaningful is being done, but we all know that is not true. I feel that Merck is headed in the same way with all the nonsense currently ongoing. The old adage that "no vision, no future" is true for many companies and more so for behemoth like Pfizer and the rest.

Permalink to Comment

4. Anonymous on December 10, 2010 9:35 AM writes...

And when it rains....it pours.

http://www.cnn.com/2010/US/12/09/wikileaks.nigeria/index.html?hpt=T2

Permalink to Comment

5. Nick K on December 10, 2010 9:42 AM writes...

Has anyone calculated the total shareholder value destroyed by all these mergers and acquisitions? It must run into many tens of billions. The only beneficiaries have been investment bankers, who have made a fortune on fees.

Permalink to Comment

6. Derek Lowe on December 10, 2010 9:42 AM writes...

Ed, you're right, that does ignore reinvested dividends, but those would boost the returns a bit for an S&P 500 fund as well (although I'm sure the rate is lower). Pfizer's dividend isn't what it used to be either, though.

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7. processchemist on December 10, 2010 9:58 AM writes...

Suddenly the investors understand that someone is destroying value since 10 years. For sure during these years they obtained some profits anyway, but now this is a sign of a turn of the tide. The recipe for value recovery? Bigger slices of the chinese and brasilian markets. Brilliant. If the income from the BRIC countries is currently 2 billions, a 30% growth will be of great help to balance about 10 billions of soon-to-evaporate lipitor revenues. Maybe not only the Pfizer board is a value destroyer, and their Wall Street cousins too are pretty good at this sick game.
Time to see some panic about PFE bonds? And one year ago some investors criticized the "too small" 16 billion debt placement...

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8. JT on December 10, 2010 10:18 AM writes...

It's funny to hear wall street types criticize others as "value destroyers" - just look back over the past 30 months and look at the damage they have done to all, including companies like pfizer whose pensions, 401Ks, etc are completely demolished. furthermore, this lowered the amount of fleixibility that corporations had for strategic decision making (bad credit markets, bad equity markets, ugly NPV calculations). of course, the bankers are still correct, the board are "value destroyers" (note: i am not saying this is intentional) - the real question is: "where are the adults?"...those that will step up, admit responsibility, and propose ideas to fix it in a 'value creating' way?

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9. Pandora on December 10, 2010 10:24 AM writes...

Derek, is this not true of all, or at least many, of the Big Pharmas? Who can claim 10 years on that the GW-SB merger was a success? Seems to me that their marriage brought together the worst of the US and UK models, UK cronyism and old-boy networks meets corporate America of the worst sort. Meanwhile, the science was trashed and the middle managers doing "non-jobs" proliferated. When the full scale of the failure to deliver the promise and hype dawned on Garnier, Slaoui, etc, the cuts began in earnest and panic purchases like Sirtis ensued. Pfizer are not the only value destroyers, a collosal failure failure of leadership has brought the industry to its current sad state.

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10. MTK on December 10, 2010 10:24 AM writes...

well, singling out PFE and their acquire-acquire-acquire strategy is a little unfair. The entire sector has pretty much stunk.

Since 2000 the S&P has lost about 11%. Here are how other pharma stocks have done.

PFE: -52%
MRK: -51%
LLY: -48%
BMY: -60%
GSK: -20%
ABT: +47%
SNY: +3%

Permalink to Comment

11. Matt Herper on December 10, 2010 10:25 AM writes...

The problem is that if you look at Merck or Bristol-Myers Squibb over that time period, they do just as badly. You can't just blame the mergers. In 2000 the U.S. drug industry was riding high, considered an amazing combination of growth investing and widow-and-orphan stocks. Instead, it was facing years of stagnation. The European companies, Novartis and Sanofi, are the ones that do well. Glaxo does OK, too. All three companies have done nearly as much merging as Pfizer.

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12. Petros on December 10, 2010 10:27 AM writes...

And the abandonment of Thelin suggests Encysive wasn't a good buy
http://www.fiercebiotech.com/story/pfizer-halts-phase-iii-trial-withdraws-thelin/2010-12-10

Permalink to Comment

13. Matt Herper on December 10, 2010 10:28 AM writes...

The problem is that if you look at Merck or Bristol-Myers Squibb over that time period, they do just as badly. You can't just blame the mergers. In 2000 the U.S. drug industry was riding high, considered an amazing combination of growth investing and widow-and-orphan stocks. Instead, it was facing years of stagnation. The European companies, Novartis and Sanofi, are the ones that do well. Glaxo does OK, too. All three companies have done nearly as much merging as Pfizer.

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14. Petros on December 10, 2010 10:28 AM writes...

And the abandonment of Thelin suggests Encysive wasn't a good buy
http://www.fiercebiotech.com/story/pfizer-halts-phase-iii-trial-withdraws-thelin/2010-12-10

Permalink to Comment

15. MTK on December 10, 2010 10:45 AM writes...

@15,

I'm not even sure how much better the European companies are doing considering that the Euro has gained about 50% on the dollar over the last decade.

So yeah, you would have been better off investing in European pharma but not due to any underlying superior strategy or company performance, but purely due to currency rates.

Permalink to Comment

16. HelicalZz on December 10, 2010 10:49 AM writes...

As already noted, the chart comparison is lacking. It neglects dividends (reinvested or not) and PFE pays out at a higher rate than the index. Also, it doesn't account for relative valuation (even simplistic like P/E comparison) at the beginning or end of the period. I am not saying PFE has outperformed and simply not been rewarded for it, but that the comparison made doesn't tell the story.

Why 10 years? Kindler had only been there 5, and during that time the chart comparison is nearly even (with PFE ahead accounting for dividends). Would you give him credit for ending the lag period?

In any case, easy to criticize, hard to point to a solution. What would you have had PFE's board done in order to not 'destroy value' over the past decade. Not spend so much on R&D along the way? Start cutting it back sooner than they did? Not market Lipitor so aggressively? Not invest via acquisitions (large and small), and if not, where would those investment dollars have come from? Even for a company the size of Pfizer, if torcetrapib turns out differently, this is a different story (and the board member are then brilliant I guess).

Who is doing it right in you opinion?

Zz

Permalink to Comment

17. Pfired on December 10, 2010 10:52 AM writes...

I think we chemists, investors, etc would have been way better off if Warner Lambert was still Warner Lambert, Pharmacia was still pharmacia, Searle was still Searle, Wyeth was still Wyeth and so on. The organic growth or at least status quo of those companies is far preferable to the wanton destruction of Pfizer's strategy. It seems the bigger the organization the more inefficient it becomes. Start with our government, then move to the Pfizer's and so on. I'd hate to work for Pfizer - I'd rather deliver pizzas and newspapers (anybody hiring?)

Permalink to Comment

18. Ken Bob on December 10, 2010 11:13 AM writes...

I'm surprised it took this long. Prior to the Wyeth acquisition, the stock value destroyed by Pfizer was in the neighborhood of $60 billion. That was pre acquisition total market capitalization of Pfizer, Warner Lambert, and Pharmacia vs post acquistion total market cap. Time will tell how much more they destroy now that Wyeth has been gobbled up by the borg.

Permalink to Comment

19. processchemist on December 10, 2010 11:23 AM writes...

@19

I know my share of people that have been better when Wyeth was Wyeth and Pharmacia was Pharmacia. The Wyeth M&A produced not only "restructurations" in the merged company, but also a relevant "rationalization" of the codevelopment/licensing pacts in fieri in the pre-merge period (originating from the Wyeth side), victims of the "optimization" of the therapeutic areas.

Permalink to Comment

20. jtd7 on December 10, 2010 12:19 PM writes...

Off-topic, Derek, but I read your 2003 post about Pfizer and was even more struck by the lead on the adjacent 2003 post, as an indicator of how different life was only seven years ago:

"Apologies for the missed days; I've been off from work and it's been hard to get access to my computer."

Permalink to Comment

21. PfizerBorg on December 10, 2010 12:21 PM writes...

You will be assimilated! Resistance is futile!

All your pipeline are now belong to us!

Permalink to Comment

22. Chemjobber on December 10, 2010 12:25 PM writes...

"the S&P 500, damn it all, is down over a ten-year span."

Word, Derek, word.

Permalink to Comment

23. Morten G on December 10, 2010 1:00 PM writes...

But if you bought your Pfizer stock 20 years ago you would still have the S&P500 beat by ~100%. And if you had sold in 2000 you would have been ahead by ~200%.
And this chart doesn't account for dividends.

And all of this is supposing that the market is effective and the stock value is an accurate reflection of the value of the company. And as a scientist... I'm not sure I trust that assumption.

Permalink to Comment

24. PipeToDevNull on December 10, 2010 1:10 PM writes...

"the S&P 500, damn it all, is down over a ten-year span."

It is now about where it was, but headed in a better direction at least. A little rueful, still; the bargains were nice! JT above points out a significant irony, even without using words like "governance" or "regulation". But let's also mention the obvious that The Street is not always kind to those on long time frames, aside from the questionable decisions pharmas have made. Perhaps the pharmas can continue to aggregate until they're Too Big To Fail and can cushion their fall on the backs of taxpayers too.

Permalink to Comment

25. Anonymous on December 10, 2010 2:21 PM writes...

But you've got to feel sorry for Kindler. He's "only" getting $4.5 million in cash as severance. Well, OK, $9.5 million if you count the stock and benefits. Sounds like a lot to the laid-off many, but imagine the snickering he'll be forced to endure at the Golden Parachute Country Club! The shame, the humiliation!

Nice damaging information from Wikileaks about Pfizer today as well. Trouble comes in threes, so what's lurking next?

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26. Annette Bak on December 10, 2010 2:54 PM writes...

Some critics argue a strong external chairman with industry experience should be appointed as part of a broader restructuring of the board. I say the board was comprised of directors who are older, longer-standing and with little operational knowledge of the sector compared with their peers.

Permalink to Comment

27. bbooooooya on December 10, 2010 4:35 PM writes...

""the S&P 500, damn it all, is down over a ten-year span.""

and that's before exing out a decade's worth of inflation: there goes another 34%....

Permalink to Comment

28. MedChem on December 10, 2010 4:46 PM writes...

#25,

Yep. $9 mil is chump change compared to the packages other pharma CEOs are getting, even those from much much smaller companies.

Permalink to Comment

29. Petros on December 10, 2010 5:18 PM writes...

And featured by Wikileaks too over Trovan tests

http://www.guardian.co.uk/business/2010/dec/09/wikileaks-cables-pfizer-nigeria

Permalink to Comment

30. Watcher on December 10, 2010 10:35 PM writes...

I'm disappointed in you Derek. You've said many times that the industry is in for a rough time, that a "future Pharma" will have to look, work, innovate differently than in the past. And yet, you pretend now to suggest that Pfizer's acquistion strategy was a one sided detriment to the industry at-large, and that somehow all the middle size companies would & could remain independent, fianancially viable, competitive. And, you know that's not where the future is leading.

While I personally don't like what the aquisitions have done to some well run middle size companies, and the effects on so many people whose goals and lives were disrupted when they simply wanted to continue "careers" that may no longer be available to them, the current trends are having impact across the industry, not just on Pfizer. Trying to anticipate and buffer upcoming patent expirations with losses of tens of billions in sales has never been successfully accomplished in the industry....never. Pfizer upper management has seen this coming for years, and tried to maintain the path that got them there in the first place ----acquiring billion dollar drugs by buying the companies that owned the IP. It worked, for a while, just like the Merck model worked and was held as the industry's darling, its poster child for over two decades. Now, there's no successful model to mimic, to follow, nothing that excels and project to the future for the industry to emulate.

It's clear, Pfizer has some very tough times coming. But, in the meantime, some folks have done very well by them too, just like some did with Merck, Glaxo, SKF/SKB, and others in their "glory" and "rapid growth & expansion" days. I don't see, Derek, that you have a better model to propose. So, it's time you stop trying to be so judgemental in trying to position Derek as so well-meaning, so well intended. It's time for more reality in your world, the reality of what's really happening to the industry, where Pfizer is just another train about to roll over the cliff.


Permalink to Comment

31. Perplexed on December 11, 2010 12:21 AM writes...

I'll be brief and to the point.

Is this Peak Chemistry and does a Physicist have a better shot at making a lifetime career out of science? I just don't know where its all headed.

Permalink to Comment

32. parasite on December 11, 2010 7:09 AM writes...

Got to agree with Watcher on this. Drug discovery and development used to be much easier, now it's not. The major markets used to be growing, now they're shrinking. It could be argued that there is significant overcapacity on all sides (R&D through marketing). Shrinking margins and ROI will necessitate an overall reduction in footprint. The mergers are one aspect of this (i.e. they reduce the overcapacity). Other companies may just choose to get out of the drug discovery and development game completely. It would not surprise me if there are only 5-6 large pharma left in the next 5-10 years.

I have my issues with PFE on the basis of business practices, but we're all in the same boat here.

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33. Anonymous on December 11, 2010 8:30 AM writes...

Nor is there required such profound knowledge to discover the present imperfect condition of the sciences, but even the rabble without doors may, judge from the noise and clamour, which they hear, that all goes not well within. There is nothing which is not the subject of debate, and in which men of learning are not of contrary opinions. The most trivial question escapes not our controversy, and in the most momentous we are not able to give any certain decision. Disputes are multiplied, as if every thing was uncertain; and these disputes are managed with the greatest warmth, as if every thing was certain. Amidst all this bustle it is not reason, which carries the prize, but eloquence; and no man needs ever despair of gaining proselytes to the most extravagant hypothesis, who has art enough to represent it in any favourable colours. The victory is not gained by the men at arms, who manage the pike and the sword; but by the trumpeters, drummers, and musicians of the army.

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34. anon the II on December 11, 2010 9:04 AM writes...

I can't quite figure out what #33 Anonymous is trying to say but maybe it could summarized with this quote:

Much of the social history of the Western world over the past three decades has involved replacing what worked with what sounded good.
- Thomas Sowell

Therein is sowed the seeds of our discontent.

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35. Cellbio on December 11, 2010 10:31 AM writes...

#33 is quoting Hume. Many points to take, most poignant for me are those in the first paragraph that I interpret as: human nature has us favoring our solutions over those that preceded us, even when the future outcomes of our choices are uncertain. Thanks 33. Hume's language is challenging for me, but I love to read his thoughts, and recommend scientists read both Hume and Kant. I believe most scientist tend towards the more analytic tenets of Kant, but Hume is, in my opinion, more useful philosophy to apply to human interactions, whereas Kant is more idealistic.


A TREATISE OF HUMAN NATURE
DAVID HUME
(1739)

BOOK I

INTRODUCTION.

NOTHING is more usual and more natural for those, who pretend to discover anything new to the world in philosophy and the sciences, than to insinuate the praises of their own systems, by decrying all those, which have been advanced before them. And indeed were they content with lamenting that ignorance, which we still lie under in the most important questions, that can come before the tribunal of human reason, there are few, who have an acquaintance with the sciences, that would not readily agree with them. 'Tis easy for one of judgment and learning, to perceive the weak foundation even of those systems, which have obtained the greatest credit, and have carried their pretensions highest to accurate and profound reasoning. Principles taken upon trust, consequences lamely deduced from them, want of coherence in the parts, and of evidence in the whole, these are every where to be met with in the systems of the most eminent philosophers, and seem to have drawn disgrace upon philosophy itself.

Nor is there requir'd such profound knowledge

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36. luvyurenema on December 11, 2010 10:36 AM writes...

The problem is not limited to Pfizer. Almost all pharma co's are facing this. But why are the shareholders blaming the CEOs?? Kindler et al have only been doing what they wanted: returning as much value as they can for the investors, whose insatiable appetite for more, more, more has left these companies as hollowed out hulks and former employees shredding their worthless Ivy League diplomas.
Did they invest in their research departments, organize their databases, have patience with new technology, or work with Congress to fix the FDA? Um, no, they just ate their seed corn and paid their shining CEO stars ungodly amounts of money for deals that were arranged to enrich the top executives.
The locusts need to stop feeding now. It was an immoral and greedy feeding frenzy. And now there's nothing left. It would be too much to expect that they've learned anything from this. Let's just hope they're done for the next 27 years.

Permalink to Comment

37. Cellbio on December 11, 2010 11:27 AM writes...

Sorry for running with #33's idea, but since morality comes up a lot, posting another section from Hume. When I read it, it stimulates me to think that those of us hurt by the changes in our industry decry the morality of the leaders, but this may be more of a very real emotional response to our state than an ultimate truth.

I tend to agree with Hume, but find the logic, carried to an extreme, allows for moral relativism that I abhor. However, my preference for moral absolutes did not serve me well, while the relativists flourished.


BOOK III: OF MORALS
PART I
Of virtue and vice in general

SECT. I
Moral distinctions not derived from reason

.... It has been observed, that nothing is ever present to the mind but its perceptions; and that all the actions of seeing, hearing, judging, loving, hating, and thinking, fall under this denomination. The mind can never exert itself in any action, which we may not comprehend under the term of perception; and consequently that term is no less applicable to those judgments, by which we distinguish moral good and evil, than to every other operation of the mind. To approve of one character, to condemn another, are only so many different perceptions. Now as perceptions resolve themselves into two kinds, viz. impressions and ideas, this distinction gives rise to a question, with which we shall open up our present enquiry concerning morals. Whether `tis by means of our ideas or impressions we distinguish betwixt vice and virtue, and pronounce an action blameable or praiseworthy? This will immediately cut off all loose discourses and declamations, and reduce us to something precise and exact on the present subject.

Those who affirm that virtue is nothing but a conformity to reason; that there are eternal fitnesses and unfitnesses of things, which are the same to every rational being that considers them; that the immutable measures of right and wrong impose an obligation, not only on human creatures, but also on the Deity himself: All these systems concur in the opinion, that morality, like truth, is discerned merely by ideas, and by their juxtaposition and comparison. In order, therefore, to judge of these systems, we need only consider, whether it be possible, from reason alone, to distinguish betwixt moral good and evil, or whether there must concur some other principles to enable us to make that distinction.

If morality had naturally no influence on human passions and actions, `twere in vain to take such pains to inculcate it; and nothing would be more fruitless than that multitude of rules and precepts, with which all moralists abound. Philosophy is commonly divided into speculative and practical; and as morality is always comprehended under the latter division, `tis supposed to influence our passions and actions, and to go beyond the calm and indolent judgments of the understanding. And this is confirmed by common experience, which informs us, that men are often governed by their duties, and are deterred from some actions by the opinion of injustice, and impelled to others by that of obligation. Since morals, therefore, have an influence on the actions and affections, it follows, that they cannot be derived from reason.... Morals excite passions, and produce or prevent actions. Reason of itself is utterly impotent in this particular. The rules of morality, therefore, are not conclusions of our reason.

No one, I believe, will deny the justness of this inference; nor is there any other means of evading it, than by denying that principle, on which it is founded. As long as it is allowed, that reason has no influence on our passions and action, `tis in vain to pretend, that morality is discovered only by a deduction of reason. An active principle can never be founded on an inactive; and if reason be inactive in itself, it must remain so in all its shapes and appearances, whether it exerts itself in natural or moral subjects, whether it considers the powers of external bodies, or the actions of rational beings....

Permalink to Comment

38. watcher on December 11, 2010 11:55 AM writes...

On 34's:

"Much of the social history of the Western world over the past three decades has involved replacing what worked with what sounded good."
- Thomas Sowell

It's always been tough, and will continue to be rough when "what worked" begins to fail. It happened with railroads & steel in the US. We are seeing it happen with car manufacturers, even with the decline of influence by unions.

It's also happen'en to Pharma as we speak, as we struggle to adjust to it, personally, professionally, strategically, intellectually. It's very hard for CEOs of big pharma to say "we have to downsize, we have to spend less money, we have to employ fewer people, we will make fewer new drugs, we will have lower sales, we will have lower profits and profit margins in the future".

But all of this is where the industry is headed, and there's really not a hell of a lot any of us can do to change the trending outcome.

Permalink to Comment

39. Nick K on December 11, 2010 2:51 PM writes...

@38: Good call. Your point about the rise and fall of business models is very convincingly developed in a book entitled "The Empty Raincoat" by Charles Handy. It's one of the very few business books of any real value.

Permalink to Comment

40. Anonymous on December 11, 2010 3:19 PM writes...

#38, #39

Of course your points are fine, but implicitly you are accepting the morality of the business models without question. Is it right to offshore jobs to other countries who have not just lower wage costs (that's the only headline that we see) but also lower envionmental, health and safety records, not too mention human rights? I'm all for a fair contest, but that isn't what this is.

In in the process, is it OK for the senior management of these companies, not to mention bankers and politicians, to line their pockets, despite their abject performance in managing companies, banks and economies ?

Permalink to Comment

41. Jose on December 11, 2010 3:32 PM writes...

I wonder what the numbers would look like if you factored in the true societal costs of the legions of laid-off workers/scientists and the ripples through entire families and communities (say, Ann Arbor, Kalamazoo)? The real estate numbers alone would be staggering....

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42. watcher on December 11, 2010 7:46 PM writes...

#40.

Au contraire, my anonymous friend. I said nothing about morals or ethics, about obscene compensation expected, demanded by CEOs in industries that produce little (eg Wall Street schemers who produce nothing, only push paper, move funds real or imaginary)or are declining. Where are the corporate monitors, the business overseers, the corporate boards, the stockholders? Oh yeah, they are supporting each other, to help line each other's respective pockets as the move from one board meeting to another.

I also said nothing, implied nothing, about the impact of "off-shoring" in the Pharma industry. The downturn of the industry, as a whole, has it's basis and beginnings in changes in society's demands, regulatory expectations, lower numbers of new drugs. The movement of jobs from the US and Western Europe to other countries magnifies the local impact in terms of job losses, fewer new opportunities. No question. But that's how business works, has worked, will always work if we are going to be in free-market societies. Protectionism provides only short term, transient, unsupportable, artificial outcomes. There will always be a cost, ultimately, like the tech bubble, the housing bubble, the impact of the crooks in the banking world of make believe from the past 10 years.

None of that, however, changes the core, underlying trend of where the Pharma is heading. It's simply not something magical to behold. It's in front of all of us, every day, in the news, in the stock market, in the local pharmacies & grocery stores where drugs are sold, in doctors offices, and your pay checks.

It does not mean there won't be jobs, won't be new successes, won't be new drugs. As noted in a recent article in that stallworth scientific journal, the New York Post,emphasizing the strong involvement of Pharma toward creating very successful treatments for HIV...certainly a remarkable accomplishment. But these dramatic areas of impact will continue to be increasingly expensive, less frequent, more challenging technically, not condusive to the current model of big Pharma, with expectations of high profit margins, generous dividends, generous salaries, career stability. These are entering the days of twilight.


B. e glad of what you have gotten, can continue to get.

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43. MIMD on December 11, 2010 9:07 PM writes...

I predicted in 2006 that a lawyer from McDonald's would not do very well at the helm of a major pharmaceutical company.

At least Merck's lawyer-to-be-CEO has many years in industry experience. However, I still think they were in error not to find a real clinician/scientist (such as Roy Vagelos was) to take the helm.


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44. again on December 11, 2010 10:08 PM writes...

# 43:

There aren't a lot of people in the industry, academics, or the world with the balance of knowledge, background, skills, and timing of a Roy Vagelos. A very special scientist, leader, person. (Stop living in the past.)

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45. Anonymous on December 11, 2010 10:59 PM writes...

Roche is another one on the decline. Watch what happens over in Nutley, NJ. They just announced a 38% reduction in headcount on the site! Yes, 38%!!! Just a matter of time before they go to zero. That place is doomed as a result of the genentech aquisition. Case in point, the headquarters, manufacturing, operations and even HR were removed and now most of it resides in South SanFran (genentech). Roche may try to hire after their "operational excellence" initiative but if I were you, I'd think twice or more about boarding a sinking ship. The writing is on the wall over there. For those seeking short term employment it may be OK....

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46. Anonymous on December 12, 2010 6:54 AM writes...

#42

Who said anything about protectionism? I'm not against the free market providing it is used to create a level playing field. At the moment corporations are not just off-shoring jobs, they are off-shoring their moral and environmental responsibilities at the same time. Let's remember that globalisation was meant to improve living standards for everyone - how is that project doing? The irony for me is that the very process of off-shoring has only accelerated the decline of the US as it has decimated the home markets of the companies involved.

So are our business models are broken? Based on the last 15 years perhaps, but I actually think the root of the industry's problems has been the belief that we can in some way accelerate the discovery process, whether through HTS, combichem, CADD (name your favorite duff technology here), rather than knuckle down and do it the old-fashioned way.

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47. watcher on December 12, 2010 11:06 AM writes...

Taking the debate to "off shoring", its potential environmental impact and influencing worldwide standard of living through job creation (which is certainly has done to a small number of educated, suitably skilled people in these countries, but is a drop in a huge bucket when coming to the total numbers of people) is a distraction from the primary, major underlying issue for Pharma. Reversing these trends won't fix any of the industry's underlying challenges.

As I said before, there will continue to be new successes from Pharma, big & small. And remain a strong believer that individual attention typically makes or breaks a drug discovery and development effort, as long as the underlying biological science and compound's safety is suitable and supportive. And, I've been involved in several efforts resulting in new, innovative (even TV advertised) drugs over the course of 2+ decades in the industry. Remembering "KISS" (Keep It Simple, Stupid) helps avoid being pulled into fancy currently in vogue, often unproven, technologies that can be distraction rather than positive contribution. But turning back the clock to the synthesis of compounds one at a time, evaluation of on- and off-target effects individually, is very burdonsome, time consuming, costly. A burden on the economics that neither an individual company nor global industry can maintain, even off-shore.

And remember too, for any individual effort, costs during the Discovery phase are moderate when compared to what is needed and spent during the Preclinical Development and even more so during the Clinical phase of the R&D process.

So, let's keep the focus here on the real issues, not create distractions that don't, won't, can't, solve the larger, bigger, most important issues facing the industry at-large. Remember, KISS.


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48. Anonymous on December 12, 2010 1:07 PM writes...

"Taking the debate to "off shoring", its potential environmental impact and influencing worldwide standard of living through job creation (which is certainly has done to a small number of educated, suitably skilled people in these countries, but is a drop in a huge bucket when coming to the total numbers of people) is a distraction from the primary, major underlying issue for Pharma. Reversing these trends won't fix any of the industry's underlying challenges."

The primary problem for pharma right this minute is that the US and Europe are no longer willing or able to pay for its products. That's why every pharma company is focussing on growth in the emerging markets as their key goal. Reversing the economic decline of the West would be a hell of a good way to stabilise our industry.

"And, I've been involved in several efforts resulting in new, innovative (even TV advertised) drugs over the course of 2+ decades in the industry."

Hey, me too !

"But turning back the clock to the synthesis of compounds one at a time, evaluation of on- and off-target effects individually, is very burdonsome, time consuming, costly. A burden on the economics that neither an individual company nor global industry can maintain, even off-shore."

And yet that is exactly what most outsourcing operations are doing for big pharma. It is a moot point anyway, because most library work outsourced to Chindia is produced in a singleton manner. And what do you know, the screening is done on an ad hoc basis as compounds are made. Meanwhile, back in big pharma it can take two weeks from synthesis to screening because the HTS compound collection is the god that we now all worship, and it takes priority over everything else. Twenty years ago when I made a compound there was a good chance that it would be screened that day. The modern metrics look great in terms of numbers of compounds screened, but we've taken a huge leap backwards in efficiency.

"And remember too, for any individual effort, costs during the Discovery phase are moderate when compared to what is needed and spent during the Preclinical Development and even more so during the Clinical phase of the R&D process."

Agreed, but if we behave like numpties in the research phase we start pushing worthless garbage into development that does cost money. Most of us are slaves to a system that says we must have found compound X by the end of the year or else.

There are still plenty of diseases out there that we should be making more of an impact on than we are, and I fear our managements' (hey, pick any company you want) slavish pursuit of the latest fad, changing tactic every 6-12 months might be a pretty big reason for our industry's failure.

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49. mary p on December 12, 2010 5:27 PM writes...

Hummm... I've long said that, when Pharmacia and Pfizer merged, Pfizer kept the wrong CEO. My investment dollars follow Fred Hassan.

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50. befuddled on December 12, 2010 6:31 PM writes...

So Pfizer's board finally decided that they had the wrong CEO, and now the big investors are starting to think they have the wrong board. Those are certainly positive improvements. But they don't give me much hope for the future because I don't think that investors will start to apply new and better criteria to their choices of CEO, board, and business strategy.

It's clear that a successful pharma cannot be run on the basis of quarter-to-quarter results. Investors are going to have to accept quarters without dividends, new products, or giddy new strategies and announcements. Managers with long-term perspectives must be hired and insulated from Wall Street's short-term expectations.

I have no idea how to accomplish that, but if it doesn't happen, then nothing will change (for the better, at least).

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51. yaro on December 13, 2010 1:30 PM writes...

there should be a basic industry-specific education/experience level for these CEO types. Chemist/biologist/scientist to run a pharma co. Engineers to run an engineering firm. Software guys with programming experience or such to run software firms etc. It's when 'hired help' type people, ie, service providers such as lawyers and accountants and bookkeepers start playing chief -executive roles you get these idiocies. Throw in the helpful 'consulting' firms and you get the idea.

There's another major pharma co with a'hired-help CEO' who memorizes up some science words to use in speeches. Those words are getting repetitive, too. Consulting firms are having a field day tearing up that place now.

Look at Ford. An Engineer revived it. In a very simple manner. Make a thing 'good', addressing a need, and not 'cheap' and people will love it and buy it. Simple. You are a fool if you think everything in the world can be manufactured for cents in china and sold everywhere else for a massive profit. But then you are not a fool, you just say that to get a transaction going to skim off from it.

OTOH, you have boards firing scientist leaders and putting in place these 'professional CEOs' to run companies.

Everything should be private and run on what they can earn or borrow. No companies fate should be decided by bunch of selfish a-holes looking for a gain in stock so that they can sell.

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52. hn on December 13, 2010 3:37 PM writes...

Do people think that a privately held company like Boehringer is doing much better? The whole industry is struggling to put out new drugs.

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53. Dioscorides on December 14, 2010 11:57 AM writes...

Most of the big pharma is currently suffering from the lack of vision of their CEOs, unfortunately, when the board places a non-scientist (i.e., a lawyer or a bookkeeper) at the helm of company and let them manage with the help of external consultants this outcome can not be avoided.
The Big Pharma needs fresh ideas, effective discovery/development procedures and most important of all a visionary at the helm. They can get to a certain point with constant acquisitions/mergers, however, the Big Pharma has already passed that point what they need now is a new direction to succeed!

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54. MedChem on December 14, 2010 1:30 PM writes...

hn,

I always thought so, and the patent literature seems to suggest so too. Are they not doing well?

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