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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 8, 2011

The Loss of the Middle (Drugs and the People Who Find Them)

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Posted by Derek

This report on a speech by Roche's CEO, Severin Schwan, will surprise no one. He's forecasting that the pharma world is heading for a bimodal distribution. On one end, you'll have the companies that have managed to find things new enough and efficacious enough to convince regulatory agencies and payers that they're worth the price. And on the other, you'll have the generics. The in-between stuff, the me-too drugs and line extensions and things that don't work as well as anyone had hoped - that's going to get squeezed, and if that's all you have in your product portfolio, you're going to get squeezed, too. It's not that those things have no value, but they don't have enough to keep R&D efforts going at their current attrition rates and expenditures.

The analogy to the people doing this work is pretty close, too. Look at Pfizer's plans (which as far as I know are still in effect) to have a smaller number of "drug designers" and a bunch of lower-cost people cranking out the compounds in the lab. That's the same bimodal landscape, right there. You have a smaller, highly compensated group at one end of the scale, and a larger, less costly group at the other. What disappears are the folks in the middle.

The problem is, you can assign marketed drugs to the expensive-or-generic categories pretty rationally, based on efficacy and pricing. But assigning the people, well, that's a different matter. How exactly do you identify your star "drug designers"? Even after you narrow down to only the smarter and harder-working people, there are still more of them around than you need under that Pfizer system. So where do they go? Well, we've all been seeing the answer that question. Out on the street, and out into the job market, there to take their chances.

And at the other end, there are probably a lot of people in the make-this-list-of-analogs labs who are capable of much more than that, but haven't had the chance to prove themselves. The whole situation seems like a real misuse of human capital, and we really have to find conditions that don't lead to such wastes. But what conditions are those, and how do we get to them?

Comments (33) + TrackBacks (0) | Category: Business and Markets | Drug Industry History


COMMENTS

1. Prediction on December 8, 2011 10:20 AM writes...

Perhaps the "Middle Drugs" will be reborn in the "Middle Kingdom".

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2. anchor on December 8, 2011 10:28 AM writes...

I was worried about this issue for some time and sadly it will be a reality soon. We are talking about a pyramid scheme here. The companies will start to cull the employees. So, those who are well liked will be a top dog and others who do the thankless job will be paid pittance and at the bottom of the heap. May be such a policy can discourage out of control outsourcing, but who knows?

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3. Biotechtranslated on December 8, 2011 10:44 AM writes...

Derek,

From what I've read, you're a strong believer in the free market. So the answer to your question is "we don't have to do anything".

The drug industry is changing because the type of drug you could make a billion dollars/year off of in 1990, won't even get approved by the FDA or reimbursed by the insurance companies in 2011.

As a result, the structure and goals of the industry are changing. The economic incentive (profitable drugs) is driving those changes. That's why you're seeing a ton of work being done in oncology now (FDA will approve them and the insurers will pay... for now).

The star drug-designers will be identified by the skills they have and whether or not they fit in the new pharma model (experience with designing drugs that target kinases for example).

Mike


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4. Another Kevin on December 8, 2011 10:52 AM writes...

Prediction: This sort of behaviour will fuel the next boom and bust cycle. The "star drug designers" will be those who were lucky in the last cycle - and will be entrenched, because there is no path for the low-ranking workers in the current cycle to advance. Eventually, the stars are all nearing retirement, and there is no talent in the pipeline. The lack of talent becomes a global crisis, and companies begin to receive incentives for developing new talent. At the same time, the basic research - which keeps chugging away at some low level - will have identified some promising leads which will allow a few lucky winners to become the next generation of "stars" - and the remainder of mid-level workers return to asking if you want fries with that.

Hell of a way to run an economy.

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5. Anonymous on December 8, 2011 10:55 AM writes...

I am really worried about the bipolar experience and expertise situation that is developing. In many cases, such as the Pfizer plan you reference, there is a limited number of truly experienced people overseeing basic work. What happens when one of them leaves? Most companies, especially small ones, don't have the slightly less experienced, but ready to lead, scientist to step in.

My experience has been that I learned to do med chem, etc. well by learning from the entire gradient of experience around me, including peers and junior scientists. I would love to be able to mentor other scientists to eventually have the breadth and depth of knowledge, experience, and success that I have, and to continue to learn from those around me. However, as with many of my colleagues still in the business, I feel that I am running practically solo while managing technically sketchy scientists overseas.


I believe this happened to Hoffman-La Roche (now Roche) back in the 80's (1985 comes to mind) when they fired a large amount of experienced (read: expensive) scientists, so that practically no one left had more than 5 yrs of drug discovery experience. It took them yrs to build that expertise back up, I think.

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6. Biotechtranslated on December 8, 2011 11:11 AM writes...

@#4,

I remember talking to the old-timers at Upjohn (no, Derek is not an old timer, I'm talking the guy who were in the middle of their careers in the 70s).

They said the boom and bust cycle of pharma is how it's always been. Some company is at the top of the pack one decade (I'm looking at you Pfizer) and the next decade they are a subsidiary of some company that wasn't even on the map 10 years before.

The problem with pharma is that the wins and loses tend to be huge AND they occur over a relatively long time period. You snag a drug like Lipitor and it can fuel a huge amount of growth for 10+ years. But once those 10 years are up, the revenues are very rapidly lost.

Combine that with the current challenges in pharma (regulatory, reimbursement, cost) and it makes for a very bumpy ride.

Mike

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7. CMCguy on December 8, 2011 11:22 AM writes...

#5 Anon is dead on about the impact of this model being short sighted. When experience in drug R&D is de-emphasized, or worse eliminated, then current projects will suffer from avoidable mistakes and then the future prospects will be diminished because lack of interactions and mentoring will mean next generation less aware of issues.

Even with probable negative impact on discovery I think the model bodes more damage for Development arena. Generics companies may be capable as Manufacturers while innovators may be better focused on "R" but likely neither will want to build or retain the substantial (and costly) "D" infrastructure to transition between. Not saying new drugs can't be done in this situation but will be messier and slower and probably less productive overall then present poorly operations.

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8. Anonymous on December 8, 2011 11:22 AM writes...

If there are so many of these drug designing legends (such as @5) around, where are the actual drugs?

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9. weirdo on December 8, 2011 11:22 AM writes...

How is this not simply a reflection of what is going on in society today? Maybe we are looking at a bunch of "Occupy Groton" protests by freshly minted Ph.D. chemists and biologist around 2013.

Seriously, this is the way the world is going -- globalization, baby, the world is flat . . . . but probably not sustainable.

A world of "innovators" and "drones" that achieves great heights before revolution turns everything back to the stone age. How many SciFi writers have been envisioning this future for the past half-century?

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10. RTW on December 8, 2011 11:24 AM writes...

Something to keep in mind with regards to middle of the road, Me Too's... Lipitor initially was thought to be, prior to introduction, perhaps the 6th Statin that would come to the market... If Roger N. had not continued to push it, it very well might have never seen the light of day. It turned out to perhaps be best in class. It certainly made a BOAT LOAD of money for Pfizer.

In todays climate it most likely would not hvae made it. Which begs the question how many potential Lipitors are sitting on the shelf because a clinical trial was not initiated due to the fact the compound came too late?

As for the culling of people that actually build the molecules that someone else designs... That started largely 10+ years go. My experience with so called designers is that they more often than not design molecules that have no basis in reality. Saw one once that contained a carbon with 5 bonds in it, and the pair of hands was told to make it!!! Right be my guest Mr/Ms Designer.

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11. bbooooooya on December 8, 2011 11:45 AM writes...

I agree this is a big problem, but what's the solution?

This is the least expensive (note, not saying best) approach. Owners of these companies (shareholders) will not tolerate the more expensive approach of actually developing talent. It doesn't matter if this approach is right or wrong, it's what the market wants.

Walmart (where I refuse to shop) is an example of this. People complain about its big shops that destroy mom and pop businesses, and yet, continue to shop there in droves. We need manufacturing jobs in the US, but we don't want to pay more than five bucks for a dozen tube socks: that ain't gonna incent too many folks to reopen the cotton mills in South Carolina.

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12. Nick K on December 8, 2011 11:47 AM writes...

As with GSK and its absurd CEDD and then DPU organisation, this looks to me very like the last throw of the dice by a senior management bereft of ideas.

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13. RD on December 8, 2011 11:56 AM writes...

I have to agree with commenter number 1. We've all seen how patronage and politics affect who gets the jobs. If a scientist has been playing politics to get to move to Cambridge, there's a pretty good bet he hasn't been doing his job. And then what do you have? A bunch of insecure prima donnas taking up space and having mass at the top while the people who actually have the most recent hands on experience are shown the door.

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14. clinicalpharmacologist on December 8, 2011 1:25 PM writes...

#7 I think this comment is spot on. The huge risks are in the "D" and these risks are getting larger and larger as the hurdles and costs get higher. So it might be worth asking if the people who set the risks want to take on the "D"? In Europe we are starting to see partnerships between companies and goverments aimed at mitigating the "D" risks. The logical extension of this is that governments take on the entire "D" risk from Phase IIb to approval.

So you do your PoC study and partner the really expensive "D" leading to a lower price for meds to the governments. The upside is that we will still get new meds coming forward. The downside is that the government gets to pick the winners. It would be fun to see if they are any better at it than we are. Altho the "they" in that sentence would probably be some of us, as we have the relevant experience.

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15. Hap on December 8, 2011 1:28 PM writes...

11: I can understand why you don't shop at WalMart, but I do. The competitors (for groceries, which is most of what we buy) have worse hours, no better service, and charge anywhere from 20-50% more for the same things. They do have better fruits and meats, but not enough better to justify spending the rest of our food money sustaining them. If people don't see any benefit to spending more money for the same thing, why should they spend it? If it is just to sustain people, then it would be better to support them in doing something that they can do better than others - then people will buy what they make (because it is valuable enough to justify its cost), and the people will both make money and be useful. Cars are the example of what happens when you buy things because of who is making them - you get crappy, overpriced products. Of course, when you buy cheap products, like my slippers, you should expect to get, well, crap. You buy more expensive things when you perceive the price to correlate well to their value, and not when it doesn't.

The application to drug discovery is problematic. We haven't found enough drugs with enough benefit to justify (to whoever pays for them) their prices, and so companies have to find a way to find and make drugs more cheaply and to find drugs that justify their prices. Since no one knows how to do those things simultaneously, companies cut employees and outsource because it is what they know how to do and it works (in the short-term, which is what their management is paid for). Of course, it also destroys their ability to find better drugs and to find drugs that make money (since you can't develop follow-ons like Lipitor that could make enough money to sustain the companies). If you can buy companies or their products and they continue to find them for you (and startups have plenty of laid-off chemists to choose from), or your outsourced people can produce better, the tactics might work, but even then, you still have the most expensive part of making a drug yet to come (trials) and no tools to help you improve that process (because you got rid of the people who could help).

Drug companies seem to have taken the "We finished last with you, we can finish last without you." line to heart. Of course, that guarantees that you'll finish last, but well...

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16. Senior Pharma Fellow on December 8, 2011 1:43 PM writes...

Hopefully in this Brave New Bimodal World there will be somewhere that the palpably talentless will still be able to hide.

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17. Anonymous on December 8, 2011 2:55 PM writes...

My personal belief is that many (most?) drug discoveries come from the skillful continuing practice of good science, the definition of which may be arguable (at least at managerial levels).

A lot of so-called geniuses (anointed "thought leaders", etc.) may come up with -- or steal! -- an idea every now and then (that frequently wastes a lot of time and money; does Cambridge NeuroScience biotech still exist?) but it's those in the trenches who are more than technicians (no offense intended) and who know how to question data, get good data and FOLLOW THE DATA that discover new drugs (and often new reactions, new mechanisms, new structures, etc.).

Drug Legend Leo Sternbach thought he was making benzheptoxdiazines but got the unanticipated rearrangement product benzodiazepines. They didn't figure that out until later. But they followed the data to Librium, etc..

As stated above, I believe this requires continuing practice: making molecules, asking questions, solving problems, interpreting data, being alert to anomalous information, being comfortable with fuzziness while trying to clarify things, occasionally going off on a tangent and being patient.

You can't let everything atrophy through non-use (layoffs, etc.) and expect to activate it again on a moments notice, when you're on the brink.

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18. pc on December 8, 2011 3:50 PM writes...

Allow me to take a wild guess. Most of us commenting here advocate for free markets. When that brings prosperity we all cheer. When we suffer we curse it. That's just human nature, no matter whether you are American, European or Oriental. So for the past decade or two the industry suffered a steady decline in churning out the medicines. You can speculate a number of factors including greed of the upper management, low-hanging-fruits-got-picked-up-already theory, stricter FDA, among others.

In my view maybe all of these get to contribute to the overall change of the landscape. However I'm Chinese so naturally I especially don't like folks bashing Chinese when it appears to me that their attitude are mostly based on their raw feelings instead of objective observation. Those folks who do the most fierce Oriental bashing at best offer anecdotal observation to support their conclusions. Now I admit that I very likely have a bias (who don't?) and hence the disclaimer (my nationality) above. Sure China has a lot of problems. Not respecting IP, human rights, environment and so on. And yes some of those contribute to the low costs doing business there, and folks here complain that it's unfair, and therefore their management should keep business in the States. In essence, they want to bring certain regulations to this free market in such a way that when it's inconvenient for them, forget about free market for a moment, let's protect our interests first. I don't claim to be for total free market so I do think sometimes you have to have some regulations (see below) but for folks who are all for free markets that's a bit hypocritical don't you think (my kid sometimes labeled me that)? Like many complain about illegal immigrants taking their jobs but when these immigrants are forced to leave those whining would still sit on their hands unemployed because they deem these jobs too low for them. Talk about making sense.

Alright while letting this off my chest, I personally do believe what brought such dramatic changes to the drug industry (reaching a tipping point now I think) has to do A LOT with folks on the top. Many are greedy, inept and have herd mentality (to play safe and avoid looking stupid I guess). If you want to make fundamental changes and stop the hemorrhage, you really have to go to the roots. In this case the whole industry should implement certain mechanism so that people on the top will have to get their greed checked while they are on the jobs. Better yet, such mechanism should encourage or facilitate to bring truly capable talents (running such large organizations does indeed call for talents), those that have scientific background (so that they can understand the business better), and yet still have REAL management skills (respect and treat your scientist employees well for one). I'm talking about the old timers like the ones in the 70, 80's. So basically you should restrict outrageous compensations for the top, have restrictions in place so that they can't loot the companies for a few years and move on to the next target (if you regulate those bankers to certain degree you might not have THE crisis). The industry has abundant talents who can discover new drugs. Problem is how you let them. Easier said than done.

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19. pete on December 8, 2011 6:47 PM writes...

So if biopharma is going bimodal in shape, does that mean the whole concern is going 'tits-up' ? (as the Brits say)
Sorry, I couldn't resist -- just some weak humor thrown at a glum scenario.

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20. PaulinOsaka on December 8, 2011 7:52 PM writes...

"...one word for ya - plastics"

A great line from a crazy flick that is germaine to the subject. There are so many synthetic challenges outside, or on the periphery, of bio/pharma. Let's go after photosynthesis to make some schweet tools. Or...nanotech to create fabulous light weight materials that protect our troops? Whether we save people from disease or war, who cares? We saved'em.
I'm fairly optimistic about this field. Why? What happens when a larger number of highly educated, motivated, have a lot of time on their hands? The tech revolution (child of the 70's recession engineers) is one example. I think Jobs was right, tell people what they want and they'll buy it - happily. *LOL* So...let's get busy.

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21. Fred on December 8, 2011 7:54 PM writes...

#18 (PC) makes some good points. For the record, some of us DO NOT believe "free" markets perform any better than planned economies. And I agree with PC that a big chunk of pharma's suffering can be laid at the feet of inept MBA's running the show. The rest (IMHO) can be attributed to the absurd over-zealousness of the FDA...

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22. bbooooooya on December 8, 2011 8:43 PM writes...

"some of us DO NOT believe "free" markets perform any better than planned economies"

And maybe somewhere, sometime, a planned economy will actually work. Free markets aren't perfect, but no one has come up with a better system. Even A. Smith never believed that free markets, however, should be without government regulation---his books are pretty thick, though, so I doubt most GOPers have bothered to actually read on what they spout.

I don't think biopharm's woes are to be blamed on bonehead MBAs (some of whom are pretty smart) or the FDA (which does a pretty good job). Very few industries have consistent growth for decades on end.

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23. dickweed Jones on December 8, 2011 8:43 PM writes...

The designer-maker concept at Pfizer may just be the dumbest idea I've ever heard. Been doing this for a long time. Which am I better at? Who knows? Ask me next month and you'll get a different answer. As for the survivors in Cambridge, I feel badly for them. As if the morale isn't low enough, now it's "you idiots make molecules for the guys in the office who are too precious to get their hands dirty."
What a mess.

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24. YeGods on December 8, 2011 9:57 PM writes...

I don't agree with the particular Pfizer thinking around this but I can empathise - for it's another attempt at "if you can't do it better, do it cheaper".

Drug Discovery at current success rates has become too expensive, and outsourcing, off-shoring, mergers, lean sigma, CEDDs and DPU's are all just different ways of trying to adapt to this screaming reality.

As R&D scientists, we can sit around and blame everyone else, or recognise that we still have real opportunity and that lies in "can we do it better?" If we can't rise to that challenge, then how justified are we in blaming management for resorting to doing it cheaper?

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25. Rock on December 9, 2011 1:44 AM writes...

Derek, you are a bit misinformed about the situation at Pfizer. First of all, the selection of the 'designers' was only partially based on talent. Mostly it was based on cronyism and youth. Past success was certainly not even considered. Secondly, the current group of synthetic chemists in Groton are not making any less money than the designers, at least on a level by level basis. Now that may change if they continue to shift the synthetic work to Asia, or convert Groton to a CRO.

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26. Christoph Schultes on December 9, 2011 2:52 AM writes...

Just my penny's worth: there's always biotech, and for those who have not been put into a box in Big Pharma (i.e., "star-designer" or "lab rat") there is always the chance to prove yourself in the startup world. It means harder work, more responsibility, more initiative, less hiding, less job security, and probably less money, but wasn't there always the talk of Big Pharma looking to the Biotech world to provide the new starting points for tomorrow's drugs? For those who are talented and interested in science and medicine, being even a "star designer" in Big Pharma doesn't seem as fulfiling to me as driving your own project forward and showing everyone else how it can be done.

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27. MIMD on December 9, 2011 4:49 AM writes...

Re: the whole situation seems like a real misuse of human capital, and we really have to find conditions that don't lead to such wastes. But what conditions are those, and how do we get to them?

First step: remove the incompetents at the top.

Permalink to Comment

28. Anonymous on December 9, 2011 5:14 AM writes...

that reminds me about the bipolar world, as seen by G.W.Bush: you have to be with us or against us.
Well, it's way too simplistic.
Beware the black swans...

Permalink to Comment

29. Anonymous BMS Researcher on December 9, 2011 7:45 AM writes...

The increasing bimodality of markets everywhere, not just in our industry, represents a deep structural problem with neo-classical economics. To oversimplify rather drastically, the mathematical models used by economists become severely nonlinear when too many markets are bimodal. Until the computer revolution, most economists assumed markets followed bell curves for the same reason most statisticians assumed most variables followed bell curves: the normal distribution (or fatter-tailed distributions such as Student's t) is mathematically tractable. Even today, many economists prefer classical approaches based on bell curves, just as many of us in R&D continue using classical statistical models like ANOVA even though we know real data violate their assumptions.

In plain English, the standard arguments in favor of unrestructed free enterprise are no longer cognitively defensible in a bimodal world, because the assumption that market failures will self-correct is mathematically untenable in a bimodal world. However, since attempts to correct market failure by government action are subject to the political process there is always the risk of regulatory capture. Special interests will often find using lobbyists to change the rules of the game to be more profitable than just competing within the rules.

In even plainer English: recent developments in economic theory, which incorporate bimodal markets, finally give a rigorous mathematical basis for what early 20th century Progressives such as Teddy Roosevelt and Bob Lafollette knew in their guts: Karl Marx was wrong about capitalism, but so was Adam Smith.

Bimodal markets are perhaps the second most important public policy issue of our generation (either global warming or demographic change is number one), but were nearly invisible in our current political discourse until simple-minded populists from the right and the left began yelping for simple answers to the consequences of bimodality that could make matters even worse.


Permalink to Comment

30. Anon on December 9, 2011 8:14 AM writes...

"Mostly it was based on cronyism and youth"

So were you selected as a 'designer'?

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31. Rock on December 9, 2011 11:30 AM writes...

@30
No, I was Pfired.
Too outspoken and too old.

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32. Hap on December 9, 2011 6:20 PM writes...

I wonder what has changed with the economics of the drug industry to make the point of this post untrue. (Insert requisite Santayana quote here).

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33. Jonadab on January 2, 2012 12:12 PM writes...

If this dichotomy between primary research and generics, with little middle ground is really what's best for the pharmaceutical industry (a position I'm not sure I could support without further evidence, but which is worth considering as a possibility), then in the long run it's what's best for everyone. Reshuffling labor from one kind of position to another and even from one industry to another, to meet changing needs, is a normal part of the cycle of what Greenspan calls "creative destruction" -- inefficient systems, including companies, are destroyed in favor of better ones, and the pieces re-used to build others. ("Better" in this context means ones that produce more value for a given quantity of resources consumed.) In less dramatic terms, it's a better use of resources, including the time and effort of the workers, to give them jobs that produce more value overall.

The workers don't always like the process, of course. Some don't like it merely because change in general and changing jobs in particular can be rather uncomfortable in the short term. Nobody *enjoys* getting laid off. Others don't like it because they don't understand it; they may think their talents are being wasted after the change, because they imagine that what they were doing before had more value than what they end up doing instead. Objectively if that were strictly true then somebody would still be willing to pay them to do the old job, but people don't always think entirely objectively. And, of course, sometimes people have other concerns than just which job that they can do would provide the most value to society. That can be motivated by selfishness or laziness (e.g., I know some people who would dearly love to collect a steady paycheck for not doing anything of value at all) or it can be more legitimate (I don't care if being an accountant pays a jillion dollars a year: I'd be bored out of my skull; I'll let someone else earn that money and gladly take less for work that I can at least partially enjoy, thanks anyway.) Being forced out of a job you really liked isn't necessarily agreeable, even if it's for good reasons.

But on a societal level, this process isn't harmful. Quite the contrary, it's very beneficial, on the whole. The shutdown of inefficient mechanisms and their replacement with more efficient ones drives an increase in overall productivity. More value -- and more wealth -- is produced in the long run. Yes, people who get laid off spend a little time "between jobs", and that's unpleasant. But the net change this causes in the economy is a positive one.

That is all, as I noted before saying it, dependent on the assumption that this is in fact the direction the pharmaceutical industry is being driven by economic factors. If it is, on the other hand, just an experiment management is trying out, and it's not where economic factors are driving the industry at all, then the experiment will fail and companies that go in other directions will survive. You can't fight supply and demand on stuff like this -- or, rather, you can fight it, but you will lose. If the way you propose to use economic resources doesn't produce enough value in exchange, then your company will either have to give up on your proposal or be driven out of the market (barring government intervention in the form of protectionism, which is consistently bad for the economy).

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