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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: Twitter: Dereklowe

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April 2, 2012

"Taking the Ax to the Scientists Is Probably a Mistake"

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Posted by Derek

So says Matthew Herper in Forbes, and I'm certainly not going to argue with him. His point is what he calls lack of appreciation for the human capital in drug discovery:

An ideal drug company would follow all sorts of crazy ideas in early research, with the goal of selecting those where there was a high probability of believing they would actually prove effective in clinical development. It would bulk up on scientists, and try to limit the number of large clinical trials it conducted to those where some kind of test — blood levels of some protein, perhaps — led researchers to think they had a high probability of success. (Novartis, the most successful company in terms of getting new drugs to market, has moved in this direction.) But the tendency of the shutdowns has been to shut laboratories, too. Look at Merck’s stance toward the old Organon labs or Pfizer’s decision to shut the Michigan labs where Lipitor was invented. Taking the ax to the scientists is probably a mistake.

There's always been a disconnect between the business end and the scientific end, but the stresses of the last few years have opened it up wider than ever. The business of making money from drug discovery has never been trickier (or more expensive), and the scientists themselves have never felt more threatened. I can see it in the comments here on this site, whenever the topic of layoffs or top-management incompetence comes up. There are a lot of hard feelings out there - and, really, given the way things have been going, why wouldn't there be?

But at the risk of collecting some thrown bricks myself, I see where the business people are coming from. Our current cost structures are unsustainable. And although I don't agree with the solution of laying everyone off, I don't know what I would do instead. For many companies, it would have been better to have started adjusting years ago, although there's hindsight bias to keep in mind when you think that way. Many companies did try to start adjusting years ago, only to be overwhelmed by even worse than they'd counted on. Then there are a few organizations that just look unfixable by any means anyone can think up.

But I think it's safe to say that relations between the two lobes of the drug R&D enterprise, the financial one and the scientific one, have probably never been worse. It's nothing that some success and hiring couldn't fix, but those are thin on the ground these days.

Comments (84) + TrackBacks (0) | Category: Business and Markets | Drug Industry History


1. MIMD on April 2, 2012 7:51 AM writes...

Re: "lack of appreciation for the human capital in drug discovery"

What an understatement.

And that lack starts in the departments staffed by the biggest idiots of all - "Human resources", where domain ignorants evaluate expertise in fields they literally have no clue about.

That is, once resumes make it past the filters in the computer-based recruiting sites, which are designed by computational linguistics amateurs (cf: buffoon).

See "If pharma cannot get its basic IT right, what about the hard stuff?" as well as "I were referred to me as person who specializes in pharmaceutical based informatics and wanted to reach out to me".

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2. MIMD on April 2, 2012 7:52 AM writes...

Re: "lack of appreciation for the human capital in drug discovery"

What an understatement.

Perhaps "despising of the human capital in drug discovery" is more apt.

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3. anon2 on April 2, 2012 8:20 AM writes...

The bottom-line here comes from Derek which summarizes the conundrum: "And although I don't agree with the solution of laying everyone off, I don't know what I would do instead." In other words, don't like what is going on, don't know what else can be done to respond to the problem, but will complain and comment about it anyway.

Well, companies are trying alternative approaches, different models, and we'll see in due-time if any are better than others----or if the downward slope continues and where it might begin to stabilize.

It's time for reality adjustment and greater acceptance: stop looking backward as if the previous 3 decades were the "way things should normally be". Instead, recognize that this period was, itself, an exceptionally productive and rewarding time, but in many ways an aberation to the longer-term past and future history of the Pharma industry.

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4. Anonymous on April 2, 2012 8:49 AM writes...

Well said anon2

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5. Mr. AtoZ on April 2, 2012 9:03 AM writes...

Perhaps one way to make everybody happy would be to cut the salaries of all scientists (especially upper management) and institute a lifetime profit sharing program. That is instead of scientists signing away patent rights to the company for $1, the authors get to share in the royalties of a drug for life, even after a layoff or retirement. The salary cuts should make the bean counters happy and allow job retention, while motivating the scientists by allowing the potential to make substantially more in their lifetime.

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6. Biotechtranslated on April 2, 2012 9:16 AM writes...


Isn't that what biotechs do now? You get hired at a lower salary than big pharma, but you get equity as well. You basically have a portion of your compensation tied to the success (or failure) of the company.


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7. RB Woodweird on April 2, 2012 9:23 AM writes...

These two lobes, the financial/managerial and the scientific/technical, exist in every company which sells scientific products. The problem is that over time the members of the f/m lobe tend to forget that they owe their positions to the s/t lobe and that the corporation makes money by selling the IP of the s/t lobe. Human nature is to overestimate your worth to a shared endeavor and discount the contribution of the people in the other departments. Unfortunately, those in the f/m lobe can sack members of the s/t lobe but not the other way around.

Another facet of human nature is that when someone in the corporation makes a choice of a new way to operate, they tend to make the choice which makes their job easier. Again unfortunately, the members of the f/m lobe get to make those decisions. Over time, the hidden plant shifts from the f/m lobe to the s/t lobe instead of the other way around. In a chemical company, for example, managers should spend their day wondering how they can make the chemists' jobs easier. I have never seen that happen.

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8. anchor on April 2, 2012 9:27 AM writes...

Anon#2- Spot on! Having been axed, I take no comfort in these kinds of reflections on flawed policies. For some, these are too little and too late. Life and livelihood had been destroyed by individuals full of temerity in the HR in collusion with senior managers. For many companies, the situation is lot worse right now and I am curious what other policies are in play after belatedly realizing "lack of appreciation for the human capital in drug discovery."

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9. Cellbio on April 2, 2012 9:29 AM writes...

Following on the theme of #3, success did lead to company growth. New beautiful buildings, new hires to fill the buildings, support staff and other associated costs, rising pay with promotions, competition for talent leading to hiring bonuses, retention bonuses, all understandable and of course not sustainable. The growth of revenue was clearly not sustainable, not when one looked at the industry as a whole, nor from inside one successful company.

All that followed: portfolio management, fail fast, growth by acquisition, increased financial oversight of research efforts, was an effort to hold on to a failing strategy that was built on hindsight bias (hey if that blockbuster was great, how about one or two per year, and yes I heard that!).

Now it is over, mostly, and we are feeling the pain of settling into a new eco-system. For those that desire to stay in the business, I think one needs to learn to work in small company settings, expect to work for a lot of different companies, and work for lumpy rewards (hit or miss biotech environment).

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10. Rick Wobbe on April 2, 2012 10:01 AM writes...

I'm not trying to pick a fight, but I think it's worth asking what it really means to say, as anon2 in post #3 above says, the past 30 years "...was, itself, an exceptionally productive and rewarding time..."?

- If "productive" means more drugs were discovered per dollar invested, the conventional understanding of productivity, then the last 30 years have been progressively less productive (although I suppose you could say that's "exceptional" too).

- If it means more novel classes of drugs were discovered per dollar, that isn't true either: new chemical classes of drugs or breakthrough drugs for previously unaddressed diseases have appeared on the market at the same pace or slower than they did 30+ years ago.

- If it means the time between basic research and marketed drug has gotten shorter, the data show that hasn't changed.

- If it means the success rate of drugs getting through the approval process, the data show that hasn't improved.

- If it means that the quality of drugs that do make it to market has improved, you might have a weak case insofar as me-too drugs addressed shortcomings of first-in-class drugs, but you'd have to ignore that market withdrawals of drugs discovered in the last 30 years for safety reasons increased at a rate higher than it was since the FDA got regulatory teeth in the early 60s and was busy cleaning up a backlog of snake oil.

- If it means lives saved or life expectancy increased, there's no evidence that the pace of progress there, after subtracting the effects of public health measures and fewer wars, is greater than it was prior to the 1980s.

The only sense in which this period was exceptionally productive that I can see is in purely financial terms: more dollars were made for shareholders per dollar invested. But the same thing can be said of the "tulip mania" of the 17th century and the CDO bubble of the last decade, which doesn't make me swell with pride.

I am NOT saying that drug discovery was completely unproductive over the past 30 years. New drugs were discovered and lives were improved thanks to new breakthroughs that did occur. That is a wonderful, wonderful thing that we should not lose sight of. But I think we also need to carefully scrutinize some common perceptions, such as the belief that the past 30 years have been "exceptionally" productive, no matter how fervently we want to believe them, if we want to get the endeavor so many of us are passionate about to a place we want it to be.

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11. JF on April 2, 2012 10:48 AM writes...

Rick @ 10,
I agree wwith much of what you say although there are some rather spectuclar success stories. Just ask anyone who has contracted the HIV virus.

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12. MIMD on April 2, 2012 10:49 AM writes...

#3 Anon2

I disagree.

What will all the ghostwriting (making knowing what's true difficult, a clear impediment to discovery, as I wrote here), pharma mismanagement and demoralization from layoffs, etc., I believe it's no longer possible to state that the past three decades were an aberration.

I think the aberration is *now*, and that the first remedy is to remove dyscompetents and scoundrels from management/hiring authority in pharmas.

The rabble know who those are.

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13. DJ DrZ on April 2, 2012 10:52 AM writes...

I disagree with Derek. The cost structure is only unsustainable because share holders demand ROI and dividends that have no place in the current marketplace. I am NOT advocating socialist pharma, but everyone else has felt the bite in the past decade, but the investors. And does anyone seriously think that investors will drop pharma stocks simply because they are producing LESS profit. It's not like they produce no profit, or just about every year they don't return more money than the previous year.

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14. MIMD on April 2, 2012 11:08 AM writes...

Further, as I wrote at "Pfizer/Wyeth Merger And Sacrificing The Future: Laying Off Scientific Staff All Over The Place", here's a not-so-novel idea for pharma to try to end the "aberration" of the past decade:

Nobel prize winner and drug inventor Sir James Black had the following recollections:

... Max Perutz, director of one of the most successful postwar science institutions, Cambridge University's Molecular Biology Laboratory, had compelling ideas on how best to nurture research, says Sir James: "No politics, no committees, no reports, no referees, no interviews - just highly motivated people picked by a few men of good judgment."


... There is no shortage of scientific talent, he says. "But [I am] much less optimistic about the managerial vision [of the pharmaceutical industry] to catalyse these talents to deliver the results we all want."

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15. barry on April 2, 2012 11:15 AM writes...

self-selected readers of this blog are in overwhelming accord that scientists are indispensable. Part of what is going wrong is that those scientists aren't encouraged to do SCIENCE. Science require trying to falsify your hypothesis. In the case of drug discovery, that means rushing to perform the killer experiment that could end a project at every opportunity. Failures are expensive, but late failures are vastly more expensive than early failures.

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16. patentgeek on April 2, 2012 11:52 AM writes...

#9 Cellbio:
I think you and I worked for the same company in parallel universes! I followed that arc from being hired as the first chemist to the death throes of dismemberment. The only thing you didn't mention are the ridiculously unrealistic 10-year plans concocted for Wall Street.

I think your advice in your last sentence is well-considered.

I think #3 has a good point in that returning to the past isn't going to happen; and not just for Pharma: the world of our parents is gone, and it's never coming back. The pace of change just keeps getting faster and stability and predictability are in short order. I don't believe in Vernor Vinge's "singularity", but there is something of that feel to our times. The "creative destruction" of capitalism is not just something talked about in eco class: we're staring right into its maw.

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17. Student on April 2, 2012 12:13 PM writes...

As ignorant as I don't want to portray myself...and even though it is in our own self interest....why is it suddenly up to us to find "them" a better business model. There is a reason these people are pulling upper 6 figure and 7 figure salaries (both executive and HR).

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18. MTK on April 2, 2012 12:41 PM writes...

@13, who wrote "everyone else has felt the bite in the past decade, but the investors"

The investors have also taken it in the shorts. Over the last decade, the Dow is up 25% and the S&P is up 23.6%. The NYSE Pharma Index? -11.3% during that same time period. Pfizer is -44% during that time. Merck is -30%.

And no that isn't just a bunch of fat cats with money to burn. That's pension plans, people's 401k's, etc. If you had a mutual fund that performed that bad relative to the market you'd be getting your money out fast.

I'm not defending the wholesale cutting of R&D, but I am saying if you think the investor's are making a killing off the backs of laid off scientists, you'd be wrong. Many are sinking with the rest of us.

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19. Fries With That? on April 2, 2012 12:45 PM writes...

If you get into a company pre-IPO, normally your shares are diluted so much by the time an IPO happens that the money you receive really isn't that meaningful. The only people who really gain are upper management, with their tens of thousands of shares. There may be some exceptions out there, but for the average bench scientist, receiving significant compensation from owning shares of a company is a pipedream.

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20. johnnyboy on April 2, 2012 12:58 PM writes...

I don't have the exact figures, but in terms of R&D costs, I would hazard that the clinical phase represent somewhere around 75% of expenses for a typical program, if not more. And the bulk of that would be phase 3. With that in mind, trying to make R&D leaner and more cost-efficient by axing discovery scientists is like chopping off a patient's head to treat his leg gangrene. As Herper alluded to, increasing the efficiency of R&D should focus on stricter go/no-go criteria at the clinical phase. Unfortunately when a drug is at that stage, investors and executive management probably have too much say into the decision-making process, and wishful thinking takes the place of critical evaluation. Stricter criteria for development would likely mean fewer drugs marketed in the short run, but it would also mean saving significant sums not invested into doomed clinical trials, and if these savings were invested into more discovery research (more programs, more candidates per program,etc...), in the long term we might see increased productivity. But hey, who bothers to thinks in the long term (apart from scientists)...

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21. cynical1 on April 2, 2012 1:04 PM writes...

@18 MTK: What about dividends over that same decade. Do they offset the losses in share price? I'm not being snarky (for once), I really have no idea.

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22. MTK on April 2, 2012 1:27 PM writes...


Oh for sure dividends would offset losses. In fact that's the way that pharma companies have kept their stock price from completely cratering; by increasing the dividend yield. In fact, Pfizer and Merck have the 3rd and 4th highest dividend yield of the 30 DJIA companies.

Even with that the pharma sector is still way behind the overall market during the last decade.

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23. gippgig on April 2, 2012 1:39 PM writes...

"...with the goal of selecting those where there was a high probability of believing they would actually prove effective in clinical development." Shouldn't "and be a significant advance over existing treatments" be added to that?
This wouldn't work as well in the highly regulated, slow moving drug industry, but take a look at Nucor (see the book "American Steel"). They basically don't have management; instead workers are paid on the basis of production so they figure out how to maximize productivity. In that case it worked - spectacularly.
Off topic but really looks interesting - On the TV show Nova this week on PBS, "David Pogue explores weird, extreme chemistry." Bet you'll see some "Things I won't work with"! Check your local listings.

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24. anon the II on April 2, 2012 1:52 PM writes...


Pfizer halved their dividend about 3 years ago.

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25. Rick Wobbe on April 2, 2012 1:57 PM writes...

JF, #11 That's a very important point and it shouldn't get lost in this. There were successes that we should be proud of and that mustn't get lost either because that is the business many of us would like to be in. Nevertheless, overall there's no data to say that there were more success stories like that than in earlier decades and one might even say that the data indicate that there were far fewer stories like that in the last 3 decades.

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26. MTK on April 2, 2012 1:57 PM writes...

@24, really? I did not know that. I'm not a Pfizer investor.

Wow, the investors aren't getting off too easy either then, are they?

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27. Hap on April 2, 2012 1:58 PM writes...

It does no one any good, but I think lots of people would feel better about firing as a response to the lack of productivity and unsustainable costs of pharma if the people who helped to make the costs so unsustainable and unproductive weren't being paid so well to do so. The shareholders, the companies, and their employees all took it in the shorts - but their management, not so much. If you change the engine in your race car but have Mr. Magoo as your driver, do you really think you'll go faster and win more?

The lack of linkage between the price paid by management for its failures and the price everyone else pays also makes it sort of hard to explain to scientists how their jobs will probably be more transient, less lucrative and harder when the people who have done so much to make them so experience no such effects. I guess the idea of profit being related to risk and responsibility is quaint and outdated.

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28. cynical1 on April 2, 2012 2:07 PM writes...

@MTK Well if the investment community actually made money on their investment over that time, then that just really doesn't seem like they "took it in the shorts".

You, see 'taking it in the shorts' is when you have over $100K a year in healthcare costs to support your sick wife and a company who reported record profits that year throws your ass out on the street after your last performance rating was "Exceeds Expectations" and after working there for 17 years. And the VP who made that call knew full well what he was doing and the financial ruin that was ensured and was actually smiling when he fired me. See, now that's how I define "taking it in the shorts". By your definition, "taking it in the shorts" doesn't seem too bad a thing at all. (Ok, now I'm being a little bit snarky.)

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29. MTK on April 2, 2012 2:30 PM writes...

Well, cynical, you may need a handle change to snarky then.

Look, there's bad personal stories everywhere.

What would you want them to do? Make business decisions based on who'll suffer the least?

My only point was in response to #13 who thought that the investor's weren't feeling pain also. Hell, my mom had her pension benefits as the widow of a retiree cut and her retiree health insurance eliminated. Pension plans are major investors in the stock market, so these "investors" include a lot of little bad stories too.

The situation stinks. Your personal situation stinks. But let's not think others aren't feeling pain and that it's all on our backs. Heck, pharma sales forces have been cut as much if not more than R&D. Some of those guys have been adversely personally effected also I'm sure, but business decisions had to be made. (Decisions which you can agree with or not agree with certainly.)

I realize that it doesn't make it "right" or any less painful, but I think anon2 is right here. At some point we have to accept the realities.

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30. Rick Wobbe on April 2, 2012 2:40 PM writes...

cynical1, #28,
You are entitled to some snarkiness and I for one appreciate your heartfelt comment. I dare say a lot of us sympathize with you and many of us would like to see some good come out of this experience. I for one believe that must include re-examining many of the fundamental management and financial principles that came to drive the industry over the past 2-3 decades and sparing no one because they "took it in the shorts" financially. Ultimately, it's the people who aren't getting medicines they need that have really taken it in the shorts in the only way that really matters, while we've fiddled with management fads and unsustainable profit-maximization strategies. I'd love to believe that the lessons from the premature end of many of our careers could somehow lead to something better.

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31. MIMD on April 2, 2012 2:52 PM writes...

#29 MTK

What would you want them to do? Make business decisions based on who'll suffer the least?

it might actually be better for morale then the current dart board approach...

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32. cynical1 on April 2, 2012 3:39 PM writes...

@MTK: I do accept the reality. Really, I do. When I lose my current job in a few months when my little startup runs out of money, I will not try to get another med. chem. job. I'm out for good.

What I don't accept is that the pharma investment community have meaningfully suffered from the current woes of the industry as opposed to the non-management staff of these companies who have suffered all of it.

If you call investing one's discretionary money in pharma stock and it didn't do as well as Apple stock over the past 10 years but you still made money on it as some sort of hardship, then I'm going to have to disagree. Investing in Wall Street is a gamble not a guarantee. Investing in a science career at this juncture isn't a gamble, it's just stupid.

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33. Curious Wavefunction on April 2, 2012 4:03 PM writes...

"Taking the Ax to the Scientists Is Probably a Mistake"

Talk about redefining understatement.

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34. MoMo on April 2, 2012 4:10 PM writes...

All of you and your finger-pointing are getting old. Scientists vs management, it doesn't matter- You all have to go.

First of all the scientists need disbanded-You were the cause of the downturn the moment you turned to Ray Kroc for the scientific techniques you all loved so much-in the hopes of using "numbers" to generate drugs

And then management neesds fried for using such metrics to gauge success with reckless attention to such fads generated by the scientists.

But the people who need new drugs to stay alive will hopefully come back to haunt every one of you-dragging chains down your hallways at night while you watch info-mercials on Cialis and Viagra and your children ask whether they can get erectile dysfunction.

You get what you deserve, and the implosion of the pharma industry on itself now stands in line to be corrected.

Its about time.

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35. Ginsberg on April 2, 2012 4:42 PM writes...

I think #15barry makes the most salient point. If we were to do our job properly, we would constantly be pointing out to management how wrong we are. HR and the exec staff would interpret this as if we were incompetent. Instead we play their game and always keep on the sunny side of the street.

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36. Hap on April 2, 2012 4:55 PM writes...

Who paid for the sins of auto management? How about steel? The tune changes (can't blame the unions in pharma, alas), but the song remains the same - capitalism for the rank-and-file, socialism for management. If you think the pillaging is going to stop with pharma, or that rewarding management for sacrificing everyone but themselves will leave anyone standing but management, I would suggest some of the medications that may not be around soon might be useful.

Things change - costs go up and down, beter ways to do things come about and replace older ones, ad infinitum. People end up fired from lots of those changes. What I've yet to see is some evidence that phharma can actually do any of what it wants to do - make more drugs, make better drugs, make more money - by destroying its internal ability to find drugs and by entrusting its existence to smaller companies who do not necessarily share its goals (or whose methods of achieving the last goal are likely to conflict with those of pharma).

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37. Rock on April 2, 2012 5:23 PM writes...

@Hap 36
One difference with Pharma is the unrealistic expectations of Wall Street. Those other industries cut workers when the company was in the red. When Kindler took over Pfizer about six years ago, he promised the investors that he would keep the profit margin at 30%. That is THIRTY percent. And he was true to his word. That meant cutting as many people as necessary to keep the multi-billion dollar quarterly profits. That practice to me is short sighted from both ends.

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38. Anonymous on April 2, 2012 5:46 PM writes...

@ MoMo

Wow you're such an optimist! I hope you experience being layed off...perhaps that would humble your soul?

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39. Chrispy on April 2, 2012 5:51 PM writes...

It is ironic that just as all of our tools have gotten really good for drug discovery that people are throwing in the towel on the whole venture. DNA sequencing, MS, crystallography, arrays, etc., etc.

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40. Hopeless on April 2, 2012 5:57 PM writes...

The statement "Taking the Ax to the Scientists is Probably a Mistake" stands very true.

Now the key question is who is the real scientist and who is not.

I have no problem to see those who are not get axed.

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41. Matthew Herper on April 2, 2012 6:14 PM writes...

Part of the point I was trying to make was that, if the comparison to Uniqlo holds true, it's probably better to keep people employed doing research and try to cut the amount spent on development. Too often, the opposite has happened. I think there has been way too much money spent on expensive development goose chases (alzheimer's, the next blood thinner) when the big pharma's could have been following a far leaner approach.(Net present value can be a scary thing: it makes a failure in a big market look better than a success in a small one.)

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42. dearieme on April 2, 2012 6:39 PM writes...

It's worth looking at the first edition of James Le Fanu's "The Rise and Fall of Modern Medicine" (1999) and then at the retrospective view in the epilogue of his second edition (2011). If a humdrum GP could see the problem, why couldn't all the absurdly overpaid senior executives in the pharma biz?

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43. Cellbio on April 2, 2012 8:12 PM writes...


Thinking of a company being financed to make it to an IPO is a bit of a stretch these days. I could be wrong, but I think the future will likely have most small companies working through to some early point of derisking, then selling to pharma.

patentgeek, hope to meet someday. Maybe Derek can hold a "family reunion" for the In the Pipeline crowd. What a joyous event that would be!

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44. MTK on April 2, 2012 8:39 PM writes...


Once again my whole point is that the investors in pharma were far from making a killing on the backs of laid-off scientists. That's a myth.

Good luck finding a job in whatever industry you choose where your well-paid, have complete job security, and are highly respected and appreciated as an individual. (No snark there, either. I really mean that. It just might be out there. Let us know.)

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45. Philip on April 3, 2012 12:29 AM writes...

@13 & @18, I wish I could take it in the shorts like the following did in 2010:

1. Bill Weldon - J&J - $28.7M
2. Daniel Vasella - Novartis - $27M
3. Miles White - Abbott- $25.6M
4. Jeffrey Kindler - Pfizer- $24.7M
5. Richard Clark - Merck - $24.6M
6. Robert Coury - Mylan - $22.9M
7. Kevin Sharer - Amgen - $21.1M
8. James Mullen - Biogen Idec - $20M
9. John Lechleiter - Eli Lilly - $16.5M
10. John Martin - Gilead Sciences - $14.2M

C level compensation is out of control in Pharma, tech (HP for example) and most other sectors. Laying off the people who produce when you have such out of sight compensation for the managers is absurd.

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46. Ricardo Ros on April 3, 2012 3:55 AM writes...

Unfortunately, that distinction between managers/scientist, it is just not there. All of the managers I m