HERE’S some more bad news for the New York-New Jersey area: The once-invulnerable pharmaceutical industry is facing tough times of its own.
“Big Pharma” firms with headquarters and/or major R&D or manufacturing facilities in New York City and New Jersey include Pfizer, Merck, Johnson & Johnson, Bristol Myers Squibb, Schering-Plough and Wyeth. Together, they have market cap- italization of over $600 billion and more than a half-million employees.
Drug companies are plagued by expiring patents and, worse, by antagonism in Washington – which means an increasingly hostile regulatory climate and looming price controls.
Don’t be fooled by Pfizer’s acquisition last month of rival Wyeth: That move is like “doubling down” when you’re losing at blackjack – you usually end up broke.
Pfizer’s net income for the fourth quarter dropped 90 percent from the same period a year ago. One cause was a charge to resolve an FDA investigation. But the company faces product, pipeline and patent problems, too – especially the 2011 expiration of patent rights to cholesterol drug Lipitor, the world’s best-selling pharmaceutical, which accounted for a quarter of the company’s 2007 revenue of $48 billion.
For decades, the drug industry was one of the nation’s most innovative and competitive – but Congress has begun to treat it like a terrorist group: Vituperative hearings regularly bash the companies, individually and collectively.
“Cost effectiveness” is the new mantra in Washington: Policymakers want to reallocate health-care resources in a way similar to the UK’s National Institute for Health and Clinical Excellence (which uses “experts” to judge the cost-effectiveness of therapies, in order to decide which ones the government will pay for). House Appropriations Committee Chairman David Obey recently admitted that the point is to keep patients from getting more expensive medications and procedures – in other words, rationing.
Then there’s the threat of price controls. Leading Democrats are expected to change the Medicare drug benefit to require government officials to negotiate prices with the drug companies – de facto price controls. The use of government muscle will force prescription-drug prices to submarket levels, leaving drug companies unable or unwilling to develop more life-saving drugs.
The Veterans Administration already does something similar to what Obey & Co. want from Medicare – and as a result has completely eliminated coverage for certain drugs. Only 19 percent of drugs approved by the FDA since 2000 are listed on the VA formulary, and less than 40 percent of drugs approved in the 1990s are listed. Expect the same from Medicare.
Another threat: New rules and escalating risk-aversion at the FDA have increased the time and expense required to get drugs to market. Bringing a new medicine to market now takes on average 12 to 15 years, while costs have skyrocketed to more than $1.2 billion.
And drug makers only recoup their R&D costs for one in five approved drugs
The industry’s plight is likely to grow worse. Congress and the FDA have been moving gradually toward “conditional,” or limited, approvals of new drugs – putting restrictions on the prescribing, distribution, sale and/or advertising of these products. They’ve also added new requirements to get even those limited approvals – a devastating double-whammy that is dangerous for patients and damaging to one of the nation’s most innovative and critical industries.
Given the vehemently anti-drug-industry, pro-regulation views of the majority in Congress, these trends are likely to continue at least into 2011. The elevation of Rep. Henry Waxman (D-Calif.) to the powerful chairmanship of the House Energy and Commerce Committee means more trouble.
Mergers and acquisitions will be no cure for the miasma engulfing the drug industry.
Henry I. Miller, a physician and fellow at the Hoover Institution, was an official at the FDA from 1979 to 1994. He is the author of “To America’s Health: A Proposal to Reform the FDA.”