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Drug Companies Feeling the Profit Pressures
  From Philadelphia Inquirer (PA) (August 5, 2011)

Aug. 05--People who know pharmaceutical executives living -- for now -- in lavish homes will have trouble sympathizing, but the pressure is on the drug industry to keep profits high.

Different companies have reacted in different ways when it comes to spending to produce new medicines through research, which is costly, has no guarantees, and takes years to result in profits when it does work.

Pfizer Inc., the largest drug company, said earlier this year that it would cut as much as $2 billion from its annual research-and-development budget, with some of that coming from layoffs. Pfizer is based in Manhattan but has four New Jersey facilities and one in Collegeville.

In the second quarter alone, Pfizer terminated 90 projects.

"It's focusing on the areas where we know we can win, where we have the science, we have the expertise, where we see a productive research effort," Pfizer chief executive officer Ian Read told Wall Street analysts in a conference call Tuesday. "It's a cultural change where we are looking at researchers that are focused on results. It's not shots on goal; it's shots in goal."

Serendipitous science generated penicillin, among other helpful medicines, but it often translates poorly on a quarterly earnings report.

GlaxoSmithKline CEO Andrew Witty said last week that stock markets will require Big Pharma to do less spending until profits prove otherwise -- and the survivors as industry consolidation continues will figure out how to get the most bang for their research bucks.

Eli Lilly & Co. and Merck Inc. have resisted such cuts, but Merck also announced last week it would cut 13,000 more jobs, after having laid off employees following the acquisition of Schering-Plough in 2009.

The move comes as patients, insurers, and governments are trying very hard to pay less for drugs. Medicare announced updated reimbursements over the last week for several areas of health care and, generally, there was no joy in Pillville.

Generic drugs are cheaper than brand names, so more patients can have access to such medicine, but they hurt profits of the company that invested in the original research -- or bought the company that invested in original research, as in the case of the cholesterol-fighter Lipitor, Pfizer's top-selling drug.

Lipitor generated nearly $2.6 billion in revenue in the second quarter, three times more than the next-best-selling Pfizer drug. But competitors will be ready to sell generic versions in the United States after Nov. 30, when the U.S. patent protection expires, and they already started doing so in Spain, Canada, Brazil, and Mexico last year. To retain more of the future money flow, Pfizer reportedly will try to gain approval from the Food and Drug Administration to sell a version of Lipitor over the counter, though such approval is far from certain given the potential side effects.

Still, isn't it somewhat counterintuitive to be a drugmaker and make fewer drugs?

"Research and development is the lifeblood of any pharmaceutical organization," said Dr. John L. LaMattina, a former president of Pfizer Global Research and Development and now a senior partner at Puretech Ventures in Boston. LaMattina wrote about the negative effects of mergers and acquisitions this week in the journal Nature Reviews Drug Discovery.

In a phone interview, LaMattina said consolidation disrupts or destroys the scientific exploration required to produce new medicines. After one company acquires another, time, effort, and brain cells are spent deciding which researchers will work on what, which company's testing methods to adopt, and, often, who gets laid off.

"I might not be doing justice to salespeople, but they can go from selling one kind of drug to another kind of drug more easily," LaMattina said, referring to the possible differences among divisions in adjusting to new owners.

At a congressional hearing in July, Janet Woodcock, the FDA's director of the Center for Drug Evaluation and Research, said the agency recognized the industry was in "crisis" over prospects of the pipelines not producing blockbusters to replace the mega-profit drugs that will soon lose patent protection from generic competitors. But she said the FDA also saw fewer submissions of new-drug applications.

LaMattina, like others in the industry, said the FDA wanted to see more research before approving drugs, but he said the industry consolidation meant there were fewer companies to submit new drugs. That can mean fewer research jobs and fewer medicines for patients.

"In your part of the world, there are a lot of companies that are no longer there," LaMattina said of Philadelphia. "In the old days, you'd have five or six companies coming up with a new drug for something and race to get it to market. Now, it's one or two."

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