©2007-2010. Sigrid Caroline Schroder. All Rights Reserved.
SECTOR CRISIS
What is Happening in Your Sector? Or Your Portfolio?
Your stock price plunging 20% in 2 weeks, as Amgen’s has done, will powerfully concentrate your mind and keep you up at night. Biotech, last fall’s “safe” bet, is this month’s dog and with this comes a new analysis of where Biotech is going and where it has been. Biotech cannot be discussed without discussing Pharma, and vice versa. Certainly there are a lot of things keeping Pharma CEO’s awake at night right now.
Blog analyst word now is that Obama likes neither, threatening to end Biotech’s competitive protections by allowing biologics to be genericized. The justification given for this is the pricing disparities between the US and China and other parts of the world and the production capabilities abroad. This is no good argument. Likewise, these CEO’s are losing sleep because even as on all sides Pharma and Biotech are now threatened by generics, compulsory licensing in the Third and Second Worlds and potential abrogation of patents in the First and Second Worlds have become an increasing threat since the year 2000. Obama is cool to their threat. If Pharma and Biotech needed proof of Obama’s froideur, they need only consider his snub in almost, but not quite, appointing a new Commissioner to head the FDA even as he criticized the FDA for not tracking down salmonella fast enough, even as he almost, but not quite, appointed a journalist, albeit a very technical, lettered one, as Surgeon General. Gupta thought better and removed himself, but little besides threats to take apart the FDA have yet materialized. All this occurs after a decade in which the FDA’s internal morale was devastated by the American Home Products (Wyeth) rotavirus vaccine catastrophe and years of being tossed as a football between political forces. The FDA deserves better, quicker definitive support and clarity. What the FDA does is excruciatingly technical, intellectually difficult, ethically trying, and painfully risky. The Commissioner selection has been long a trial by water; each time there’s a gap. the pipeline to approval slows and the FDA, Pharma and Biotech suffer and are blamed. The real victim is the US patients, and those of the world. Yes the CEO’s must be up late at night.
One of the worst sleep deprivers for years has been the fact that the low hanging fruit in drug discovery has pretty much been plucked. The time line and costs for getting a drug, particularly a biotech drug, through Phase III trials have increased wildly over the past 15 years. Even after investing the time and money, there is no guarantee of FDA approval or, in fact, of a reasonable pay back period before generics, competing drugs and even the potential for forced withdrawal of a drug intervene. And as drugs become ever more complex, the R & D pipeline becomes emptier and vastly costlier.
Obama and many forces would like to see Pharma and Biotech margins shrunk, prices pressured into line with the Second or Third World and drugs and devices developed as a charitable good work. Unless the US government is going to cover the costs, down this path lies pain. First, as has been forcefully argued for years, this price control is unfair because the US Pharma and Biotech companies are the ones who invest in the excruciatingly expensive and complex R & D. Obviously manufacturing costs will always be higher in the US merely because we have a higher standard of living, (a standard which we would all be reluctant to see swept away to Chinese or Indian standards). Second, far too much of what is shipped from China and elsewhere abroad is counterfeit or contaminated. Pure, real US manufactured pharmaceuticals are dangerous enough. From Heparin deaths to counterfeit drugs contaminated with rat poison, Chinese products have been repeatedly shown suspect. Third, and related to the foregoing, is the fact that contract manufacturing of pharmaceuticals and vacines was not even permitted in China until very recently. We can hardly know the true conditions. Unlike counterfeit Underwriters Laboratory certificates on Christmas lights or counterfeit autoparts, counterfeit medications kill quickly and silently; the US cannot afford a market flood. Until China and other countries match US R & D and manufacturing investment and deal with their critical counterfeiting and contamination issues, competition is likely to lead only to dwindling drug discoveries and new health concerns. Contract manufacturing is not likely to be a solution.
Pharma had hoped to buy pipeline by buying Biotech, but look at them now: anti-angiogenesis is just one more in the line up of hopeful therapies which ultimately causes more harm than good. Antisense after all these years as yet is an unfulfilled promise. Drug-eluting stents may cause blood clots. Inhalable insulin failed to take hold. That is good for nightmares and waking in the night. Now the FDA has approved GTC’s ATryn, a natural blood thinner produced from genetically engineered goats. Pharma buy Biotech? Pfizer is buying Wyeth instead. That keeps the Biotech CEO’s awake at night as their burn rates churn through cash, credit, angels and venturesome VC’s dry up and they see hope of buy out by Pharma fading in this market.
And now the Wyeth Phenergan loss before the Supreme Court will keep the Pharma and Biotech CEO’s awake at night. Here was a commonly used drug, long off patent, used in surgery and cancer therapy as well as for many other uses from motion sickness to allergies which has now exposed Wyeth to huge liability in Vermont state court despite the human error involved and Wyeth’s clear warnings against such IV-push injection. The feds no longer pre-empt the field? The CEO’s must all losing be losing even more sleep because now the most familiar medications may expose them to liability in state court.
There is enough in every sector to keep you staring at the ceiling or counting sheep. And us as well.
© Copyright 2009. Sigrid Caroline Schroder. All Rights Reserved.
