Sympathy for the Devil
“Pleased to meet you, hope you guess my name
But what’s puzzling you is the nature of my game.”
- Keith Richards, Mick Jagger
Can’t think of an industry more loved and hated than Big Pharma. We need, want, even love their products. We hate to pay for them. Some of us think we are “owed” Big Pharma’s products, and that governments should pay them for us. Others think Big Pharma should give it away for free. But, if they do, where will newer better drugs come from? Conundrum.
The prevailing perception is that the Big Pharma companies are money-grubbing carnivorous capitalists who gleefully and willfully charge us all through the nose for their life-saving wonders. The counter image is that their research labs are filled with wonderful caring people who are trying to save the world from disease. The reality, of course, lies between these extremes.
IMS Health published a study Monday that declares that the major pharmaceutical companies are failing to enter and capture markets in the developing world. The United States and Japan remain the two largest pharmaceutical markets in the world, but China is about to leap into third place. And Brazil, Russia and India are right behind the Chinese. Venezuela, Poland, Argentina, Turkey, Mexico, Vietnam, South Africa, Thailand, Indonesia, Romania, Egypt, Pakistan and the Ukraine are all becoming major pharma consumers. But the point highlighted by IMS is that most of the major players in worldwide pharmaceuticals are missing the boat. Some of the big European drug companies are in the game (Bayer, Nycomed, Sanofi-Aventis, Novartis, Novo Nordisk). Of the big American firms, only Pfizer seems to have responded in a big way.
IMS prescribes a regime of (1) recognizing that these emerging markets (they dub them, unfortunately, “pharmerging markets”) are taking off, (2) doing your homework to understand the complexity of these markets, and (3) adapting strategies accordingly. Good sound advice for any company with any product that is entering a new market.
Curiously, the IMS study does not look at why the big American companies have seemingly been caught napping. Lip service is paid to hard times economically. Something was said about venture capital drying up, though that wouldn’t impact the truly big companies. Having worked with pharma companies, large and small, I suspect something else is at play. My candidates concern how prices are set in many markets – and protection of small local pharma companies in many developing countries.
Which is the real Lipitor? (Source: Pfizer Inc.)
Many governments see pharmaceuticals as a flagship industry that must be developed for prestige as much as for health reasons. Countries go through fads on this kind of thing. In the 1960s, every country had to develop a steel industry, then they moved on to having their own national airlines. National pharmaceutical champions became the norm in the 1990s and that continues today. When I worked in Slovakia in the late 1990s, any company that wanted to sell a pharmaceutical in the Slovak market had to submit a complete description of the drug to the Slovak Government, including exhaustive detail on ingredients and manufacturing techniques. For the “health and safety” of the Slovak citizen, of course. Funny that these submissions were all kept safely in a vault inside the headquarters of Slovakia’s biggest pharmaceutical producer. Amazing how quickly this Slovak company could churn out low-cost generic versions of the same drugs. I wonder why Big Pharma stopped selling new drugs in Slovakia?
Pricing is the other big item. Most countries exercise extreme control over pharmaceutical pricing, either directly or through their status as the sole insurer in the market. Working in eastern Europe, I found that the normal pricing formula was to require the pharma company to reveal the three lowest prices for its drug worldwide, and to “accept” an average of those three as the maximum price in your country. Now let’s see, we take the average of the three lowest prices out of 150 or so markets … I wonder why profit margins are dwindling? Not only do such pricing practices cut the funds available for future research on new drugs, but there is incentive for the big companies to stay out of absurdly low price markets so that they can maintain some sort of reasonable profit margin for their shareholders.
But that’s filthy lucre. I forgot, Big Pharma is supposed to give it away. Guess I’ll sell that pharma stock.
