Wednesday, January 14, 2009

What’s Wrong with Pharma? One Answer from JP Morgan

Sunday night we attended what we now think of as the kickoff to the JP Morgan meeting, the extraordinary concentration of biotech/pharma movers and shakers which is the MPM Capital dinner at San Francisco’s Ferry Building.

The dinner operates as a kind of temperature gauge for the industry; lots of folks with the power to actually do something looking for each other’s opinions and sharing their own.

Our quick sense this year: they were worried. But it was less the conversations that struck us as indicative of the industry angst than the unusually frank remarks of the dinner’s keynote speaker: Thomas Ebeling, once the GM of Pepsi in Germany, the CEO of Novartis Pharma and Novartis Consumer Health, and soon to be the boss of Germany’s largest broadcasting group ProSiebenSat.1 Group.

Ebeling’s a controversial guy. But he’s also got a very pretty broad view of the practical side of the business world. Which was why Ebeling’s theme -- a critique of the drug business – was so compelling.

There were plenty of things he said he liked about pharma (the passion to do good, for one; the extraordinary return-on-sales, for another). But there were plenty he didn’t. Not that the criticisms were particularly novel: you hear many of them in private conversations. But you rarely hear them publicly from one of the business's big shots and never aggregated. Here are the points we can remember (who thinks to take a reporter’s notebook to these shindigs?):

  • Some of Big Pharma’s very senior managers (one assumes not excluding the speaker) are very sharp. But there’s a huge fall-off in quality as you get below the top.

  • Big Pharma managers, trained in consensus decision making, don’t take individual responsibility. Not a lot of bold decisions, therefore, likely to get made.

  • Pricing in pharma will change to a pay-for-performance model.

  • This industry – and all its constituents – hates bad news. So rather than confront it, managers generally try to avoid it, exacerbating the problems pharma faces.

  • Given the R&D productivity problems, in-licensing is crucial – but no one wants to say "yes" to them. Everyone will remember the executive who championed an in-licensing candidate that fails after millions in trial expenses. No one remembers the person who said “no” to Lipitor.

  • If that ain't enough to block most deals, the not-invented-here syndrome can help. NIH remains a powerful force in pharma: fundamentally, all R&D heads all want to develop their own drugs.

  • Pharma will evolve to a holding company model – it’s just too complex to run as it is.

Ebeling finished up his excoriation by answering a question from MPM partner Vaughn Kailian: “If you were appointed CEO of Sanofi Aventis what would be the first three things you’d do?”

The answer must have warmed the hearts of the biotechs in attendance – though the per-company math wasn’t particularly exciting. First, Ebeling would raise $800 million to $1 billion in capital and use the money to buy eight to ten biotechs. Then, because he wouldn’t be able to afford to develop all those products, he’d find Big Pharma partners to help. It’s a shots-on-goal strategy, he said: better 20% of something than 100% of the one asset you can afford to do yourself – and which doesn’t make it to market.

And finally: “I’d find a great head of R&D. Good marketing guys are common; great R&D heads are very, very rare.”

Picture from Der Aktionar Borsenmagazin


Anonymous said...

This comment struck home the deepest for myself, a web development and marketing professional in this industry.

"This industry – and all its constituents – hates bad news. So rather than confront it, managers generally try to avoid it, exacerbating the problems pharma faces."

The effect of web 2.0, social networking and whatever 'coin' term you want to use effectively is making business practices 'transparent'.

I read somewhere, and am seeing it w/ my teams interrogation software that less than half of clinical trials have anything published.

The public will learn about your company, your products and the results, even if you try to hide them. That internet has eliminated that business, and not just for Pharma.

Managers who adopt this fact and move on will be great future assets and decisions makers, especially those who use it to their advantage.

EASports had a bug in the game exposed on the internet, that allowed Tiger Woods to walk on water to hit his ball. Instead of trying to quickly cover up the bug, fix it and ignore it, they created a commercial showing Tiger walking on water to hit the ball, followed by the words. "Its not a bug, he's just that good".

Own your transparency, your humanness and loyalty will abound. Hopefully, pharmaceutical companies will get this sooner rather than later.

Anonymous said...

The CEO's of these pharma houses are real smart and no one else is? That's why the industy is in serious self inflicted trouble. The easiest thing to know is when the drugs are going off patent and what do they have...nothing! What were the CEO's doing?

Anonymous said...

Huge fall off in talent after CEO and President's of these company's??? This is a blue blood industry. Fast tracks of these 'brilliant' people at the top and therefore a vicious cycle of NO CHANGE! Big Pharma is all push down leadership. The top managers wouldn't know who has great ideas or who the strongest middle managers are because they don't care to hear anything other than "yes, yes, yes" to their direction. And they only promote the Yes Men/Women. Oh, and why they hell to the CEOs and Senior Managers even care when the golden parachute is in their back pocket. I love the fact they get millions to fail drive stock price...

believe it 100% said...

Someone should have asked Mr. Ebeling about the best kept secret in Bigpharma, or bigpharmafia as someone called it. What it is? Well it is the organized, deliberate, planned, approved, usually ordered by the top down the pharma food chain, MISCONDUCT. This word is used to describe all the unethical, illegal, criminal business activity that they "forbid" officially but use routinelly to sell more and make much higher profits. Over years they have developed numerous forms of "alternative" promo activity that includes bribery, false claims, offlabel promotion, payoffs of all kinds to corrupted doctors (trips, large value gifts, fake honoraria, you name it it goes) fake post marketing trials to sell, sell, sell not research and so on. They have it down to science and art form. Once one method is exposed or uncovered they invent new ones. Never ends,. Even in USA where they get caught and pay hundreds of millions in fines (Pfizer 430 million for Neurontin off label promo)they continue and would not stop. Why? It is too profitable to stop. They make so much extra when they combine ligal and illegal promotion that it pays them to pay those huge fines. And this is all approved and in fact ordered from the very top. Ebeling would know for sure as would their Doctor at the top.
There are two major "crimes" the big pharma is responsible for.1. turning the once noble and ethical pharma into the bigpharmafia that is corrupt and crooked. 2. corrupting our most important assets in healthe care, our doctors.
In case of Novartis, their Diovan was promoted offlabel only year or so after intro. Once the VelHeft trial was presented they pushed it for CHF and after VALIANT was presentd for post MI indications. They did not have these indications anywhere in the world and yet they pushed the drug for those indications. That is just a drop in the ocean of unethical things they did re Diovan promo. Why do you think it became #1 ARB? It is no better than any other and that is well known fact amongst doctors and researchers. Well enough I don't want to scare you. Ask Ebeling. He will not tell you for they never admit anithing, Omerta is the code they practice.