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Pharm Exec asks experts to predict what 2008 has up its sleeve for the industry--from the top line to the bottom line, from R&D to M&As, from Congress to the courts.
At the Bristol-Myers Squibb year-end briefing December 5, CEO James Cornelius didn't try to distract analysts and investors from BMS's flattening top line by chatting up its pipeline. Instead, he got right to the point, announcing that he was closing half of the company's manufacturing plants, selling off its medical-imaging division, and perhaps putting its nondrug business on the block later this year. The proceeds, which could top $15 billion, are meant as a bulwark against what Cornelius called "a patent cliff"—when its turbo-seller, blood thinner Plavix, loses market exclusivity in 2011.
The patent cliff is not just a BMS problem. According to IMS Health, starting in 2010, the industry will lose $28 billion a year in sales to generics, up 40 percent from current levels, and the bloodbath will continue for three years or more. Datamonitor estimates that between 2011 and 2012, pharma revenues will fall—for the first time in four decades.
Murray Aitken, IMS Health
Pfizer's 2011 loss of Lipitor, the best-selling drug in history, has earned most of the ink, partly because the industry leader's late-stage pipeline will come nowhere near making up the $13 billion-a-year shortfall. By 2012, Sanofi-Aventis will lose half of its current revenue to generics, and Merck will wave good-bye to its three best-selling drugs—and 44 percent of its top line.
"There's very little that a CEO can do today or over the next year to significantly affect the top line, outside of big acquisitions," says Ernst & Young's Global Risk Advisory head Jeffrey Steinberg. "They'll work very hard to apply as many quick fixes as possible on the cost side."
Most of those fixes will involve the three Rs—rationalizing, restructuring, and rightsizing—plus increased outsourcing and offshoring, faster and cheaper R&D, sales force layoffs, and a steady diet of deals.
Oh, yes, and a lot of blunt talk from CEOs.
"The thing that has struck me most recently is how much more talk there is from the C-suites about the need for fundamental, dramatic change," says Chuck Farkas, head of Bain & Co.'s North American Healthcare Practice.
Capgemini Life Sciences VP Omar Chane has also noted the new realism. "At the highest levels and among the younger leadership there is a stark realization of the necessity for change," he says.
Says Ernst & Young's Steinberg: "For the first time, I'm hearing executives say things like, 'We're just never going to see another $10 billion–plus drug like Lipitor.'"
Adelene Perkins, Infinity Pharmaceuticals
This new attitude strikes some analysts as an important change. "Many of these CEOs and CFOs are a younger generation," says IMS Health Senior VP Murray Aitken. "They don't have all the baggage of 'I built this industry,' and they're in no denial about the enormity and complexity of the challenges."
One of the harshest Cassandras isn't young or new. "The industry is doomed if we don't change," Lilly CEO Sidney Taurel told the Wall Street Journal in a December 6 front-pager titled "Pharma Faces Grim Prognosis." And BMS's Cornelius supplied the perfect coda for the piece. "I'm talking to you from the 44th floor of an office on Park Avenue," he said. "A year from now, I won't be...because we're going to move downstairs out of these very expensive offices."
Welcome to the New Normal.
Despite the doomsaying, pharma remains immensely profitable. In 2008, the global market is expected to grow 5 to 6 percent to a new high of $745 billion. On the 2006 Fortune 500 list, only Big Oil outperformed Big Pharma.
But, as IMS forecasts, it will be a very different market:
"There's a tidal wave of generic drugs, and we are just in the beginning of the tidal wave," says Medco Health Solutions' Laizer Kornwasser. Generics will account for two-thirds of all US prescriptions this year, as payers squeeze spending on the spiking demand for meds. Of the estimated $70 billion total for generic sales, $20 billion will be the result of name-brand blockbusters losing market exclusivity this year. The CNS category will take the biggest hit, with two cash cows, Johnson & Johnson's antipsychotic Risperdal and Wyeth's antidepressant Effexor XR (pending resolution of a patent challenge by Teva), going generic. Meantime, J&J, GlaxoSmithKline, and Abbott will have fits as their three blockbuster anticonvulsants—Topamax, Lamictal, and Depakote, respectively—fall to knockoffs. Merck's Fosamax for osteoporosis and Wyeth's Protonix for acid reflux will join them.
Daniel Kracov, Arnold & Porter
And what new starlets will replace these old stalwarts? The 2008 pipeline will deliver 25 to 30 innovative products, says IMS, a full 80 percent in the specialty category. However, given the sorry rate of recent approvals, it's anybody's guess how many will make it to market.
Oncology is out in front with a crop of targeted treatments for small populations worth $45 billion, or 17 percent, of market growth. Leading the list are two human monoclonal antibodies, Pfizer's tremelimumab (formerly ticilimumab) and Bristol-Myers Squibb's ipilimumab for malignant melanoma. For chronic lymphocytic leukemia, Cephalon's Treanda will vie with HuMax-CD20, for which Glaxo just inked a $2.1 billion licensing deal with little Danish biotech Genmab. Another biotech, Tennessee-based GTx, is hoping to market its first product, Acapodene, for prostate cancer.
There are important advances against other diseases too. Pfizer, J&J, and Targanta Therapeutics all expect to file MRSA-battling antibiotics. In HIV, Schering-Plough's vicriviroc, a CCR5 entry inhibitor, is due to compete with Pfizer's first-in-class contender, while Merck will launch its novel integrase inhibitor, Raltegravir, approved late last year.
In the primary care market, big-ticket launches are few. Closely watched will be Lilly's novel blood thinner, the potent-but-problematic Prasugrel; Abbott's Simcor, a combo of Niaspan and simvastatin, a generic version of Zocor; and Roche's rheumatoid arthritis drug, Actemra. Bazedoxifene, Wyeth/Ligand's osteoporosis drug, could make a splash as Merck's Fosamax goes off patent.
Two of the industry's most trumpeted-but-troubled blockbusters-to-be could escape FDA's safety snares on their second try if Novartis and Sanofi-Aventis resubmit Galvus and Acomplia, respectively, both for diabetes.
Meantime, Merck is planning to knock on FDA's door with two controversial compounds: Phase III cholesterol-buster anacetrapib, a CETP inhibitor whose first-in-class contender, Pfizer's torcetrapib, famously crashed and burned this time last year; and taranabant, a so-called cannabinoid-1 receptor inverse agonist—an Acomplia competitor whose NDA is due this year. If Merck wins, though, it will have scored a trifecta: launching first-in-class drugs in cholesterol, obesity, and, with Januvia, diabetes, even though the compounds were number two coming into the home stretch.
Another first: The top-seven emerging markets (the old BRIC group—Brazil, Russia, India, China—plus Turkey, Mexico, and South Korea) will make up one-quarter of global sales growth.
Rapid economic expansion in these countries is fueling a growing middle class demanding better healthcare and using private insurance to obtain it. But their pharmaceutical consumption is mostly limited to generics, and, according to VOI Consulting's Todd Clark, counterfeits make up as much as 75 percent of the market.
However promising these markets look, though, "there's a general sense that 'we'll wait a few years until there's a bigger middle class able to buy brand lifestyle drugs,'" says IMS's Aitken. Companies will continue to make inroads, forming local partnerships as the industry steps up outsourcing for manufacturing, IT, clinical trials, and even discovery.
Chronic threats to patents further darken the picture. Says Clark flatly: "Pharma must recognize that its global international property rights are under greater threat now than at any time since the advent of the WHO system. Actions by Thailand and Brazil have been met largely with silence from the Bush administration—a signal to the world that the US government will no longer fight on behalf of pharma."
One solution is for drugmakers to price their own drugs at generic prices worldwide once they go off patent, says St. Joseph's University's Bill Trombetta: "There's money to be made off the 4 billion people living on two bucks a day. But pursuing this market requires a totally new orientation along with stripping out costs."
Analysts may be impressed with the new outspokenness of pharma CEOs, but they are underwhelmed by their actions. "Progress is incremental," says Bain & Co.'s Farkas. "There are modest improvements being made to the existing model—rather than throwing it in the trash."
Many analysts say that pharma has sacrificed innovation at the altar of size and sales. "It's not by chance that the pipelines have dried up," says Bruckner Group's Michael Russo. "Advertisers and marketers have taken over from the innovators—researchers and businesspeople—who do the real work of developing drugs."
David Windley of investment bank Jefferies & Co. agrees. "Companies are still going after blockbusters and even megablockbusters," he says. "They're just beginning to accept that they're likely to be smaller in the future."
One exception is Novartis' Dan Vasella. At his end-of-year briefing, Vasella specified exactly how much smaller—or "more nimble and agile," in pharmaspeak—the drug giant would get: In 2008, every Novartis division will max out at six levels. "When things get tighter, and you get more pressure, then it's much easier to say, Look, it's just not going to continue this way," Vasella told the Financial Times.
In fact, 2007 was a year of announced layoffs at most of the top firms: Pfizer, 10,000; AstraZeneca, 7,600; Bayer, 6,100; J&J, 5,000; BMS, 4,300; Novartis, 3,750; Amgen, 2,600. Merck set the trend in November 2005 with a "reorganization" that included 7,000 pink slips. About a third of the 30,000 lost jobs were US sales reps. While that's a troop cut of one-tenth, many analysts think deeper cuts are in store—or should be.
"While the sales force cuts have been large, they aren't as significant as previously anticipated—mostly fine-tuning based on changing portfolios," says Capgemini's Chane. "And they've already reached a threshold beyond which everyone seems afraid to move."
But as Big Pharma launches more and more biologics, the sales model will evolve, however gradually, to meet the demands of the specialty market. "I doubt that there will be many overnight changes," says Arcas Group President Jan Heybroek. "We'll see sales structures start to function more like a group of small autonomous companies, each focused on a single disease state within a specific therapeutic area."
Downsizing will continue to claim many manufacturing plants worldwide. AstraZeneca plans to get out of the business completely. Pfizer will be outsourcing as much as 30 percent of its manufacturing to China, India, and South Korea. "Last year, some drugmakers made big deals in outsourcing, and there will be more in 2008," says Patni Life Sciences head Mark Kolb. "Pharma is recognizing that in places like India, it can save money and get better talent and better processes than at home."
And as industry execs dig deeper into the 2008 balance sheet, says TGaS managing partner Stephen Gerard, they'll take the knife to former luxuries like redundant clinical trials. "They're going to outsource important functions," he says, ticking off information management, sales force automation, and especially primary research. Sanofi-Aventis broke the ice last year when it opened an R&D shop in Goa, India.
But Bain & Co.'s Farkas says that outsourcing is more than just a cost-cutting device. "Pharma needs to get outside its own walls," he says. "Some of the best science is being done in academia and biotechs, and companies should form ongoing partnerships to bring in more of an outside view." He notes that a growing number of new CFOs and even CEOs are coming from outside the industry—precisely because they're on good terms with major outsourcing, not to mention major change.
Major change must be driven by a vision that is proactive rather than reactive, analysts say. Even as industry leaders make decisions to protect their companies from the coming deluge, they also need to be laying the foundations for Big Pharma 2020. Most experts agree that the successful business model will involve many new forms of outside collaboration.
"Pharma needs to evolve from being a product-focused industry to being consumer-focused," says Deloitte Life Sciences leader Terry Hisey. That means not merely making and marketing medicines, as essential as they are. It means providing a whole range of products and services for disease management, including devices, diagnostics, information, and support. "And pharma needs to be on the cutting edge of this holistic trend," he says, "or it will be relegated to the sidelines."
"All the large-cap pharmas are trying to beef up their product lines," says Peter Young of investment bank Young & Associates. "Since each starts with a different portfolio, each takes a different approach—and it will be interesting to see if the variations become more pronounced over the next year."
For example, Pfizer is making a major move into biologics. GSK has sharply upped investment in its global vaccine division, including an ambitious rollout of its cervical cancer vax, Cervarix, pending FDA OK. Meantime, with a growing stake in the future of personalized medicine, Roche tapped the chief of its diagnostics division, Severin Schwan, as CEO last summer, and its $3 billion bid to take over Ventana Medical Systems, maker of a key breast cancer test, will be one of 2008's hot M&A stories.
The once-verboten territory of generic drug production is increasingly tempting to branded drugmakers. Novartis' generics division, Sandoz, last year accounted for 20 percent of overall profits. Other firms with their own generic shops, like Johnson & Johnson and Pfizer, are expected to battle to save market share by offering generic versions of their off-patent brands. The use of "authorized generics" will jump, following the Supreme Court's recent OK. As for reverse-payment strategies to delay generic competition, congressional attempts to end the practice will gather steam.
Tactics to squeeze the last millions out of blockbusters by marketing them as over-the-counter (OTC) or behind-the-counter (BTC) consumer products will also accelerate. Following its successful launch of the weight-loss pill Xenical as the OTC Alli, GSK will aim to combine it with cholesterol-lowering Rx-to-OTC drugs and other natural allies. But prospects look poor since, at press time, FDA handed Merck its third strikeout at taking its statin, Mevacor, OTC. With both pharma and consumers backing the BTC category, FDA's gears will likely start creaking in that direction this year.
In the end, though, only innovative new drugs will save the industry from its patent cliff. And in the New Normal, when specialty drugs targeted to smaller populations and priced high but taken short term will replace the Lipitors and Nexiums, pipelines will have to spit out more winners that ever.
That's why all the top pharmas will continue working overtime to reinvent their R&D processes. From Wyeth's Learn and Confirm to AstraZeneca's Quality on Time (to name only two), sweeping efforts are being made to speed development and cut attrition with the use of biomarkers and other cutting-edge technologies and trial designs.
Analysts agree that these initiatives are critical. They also agree that it's way too early to declare mission accomplished. "Companies are all saying interesting things," says Chuck Farkas. "But we will only know whether it all pays off in five or six years."
There's also skepticism about the ability of giant R&D organizations to function with biotech's entrepreneurial drive—or anything approaching it. "Revolutionizing the R&D model will not be a short-term process," says Omar Chane. "The industry has made progress in the creation of franchises of therapeutic areas. But the silos between the scientists and the marketers that prevent collaboration have to go. They're pharma's worst enemy."
As if on cue, at press time, Moncef Slaoui, GSK's head of R&D, offered a blistering critique to the Financial Times of the company's celebrated drug-development reorganization known as its Centers of Excellence. "The science is overridden by managers.... We just can't afford [the bureaucratic mind-set]," he said. "In every single project, we could have reached the critical decision with 50 to 60 percent fewer experiments."
The molecular biologist and GSK vet predicted that, in the near future, half of GSK's pipeline would be acquired out of house, up from 10 percent today.
Across the industry, deals will continue to outpace in-house discovery and early development in Big Pharma's pursuit of productivity. "With large-cap pharmas long on cash and short on late-stage products, we'll see the usual competition for good biotechs," says Peter Young, "as well as an increase in regional and midsize mergers, bolt-ons, a wide range of partnerships—and maybe even a megamerger." (Marriages most frequently gossiped about include Pfizer and Sanofi, Pfizer and Wyeth, BMS and Sanofi, and Novartis and Bayer.)
And big companies will gobble up biotechs earlier, when their proteins are still hatching. "There's more focus on Phase II," says Paul Capital Healthcare partner John Leone. "It increases the risk, but the price is lower, so a company can place more bets on more products."
Yet drug giants are increasingly hunting for more than promising portfolio assets. "The new vision of M&As is to expand R&D capacity, with the big companies going after biotechs with platform technologies and other discovery potential," says Kenneth Kaitin, director of the Tufts Center for the Study of Drug Development. He points out that Merck's recent RNAi moves—first investing in RNAi-developer Alnylam, then buying RNAi-developer Sirna, "reflects a certain degree of desperation among pharma giants about acquiring breakthrough innovation—Merck felt it had to corner the RNAi market."
It's worth noting, however, that no big pharma was desperate enough to pony up the estimated $30 billion Biogen Idec was said to be asking. After AstraZeneca's $15.6 billion purchase of MedImmune and Schering-Plough's $14.4 billion for Organon, widely viewed as wildly inflated, the all-buzz, no-bucks Biogen boondoggle signals that 2008 won't see the much-feared biotech bubble.
Still, analysts caution that acquiring innovation requires a new approach to merging. "There's always the danger of losing the creativity and the innovation if you don't allow the biotech to maintain its autonomy," says Infinity Pharmaceuticals' chief business officer Adelene Perkins. "After all, the team of people responsible for the product or technology are just as valuable as what they created."
In the past, large-cap pharmas interested in a single compound would simply buy the biotech outright and jettison the development team. But nimble-hungry execs are increasingly showing signs of learning to let biotechs be biotechs.
Conventional wisdom says the 2008 presidential campaign should be a top industry priority, especially because healthcare is polling among voters' top-three issues. To make matters worse, Sen. Hillary Clinton (D-NY), who backs drug importation from Canada, Medicare Part D negotiations over drug prices, increased funding for cost-effectiveness studies, and FDA approval of biosimilars, is leading in national polls.
That scenario may have seemed like pharma's worst nightmare even four years ago. But according to many analysts, the industry's traditional Republican partisanship may be on the wane.
"There's no longer a consensus that if the Democrats take over, things will be terrible for pharma," says Ernst & Young's Steinberg. "The consensus now is, 'Things are already about as bad as they could be—regardless of a Democrat or Republican in the White House.'"
The shift in campaign contributions is telling. At this point in the 2000 campaign, pharma was favoring Republicans over Democrats by a ratio of 2-to-1. Heading into 2008, the Dems have a razor-thin advantage—given the odds, pharma is hedging its bets.
Yet the emergence of healthcare reform as a pocketbook issue for American voters concerns the drug industry beyond politics. "There's a bipartisan push for universal coverage," says Adelene Perkins. "What matters most is that this is an opportunity for us to set a national healthcare agenda—and talk about how much drugs contribute to both preventing disease and lowering costs."
That's easier said than done. With its own approval rating in the tank, Big Pharma will have to raise its voice over the campaign roar about the high price of drugs. "As the candidates get nominated," says DrugWonks blogger Peter Pitts, "the rhetoric will expand, and there will be fewer and fewer specific policies and more and more applause lines."
In fact, it's the insurance industry's high price of coverage and low level of reimbursement that is taking most of the heat. Even a New York Times lead editorial allowed that the cost of prescription drugs was a red herring in the public debate. A national healthcare "conversation" next year could conceivably popularize this fact—and begin to shift the burden of public animosity to the third-party payers.
"The payers are where the action is," says Bruckner Group's Russo. "They have completely overturned expectations by insisting to both consumers and pharma that saying no is now a very big part of the system."
Amundsen Group Managing Director Mason Tenaglia expects pushback in 2008. "Pharma will start rethinking the rebates it offers payers to ensure they are aligned with high-quality access," he says. "At the same time, companies will go around the rebates and reach out to consumers with a big increase in discount-drug cards and other brand-loyalty efforts."
Even the hot-button issue of drug pricing could be turned to pharma's advantage, according to Murray Aitken. "The cost of daily drug consumption fell last year between 20 and 35 percent in the top-five therapeutic areas," he says. A campaign publicizing this fact could undercut campaign rhetoric about the high cost of drugs.
Beltway insider and Arnold & Porter Pharmaceutical Division Head Daniel Kracov says that once a new administration takes over, the rhetoric gets toned down in the interest of actually getting the problem solved. "That's when the industry, as an important constituency, traditionally takes a seat at the policymaking table," Kracov says. "But pharma has been so marginalized by Congress and the media over the past few years that I wonder if it will get a seat."
Yet with a raft of legislation on such critical issues as patent reform, biosimilars, and comparative studies already afloat in Congress, the industry needs to speak with a loud voice now more than ever.
The consensus on follow-on biologics is when, not if. According to Murray Aitken, "when" is several years out—especially given FDA's recent rejection of Momenta's generic Lovenox. His advice: "Watch how biosimilars play out this year in Britain and Germany as generic EPO is marketed. How will it be detailed? Will doctors use it?"
On the comparative-effectiveness front, Kracov predicts that pressure from third-party payers will raise both funding and visibility for government-run studies and "pay for performance." Although currently delinked from Medicare coverage decisions, he says, "payers will start demanding the right to apply the information. And if the whole initiative becomes payer-driven, they could influence the outcome of the studies." If pharma wants to protect the integrity of its brands, it needs to get out in front of the issue.
Merck and Schering-Plough, however, are getting pharma's outcomes-trial credibility off to a spectacularly bad start. After hemming and hawing about the long-postponed release of outcomes data from the companies' study of blockbuster cholesterol-buster Zetia, Congress smelled a possible cover-up. An investigation—and ugly headlines—will likely greet the new year.
Patent-reform legislation will also pick up speed. "Basically, there's no one-size-fits-all solution," says Kracov. "The current bill suits the software industry and could hit pharma and biotech very hard." The Supreme Court has also gotten in on the act, to equivocal effect. While seeming to raise the bar on "obviousness"—and thereby on standards for a patent—it has also signaled that decisions must be made on a case-by-case basis. Meantime, the US Patent Office is instituting new rules to curtail the number and variety of claims covered by a single application. Generic shops are licking their chops.
Also over at the Supreme Court, the question of whether plaintiffs' right to sue drug companies under state law is preempted by FDA is likely to be partly or temporarily decided this year, following arguments in two key cases. With the Bush administration backing pharma and the court increasingly conservative, the industry may score a victory—and cut its legal bills.
Plus, the battle over the New Hampshire law banning the commercial use of prescribing data may also make its way onto the Supreme Court docket, says VOI Consulting's Todd Clark.
Pharma frustration with FDA is at an all-time high. Many in the industry are frankly disgusted with what they perceive as the agency's capitulation to Congress on drug safety.
Analysts predict that 2008 will only be worse. "In 2008, FDA would rather have pharma do additional tests for every possible safety signal than see Charles Grassley or John Dingell once again drag an FDA reviewer before Congress to justify his or her decision to approve a new drug," says Tufts' Kaitin.
Expect slower approvals, narrower indications, and more black-box warnings, and approvable letters demanding more clinical evidence. Says IMS's Aitken: "This will raise the level of uncertainty faced by companies not only about deciding when to seek approval but whether to even continue developing certain products." FDA's December knockdown of Avastin for breast cancer may signal a new get-tough approach to the coming cascade of cancer drugs.
At the same time, the agency faces its own uncertainty about top-level management. A Democratic White House would likely appoint not only a new commissioner but new office heads, possibly upping the power of the safety side in its war with the reviewers.
All this unfolds as current management begins to implement FDAAA and PDUFA IV. The industry and its trade associations fought hard to get Congress to pass progressive, practical legislation, but the prevailing atmosphere of frayed trust has made many industry insiders wary. Setting up preapproval REMS (risk evaluation and mitigation strategies) and rolling out postmarketing studies will require increased collaboration between drugmakers and FDA officials.
"Overall, the legislation's emphasis on safety, transparency, and accountability should allow FDA—and ultimately the industry—to reestablish credibility with the public," says Arnold & Porter's Kracov. But he worries that "the agency will not be given the room or resources to do it right. Will FDA be able to project emerging safety issues while still approving drugs swiftly? Or will it just turn into a policeman?"
On other regulatory fronts, pharma paid $2 billion to settle fraud cases with the Department of Justice in 2007—75 percent stemming from Medicare and Medicaid cases. With Medicare Part D expanding the roster of drugs over which the federal government has control—and with the benefit programs speeding toward bankruptcy—analysts predict a fiercer crackdown this year. Rumor has it that six drugmakers will pay fines of more than $1 billion each and sign sweeping corporate integrity agreements.
The Office of Inspector General will also launch a new offensive in the war on fraud. Says Polaris Management's Andy Bender: "We'll see many investigations on the medical side of the house looking at compliance in clinical trials and conflicts of interest between sponsor and principal investigators."
The government estimates that as much as 40 percent of clinical data is false (or influenced by pharma payments to principal investigators), according to Sinaiko Healthcare Consulting compliance chief Dinh Nguyen. "The speed and extent of government enforcement around this will be truly breathtaking," he says. He notes that the US attorney for the Eastern District of Pennsylvania said he's making this the single focus of healthcare investigations for 2008.
Congress is also poking around in this conflict-of-interest corner. Sen. Charles Grassley (R-IA) is the lead sponsor of the Physicians-Payment Sunshine Act, requiring a national registry to track every exchange of money between a drugmaker and a doctor. Meantime, Minnesota has already banned annual drugmaker-to-doc gifts over $50, and eight states will be voting on similar legislation this year.
Andy Bender gives props to the few firms taking state reporting to the next level and developing an aggregate spend system to measure a payoff to the payout. "Companies are going to realize that spending $5 million on free pens may be worth zip," he says.
Pharma's mandate to innovate is no longer centered simply in the lab. Virtually the entire business requires creative and courageous reinvention. At the same time, bills are coming due for unprecedented levels of transparency, accountability, and drug safety while payers, Congress, FDA, and even the courts are stacking the deck against drugmakers.
A sense of piling on, not to say conspiracy, wouldn't be entirely inappropriate. "The underlying agenda of the various factions that beat up on pharma," Arnold & Porter's Kracov says, "is to persuade the public that we've had enough innovation—we don't need brand drugs, we can't afford $50,000 cancer treatments."
Analysts suggest that it's in this larger context that the tell-it-like-it-is stumping by the new CEOs can be best appreciated. While their immediate audience may be the tens of thousands of people in their own companies—many of whom, Capgemini's Chane says, "lack any sense of urgency because they're still seeing healthy returns by conducting business as usual and focusing only on the short term"—a warning is also being sent to stockholders, Wall Street, the healthcare industry, the pols and regulators, and the American public.
The message? This industry you love to hate is in danger. "The image of Big Pharma pushing pills and printing money is still alive and well," Ernst & Young's Steinberg says. "But from where the CEOs sit, a dramatic drop in revenue inevitably means a dramatic drop in innovation. For Americans, that means an end to what many assume is an endless supply of new medical advances."
The innovation, in 2008 and beyond, will be to find a way to communicate that message so it sounds like the fact it is, rather than a threat.
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