Not STRS, but related to your health and the health of your wallet - OR - A tale of two worlds

From John Curry, Sunday, July 30, 2006

Not STRS, but related to your health and the health of your wallet - OR - A tale of two worlds

Note from John:

Now, if you are an educator, retired educator, or a public employee, you probably have or are experiencing the high cost of prescription drugs. You are being squeezed by by an industry and an industry lobby who has had its way with Congress for far too long. We public servants often don't view things from the point of view of those in the pharmaceutical business world and/or investors whose business is to make money off our medical ailments. They like to enrich themselves at our expense, and - it's perfectly legal. It is compounded by the fact that these industries are in bed with the very same institution that purports to regulate them - the FDA. Where does one "draw the line" between a reasonable profit and rape - especially when it involves life-saving and life-sustaining drugs needed by citizens who can't afford them? What can we, as public servants, do about it?

For starters, we can send the message to those who have carried the banner of the pharmacetical manufacturers by their voting patterns in Congress. A good example would be Ohio's two Senators who recently voted against a bill in the Senate which would prohibit U.S. Customs from separating U.S. citizens from thier Canadian purchased Rx when they come back across the U.S. and Canadian border. Mr. Voinovich and Mr. DeWine didn't want to allow you to bring them back - George and Mike were OUTVOTED even by thier fellow Republican Senators on this issue!! The bill passed, but it will probably be "watered-down" when it reaches the House of Representatives. What does this tell you about Voinovich and DeWine? You'll get a chance to give DeWine a vote of confidence/no confidence come November 7. Will you thank him for what he has done?

If you are an investor or a pharmaceutical manufacturer, you probably have or will read the article below which will give you an idea of how well you'll do in the near and not-too-near future with your money or your business. Some of you would be very happy if the prices of your wares doubled in price over night. You certainly wouldn't like to see anything "bother Big Pharma." Heaven forbid that you would be stifled by a requirement from Medicare to cause you to submit bids for your medicines for Medicare Part D Rx like you are forced to do for the Veterans Administration Rx! For your purposes it is much better to operate "in the woods" rather than in the sunshine. (the article below will explain this).

From Forbes.com
Pharmaceuticals
Nagging Doubts For Big Pharma
Matthew Herper, 07.26.06, 6:00 AM ET

After looking at the pharmaceutical industry's second-quarter earnings, some investors might be tempted to see a miracle cure for a sector that has been plagued by competitive pressures and safety and marketing scandals. They should watch out for some nagging symptoms that are still likely to bother Big Pharma.

This quarter's results are certainly impressive, and a very good sign. Pfizer and Merck both boosted their full-year earnings forecasts. Merck and Schering-Plough both beat analyst projections for adjusted earnings by a whopping 8 cents per share on sales of cholesterol drug Vytorin, which they sell together, and separate allergy blockbusters Singular and Nasonex. The sector enters the home stretch of earnings season today and tomorrow as GlaxoSmithKline, Bristol-Myers Squibb and AstraZeneca report.

In the long term, though, there is still plenty that could go wrong.

The drug giants are going through an extremely painful transition. In the last decade, they launched a series of mega-blockbusters, which ensured massive and fast-growing profits. Now, a lot of the earnings are coming from temporary gains--like a good allergy season--and cost controls.

Merck Chief Executive Richard Clark is pleasing Wall Street by promising that he will trim costs and force a new level of efficiency using tools like Six Sigma. Pfizer Chief Executive Hank McKinnell has built a drug company so enormous that it has incredible earnings flexibility even when it cannot promise that sales will rise.

One reason Big Pharma performed so well this quarter: the new Medicare prescription drug benefit, which is enrolling a ton of senior citizens in privately run health plans paid for by the government.

Right now, health maintenance organizations and pharmacy benefit managers are trying to attract as many Medicare patients as they can, says Roopesh Patel, a pharmaceutical analyst at UBS. He says exact numbers are hard to come by, but he believes that more prescriptions are being written for chronic care drugs like blood pressure and cholesterol medicines.

Down the road, this Medicare boost could be a double-edged sword. Once they have enrolled all those new patients, the HMOs and benefit managers will start exerting more price pressure on the drug companies, forcing them to sell more medicines on the cheap. In just a few years, the government could account for about half the money spent on prescription medicines in the U.S., and it may look to lower prices. Patel says he doesn't expect this to happen until 2008.

Making matters worse: By 2011, a quarter of current drug sales in the U.S. will be eaten away by less expensive generic pills as medicines lose patent protection. Between 2007 and 2011, more than 80 medicines are expected to face this fate.

View a slide show of the next five years of patent expirations.

Even biotech drugs, which are synthetic versions of natural proteins, may face copycats.

So far, only one such version, the Omnitrope human growth hormone from Novartis, has reached the market. But doctors can't interchange it for the branded generics. Still, there is gold in biotech copycats. On Monday, Novartis pledged up to $275 million in a deal to make such copycats with Momenta Pharmaceuticals, a small biotech in Cambridge, Mass. The biotech's shares rose 38%. Momenta Senior Vice President Steven Brugger says such copies won't be nearly as cheap, because there will be fewer companies able to make them and create competition and drive down prices. But the threat is still there.

None of this would be a problem if the drug industry had a wealth of new breakthroughs, but even with new potential big sellers like Pfizer's Lyrica, for neuropathic pain, or Merck's Gardasil, a vaccine for a virus that can lead to cervical cancer, it's not clear that new drugs can make up for the ones that will be lost.

Worse, buying new experimental medicines from tiny startups is getting increasingly expensive. For instance, Genentech yesterday offered to pay up to $605 million for rights to co-discover and develop new cancer drugs with a privately held biotech, Inotek Pharmaceuticals.

Even Gardasil, one of the most exciting drug company inventions of recent years, illustrates this trend. Merck revealed during a conference call that it would pay royalties totaling about 25% to other companies, including GlaxoSmithKline and CSL Limited of Australia, on sales of the HPV vaccine.

Big pharma is certainly getting a little more sun these days--but that doesn't mean that it is out of the woods.