Tough times agead for Amgen
May/14/2007 10:07 Filed in: Pharma
Business
Lilly went through this when their top selling product Prozac came off patent and Pfizer is preparing to lose it's $10 billion drug Lipitor to patent expiration in the near future. Pfizer tried to develop a follow up product to Lipitor but after some early negative press they decided to pull continued development. This is another example of relying too much on one product to drive sales and profits. Investors for many years have been told to "diversify" their portfolios but in the pharma business it seems to be "milk the product and drive sales for every dollar we can get back".
Today's New York Times, in its Editorial section, called for an end of the practice of pharmaceutical companies reimbursing physicians for using their products. It is of course legal to do so but this is a case when following the law may lead to the bad practice of payments driving off label or high use by the medical community. In any case the pharma pricing people are going to have to formulate new pricing models that allow drugs to succeed while limiting payments to physicians who prescribe them. Of course the reason that these payments are so important is that our current health system does not allow adequate, in some cases, cost reimbursement for using these drugs but as long as there is money to be made by prescribing them you can bet medical practices will count on these dollars towards their bottom line.
There a lot of issues with the cost of pharmaceutical products and what I have presented here is a simplification of one of the issues but what I am so puzzled about is how these high paid CEO's continue to earn the big bucks without the ensuring that their companies are financially sound even if they lose their biggest seller. It's called scenario planning and in this case Amgen may be caught with their pants down. When I was at Lilly and we lost the Prozac patent we immediately implemented a plan called Year-X in which ALL expenses were curtailed, raises were kept to a minimum and bonuses were put on hold. The result is that Lilly is slowly rebounding although this author feels that they are relying too much on Zyprexa sales which were $2.4 billion last year.
During World War II, as the allies were driving deep into Germany, General Patton prepared for a major offensive by German forces. Many commanders felt that essentially the war was over and that the troops would be home for Christmas, after all the German army was finished and they had never mounted a winter campaign since the days of Fredrick the Great but Patton felt that the data he looked at supported an attack by the enemy and prepared scenarios for a response. CEO's in a sense are commanders and even in good times, especially in good times, they need to anticipate worst case scenarios and be prepared to react with speed to ensure that their company can weather the storm. It's time for them to earn those salaries not to retire with millions in stock options.
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