Pharmaceutical Industry Near Collapse Because It Is Stupid and Incredibly Bad at Its Business

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March 8 2011 2:56 PM

Pharmaceutical Industry Near Collapse Because It Is Stupid and Incredibly Bad at Its Business

Plug the world's tiniest violin into the world's largest amplifier: the

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is in a state of "panic," the New York Times reported yesterday, because...because...well, because it is hopelessly idiotic. No, really, that is why. For instance:


This year alone, because of patent expirations, the drug industry will lose control over more than 10 megamedicines whose combined annual sales have neared $50 billion.

This is a sobering reversal for an industry that just a few years ago was the world’s most profitable business sector but is now under pressure to reinvent itself and shed its dependence on blockbuster drugs.

By "reinvent itself," the Times means "do what it was supposed to be doing all along." This $50 billion crisis is not caused by the government unexpectedly seizing the drug formulas and giving them out for free. It is caused by the drug companies' patents reaching their long-anticipated expiration dates.



Patents last for 20 years. Things can be a little draggy at the start, OK, but let's be very nice to the drug companies and call it a decade. So this sudden terrible problem has been obvious and on schedule for at least 10 years.



It honestly is that simple and that stupid. The pharmaceutical industry turned all its energy toward wringing as much money as possible out of the drugs it already had, and quit making any sort of plans that would lead to having a new (and, you know: medically useful) batch of drugs under patent in the future, when the patents on the old batch expired.



Now the pharmaceutical companies are laying off tens of thousands of workers because they are worried about their financial future, because although they are officially in the business of producing and selling drugs, they stopped producing drugs. Essentially, a global industry with more than half a trillion dollars in annual revenue is acting like a college sophomore who spent all semester holed up in his dorm room smoking pot, only to suddenly realize it's exam week and he isn't sure what classes he was even supposed to have gone to:


Still, the industry faces intense pressure from generic competition and has tried every tactic to ward it off, including extended-release versions of the same medicine and new pills that combine two ingredients. But 75 percent of all prescriptions in the United States are now low-price, low-profit generic drugs.

Every tactic, that is, except inventing new drugs. What have the drug companies been working on, instead?


The industry has also been unsettled by the scores of fraud, bribery and kickback cases involving conduct that federal investigators contend have added billions to the nation’s drug bill....

In 2009, Pfizer paid the largest criminal fine in the nation’s history as part of a $2.3 billion settlement over marketing drugs for unapproved uses. Some analysts say larger fraud and foreign bribery cases will come. The drug companies are responding with extra-careful sales training and vows to restrain marketing zeal. But the change in corporate culture could cost them: internal documents show some of the companies have profited spectacularly from seeking federal approval of a new drug for a limited use, then marketing it far more widely off label.

Other changes....include growing restrictions on gifts, fees and trips to influence doctors to use their products; curbs on the ghost writing of medical journal articles and a push for more disclosure of negative study results. As the golden age of blockbuster drugs fades, so are some of the marketing excesses of the past two decades — the tactics that helped bring in immense profits.

"Immense profits" doesn't quite describe it. What the drug companies were doing, in that "golden age," was looting their 2012 revenues for the sake of 2002 revenues. When Bernard Madoff did that, people called it something else.


Tom Scocca is the managing editor of Deadspin and the author of Beijing Welcomes You: Unveiling the Capital City of the Future.