Pfizer Leads in Layoffs While Drug Prices Soar

(MoneyWatch)  Big Pharma continues to lend new meaning to the phrase "doing more with less," because while the industry seems to get smaller every day, drugmakers are still pushing through big price increases on their leading products.

Over at Pharmalot, Ed Silverman provides a helpful roundup tracking the bloodletting across the industry over the last year or so. (The AP has a similar layoff list that's ordered chronologically.) Pfizer leads the ranking, thanks to its Jan. 2007 announcement that it planned to eliminate 10,000 jobs, or about 10 percent of its workforce. AstraZeneca axed 7,600 jobs last July, while Bayer and Schering-Plough have also trimmed more than 5,000 jobs apiece since November. Overall, the industry has shed more than 42,000 jobs since the beginning of 2007.

Most of the cuts are coming out of the companies' gigantic sales forces, the legion of drug reps that schmooze doctors in order to drive up prescriptions. The reason for all the restructuring is simple: Many blockbuster drugs -- those with annual sales of more than $1 billion -- either face tough generic competition or are about to, and so far there's not much sign of new drugs that could make up the lost revenue. Companies such as GlaxoSmithKline, Merck and Schering have also been buffeted by drug-safety issues and questions over whether they've manipulated research to prop up sales of blockbuster drugs such as Vytorin.

The other problem is that the industry's research productivity has plummeted in recent years, for reasons that no one really understands. It's certainly possible that drugmakers have simply already plucked all the low-hanging fruit, meaning that finding new treatments will only get riskier and more expensive. (The industry's tendency to blame the FDA for its own problems isn't particularly constructive.) In any event, Big Pharma has in fact sailed into a sort of "perfect storm" from which there's no obvious escape.

While there's plenty of talk about a deeper restructuring of the industry -- such as abandoning the focus on blockbuster drugs and the aggressive marketing that makes them possible -- it's still business as usual for most companies. That's also for a simple reason: The blockbuster model has big problems, but so far there's no compelling alternative for most companies. Drugmakers that grew huge by pushing sales of treatments that all too often aped existing drugs or offered only marginal benefits are finding it much harder to rev up their R&D engines and to emphasize the discovery and sale of drugs for smaller, niche conditions -- where, by the way, there's still a vast medical need.

Which leaves many companies frantically yanking the levers that have boosted their business in the past -- most especially in pricing. A recent report by the AARP found that drug prices have far outpaced the inflation rate since 2002 (PDF link), rising 7.4 percent last year alone. Price rises have accelerated in recent years, which most likely reflects the industry's inclination to milk its cash cows while it can.

A few drugs really stand out in the AARP report. Pricing for the sleep aid Ambien, for instance, soared 27.7 percent last year, an astonishing jump (more than nine times the inflation rate!) for a drug that faces lots of rival sleepy pills. Three other of the the top 25 bestselling drugs also racked up double-digit price hikes -- two different dosages of Pfizer's blood-pressure drug Norvasc, which both jumped 11.5 percent, and Boeringer-Ingelheim's prostate treatment Flomax, which rose 11.2 percent.

This is a crazy way to run an industry. And it's only possible because the perverse economic incentives in healthcare have all but eliminated price competition for name brand drugs until they go generic.

(Photo courtesy of Flickr user striatic, used under Creative Commons.)