Terry Nugent, who’s a frequent contributor to the Pharma-Marketing list serv was not too impressed by my recent post about Cato and how pharma companies might have to live in a world where their margins were much smaller but they still had to do real research: He writes:

Ironically, Cato has hoisted the industry on the Republican free trade petard. However, there are a few caveats to your comparison to the high tech and auto industries. In the case of the former, copyright protection is a powerful moat to competition (e.g., Microsoft: there’s no generic Windows to separate Bill Gates from our $50 billion). In the latter instance, what’s missing is profits (as evidenced by the dismal PE ratios of auto stocks). The automobile business market is almost as unsustainable as the airlines’.

Unrestricted reimportation has some substantial downsides, including the inevitable counterfeiting that has already come to light to an extent that surprised even industry friends and allies. The pharmaceutical industry is probably the best generator of the high wage, high tech jobs its critics claim to champion, which reimportation will in effect outsource.

Profit diminution will inevitably reduce investment capital in what is a notoriously risky business. Already, pharma PE ratios are lower than their historical levels due to shortened patent windows, litigation exposure, and a clear and growing public policy hostility that amazingly lumps the cure with the cause by putting big pharma in the same docket as big tobacco, hounded by the dogs of demagoguery and the trial bar.

Prices may go down, but at what price to our progeny, much less ourselves? Our unborn children will be the ones to suffer from the absence of undiscovered drugs, aborted by the shortsighted "savings" that are the price of populist politicians’ purchase of power.

Believe it or not I’m not entirely unsympathetic to the pharmas on this issue. They live in an odd industry, where production costs are low and market entry is relatively cheap once the IP is known and exposed (unlike autos), installed bases don’t count for much (unlike operating systems) and where they do only have a few years to make the huge profits before those revenues go away (a la Claritin whose demise almost destroyed Schering Plough). But over the last decade the bigger pharmas via mergers have become more like other corporations that have the diversity to survive the disappearance of one product line or another. And their profitability is such that it can’t go up much more, and their sales and marketing expenses can certainly come down. And like it or lump it that will have to happen, lest they provoke that excessive demagoguery that Terry fears or worse that intervention from populist politicians.

And I tried to promise Terry that I wouldn’t mention the fact that the auto manufacturer’s profits would be much higher if they were paying Canadian prices for their employees’ drugs. But I failed!

Yesterday’s WSJ had an article on the increasing use of polypharmacy in psychiatric treatment of bi-polar disorder, depression and schizophrenia. It’s controversial because there have been no clinical trials to prove its value, and due to the nature of those conditions it can be hard to measure outcomes which in any case may vary dramatically between different patients. As the article is behind a firewall I’m going to quote somewhat liberally from it:

Psychiatrists are increasingly crafting drug cocktails of multiple medicines to treat depression, bipolar disorder and schizophrenia. The approach, called polypharmacy," aims to help people who don’t respond to a single drug by putting them on several drugs that target different brain chemicals. The approach — driven in part by the shortcomings of many available medications — is psychiatry’s answer to HIV/AIDS drug cocktails and combinations of cancer drugs. But there are some key differences. Unlike HIV and cancer — whose underlying cell biology is fairly well understood and that have been the subject of clinical trials involving drug combinations — the causes of mental illness remain largely a mystery. Little research has been done about how to administer polypharmacy or whether it even works in some cases. Multiple drugs also mean multiple side effects — and multiple prescription bills. Doctors arrive at the right mix by tinkering with a sequence of different drugs based on past experiences, word of mouth and drug-company marketing that informs them about the strengths and weaknesses of each drug.

(snip)

Some psychiatrists question whether more drugs are necessarily better. Gabor Keitner, professor of Psychiatry and Human Behavior at Brown University in Providence, R.I., thinks polypharmacy has gone too far. Patients are plied for years with a dizzying sequence of drugs that have side effects ranging from insomnia to lack of libido to weight gain. "I think we are overmedicating people," he says. Dr. Keitner, who directs the inpatient mood-disorder clinic at Rhode Island Hospital, also worries that patients are getting the false hope that some magic combination of drugs will cure them. It may be better, Dr. Keitner says, to teach patients how to manage their conditions and emphasize continuing therapy. "This is leading us down a path that may not be good for patients or the profession," he says.

Still, for many, the cocktails provide long sought-after relief. Noreen Fraser, a 50-year-old mother of two from Los Angeles, was treated for depression with multiple drugs during her three-year battle with breast cancer. The powerful cancer drugs she took abruptly halted her body’s production of estrogen, sending the normally animated television producer into a deep depression. "I couldn’t even help my children with their homework," Ms. Fraser said. Her psychiatrist, Andy Leuchter of the UCLA Neuropsychiatric Institute, tried combining two antidepressants. That worked only for a while. Then last fall, Dr. Leuchter added a low dose of the antipsychotic medication, Zyprexa, into the mix. Within two days, Ms. Fraser felt better than she had in years. "It was like a cloud lifted," she said.

(snip)

Using multiple drugs to treat mental illnesses has become controversial partly because of the cost involved — especially with schizophrenia. The standard therapy for schizophrenia today is the use of "atypical" antipsychotics, which have milder side effects than older drugs, but are relatively expensive. A month’s worth of Bristol-Myers Squibb Co.’s atypical antipsychotic Abilify, for instance, costs $352 whereas generic clozapine, an older drug, costs $152. If a schizophrenic patient doesn’t improve on one drug alone, doctors may add another atypical antipsychotic or one of the older "typical" drugs. In some states, public-health programs have balked at paying for combinations of psychiatric drugs without evidence that the treatment actually works.

Insight on how to use combinations of drugs to treat resistant cases of depression may be provided by a large government-funded trial just completed that tested various prescribing strategies. But results of the trial, conducted with 4,000 depressed people in 13 states, aren’t expected until May 2005.

Given his moderate and understated views on the medical profession and its relationship with pharma manufacturers, regular THCB readers may be surprised to know that Industry Veteran has his suspicions about the science and the marketing behind the new polypharmacy.

1. The cocktail approach to therapy represents an emerging paradigm in psychiatry that a growing number of clinicians do not reserve as merely a last measure. At a recent meeting of the American Psychiatric Association, a clinical investigator gave me a synopsis of his thinking. "In neuropsychiatry," he explained, "since anything can cause anything, it’s wise to use everything for everything." In other words, throw as much s- – – on the wall as you can and see what sticks.
2. Advocates of early cocktailing not only lack an understanding of the pharmacological basis for their polypharmacy regimens, some even disparage such basic science and consider it an after-thought or a fig leaf. At various times, cocktailing exponents have told me that medical science need not advance "in textbook fashion" by moving from basic scientific understanding to clinical applications. If a drug or a drug combination appears to offer clinical benefit, according to this worldview, then the bench science guys can retrofit a mechanism to provide a soothing rationale for the clinicians.
3. More than a few colleagues have whispered to me their opinions that the cocktail approach in psychiatry represents a combined effort by psychiatrists and drug companies to grow their businesses. Entrepreneurial psychiatrists, frustrated by limited reimbursements and a median income that lags behind most of other specialties, promote cocktailing to create a niche for themselves as "medication specialists" (they actually use that term on their business cards). The drug companies subsidize this effort as a means of developing new, frequently off-label markets for their products.

Marcia Angell has been on a tear lately promoting her new book. She has a brutal interview in the LA Times which essentially summarizes all the complaints about drug companies made in the last decade. Here’s a sample:

Conflicts of interest are rampant. When the New England Journal of Medicine published a study of antidepressants, we didn’t have room to print all the authors’ conflict-of-interest disclosures. We had to refer people to the website. I wrote an editorial for the journal, titled "Is Academic Medicine for Sale?" Someone wrote a letter to the editor that answered the question, "No. The current owner is very happy with it." That sums up the situation nicely.

To my mind pharma companies need to understand two very important points here. First, while a few academics have been complaining about pharma company practices for several years, this is the first time that I remember one book about pharma having such a sustained impact. Angell has already been on 60 Minutes, this interview is not in some minor blog or academic journal, it’s in the main paper in the nation’s second largest metro area, and she’s also had a recent column in the Financial Times. And this is at a time when the reputation of pharma companies is already heading into uncharted low territory amongst the public. Second, pharma needs to both start making some new arguments about what it’s doing and how it’s trying to improve. Big pharma also needs to consider what life might be like in a world where HHS officials have not only decided that they can bargain about the price of the drugs Medicare is paying for, but one in which they’ve read Angell’s book. This is not necessarily a doomsday scenario, but a little bit of "what if" scenario planning wouldn’t hurt big pharma right now.

Roger Pilon from Cato, the thinking man’s libertarian think-tank (as opposed to AEI or Heritage) last week, decided that the US should give up on the reimportation ban. The basic reasoning is that it won’t be a big deal as the drug companies won’t let too much inventory go overseas, and if we let importation happen, the American market will force price rises abroad.video of this debate between Cato’s Pilon in favor of reimportation and an AEI staffer Jack Calfee who opposes it. Almost a doppler world here in which the AEI scholar is arguing that price controls are OK in poor countries because they keep drugs available in poor countries. Reimportation would, according to both of these "free-marketers", see higher prices abroad. They are of course both opposed to price controls here–such as happen abroad. But what that means in real life is monopsony purchasing by the government. That could happen here very easily by CMS, the VA and the states agreeing to negotiate with the drug companies, as the VA does and Medicaid sort of does. This type of "price control," PhRMA tells us all the time, would ensure that R&D for pharma would collapse, and we’d all be dying in the streets. Both Pilon and his AEI counterpart note that as government’s share of the drug market increases, these "price negotiations" are likely to happen anyway.

You can see a long

No one mentions the obvious question which is, in which industry would people invest their money if margins in pharma went down slightly? Seems to me that a blockbuster is a blockbuster and will find investment capital whether it’s returning 30% or 20% net margins. Of course that would mean that reductions in costs at pharma companies would have to happen somewhere, and the obvious answers are from the two biggest slices of the revenue pie at pharma companies–those being sales & marketing and profits. (R&D is the third biggest number). It’s also worth noting that many industries such as high-tech and autos spend large amounts on R&D without either patent protections or such high margins. And yet they manage to bring out new products all the time at continually lower prices.