[Ip-health] Economist on rolling heads in Pharma industry

[Ellen T HOEN]

PHARMACEUTICAL INDUSTRY
Sep 14th 2006

Yet another boss of a big drugs company loses his job

NOW is not a good time, it seems, to be running a big pharmaceuticals
firm. In the past year and a half the bosses of three such giants have
been fired, two of them in the past two months. The three sackings,
admittedly, had quite different causes. Merck booted out Raymond
Gilmartin in May 2005 in the wake of the Vioxx scandal, in which the
firm had to recall its blockbuster arthritis drug when it was linked to
an increased risk of heart attack. Henry McKinnell's departure from
Pfizer this July was the result of his arrogant and aloof response to
shareholders' concern over the firm's sinking share price. And the
removal of Peter Dolan from the top job at Bristol-Myers Squibb (BMS)
this week came as a result of his mishandling of a challenge posed to
Plavix, the company's lucrative blood-thinning drug, by a generic
rival. But the three cases are all, in some ways, the result of deeper
trends.

Viren Mehta, an industry analyst, argues that two recent shifts have
conspired to put drugs bosses in a difficult position. The first, he
argues, is that the pharmaceutical industry is "in the midst of a
journey from 'old science' to 'new science'." The industry's
traditional model, based chiefly on chemistry and basic biology, is
giving way to a new approach based on biotechnology, computing,
advanced chemistry and combinations of the three.

As drugs bosses invest huge sums to help their firms master these new
skills, however, the second shift makes it harder to do so. They are
finding that the once-reliable sources of profit from traditional drugs
are suddenly drying up. An unprecedented number of patents will expire
this year and next and new drugs have been slow to emerge from research
pipelines. More troublingly, generics firms are now even challenging
patents--such as the ones held by BMS for Plavix--that were expected to
deliver profits for years to come.

The new reality of the pharmaceuticals business, says Mr Mehta, is that
the market for a blockbuster drug can collapse almost overnight. He is
not exaggerating: in August BMS lost 75% of the market for Plavix in
just a couple of weeks to its generic rival. In this difficult
environment, missteps that might have been tolerated in rosier times
can put a boss's head on the block.

The much harsher financial outlook for big pharmaceutical firms is the
link between the three sackings, says Chris Schott of Bank of America,
an investment bank. Revenue growth of 10-15% may have been possible in
the past, but today many drugs giants face stagnant growth or worse. As
the prospects for growth have diminished, so too have drugs companies'
share prices. But, says Mr Schott, some bosses are still stuck in "an
aggressive-growth mentality" and make strategic errors as a result.

So can replacing the chief executive really fix what ails these
companies? It is too early too tell. Richard Clark gets generally good
marks for steering Merck through the Vioxx affair, but he struck a sour
note last week with the release of a company-funded "outside"
investigation into the matter that critics said was a whitewash.
Jeffrey Kindler, the new boss of Pfizer, has made an impressive start,
announcing a sweeping revamp and vowing to make his firm "more agile
and entrepreneurial"--but whether he can really do so remains to be
seen.

As for BMS, the future remains even more uncertain. Proclaiming that
someone had to be "held accountable" for the bungling at the top, James
Robinson, the firm's chairman, chucked out both the chief executive and
the general counsel this week. The selection of James Cornelius as
interim chief executive fuelled speculation that the board is ready to
sell the firm. That is because when he held the same post at Guidant, a
manufacturer of medical devices, Mr Cornelius lined up the firm's sale
to Boston Scientific, a rival device-maker. Perhaps the only safe job
at the top of the pharmaceuticals industry today is that of interim
chief executive.


See this article with graphics and related items at
http://www.economist.com/business/displaystory.cfm?story_id=7915375