Oil Companies & Pharmaceuticals: Their Turn in the Barrel
I worked for many years a speechwriter and policy analyst in both oil (for Phillips Petroluem and Gulf) and pharmaceuticals (for Merck, Lilly, and others). I'm proud of the time I spent in those industries and have great respect for both.
A country that wants big things for an industry won't get them unless the sector is highly profitable. That's because discovering significant quantities of oil and natural gas, or developing a major, life-saving drug entails costs that are almost unimaginable. The expenditures to achieve such things come directly (and indirectly) from profits.
That's certainly true in the drug business. In helping come up with the so-called AIDS "cocktail," Merck spent more than a billion dollars. Luckily, the company came up with a product benefitting nearly everyone who has AIDS or is HIV-positive. However, there was no certainty the billion dollars spent would produce anything of commercial value.
Although they would deny it to investors, oil companies and pharmaceuticals still have some of a "bet the company" mentality. Sometimes the bet doesn't pay off.
Recently, we heard heard about the failure of Pfizer's experimental drug Torcetrapid, designed to increase the good cholesterol in human bodies. If the drug had worked, it would have helped reduce heart attack deaths in the U.S., which annually total more than 500,000.
Traditionally a very profitable company, Pfizer has more than 13,000 scientists working for the company. Its yearly research expenditures are about $7.5 billion -- more than any developed COUNTRY outside the U.S. spends on drug research.
Pfizer has a well-earned reputation for developing breakthrough drugs. One of them is the anti-cholesterol medication Lipitor (R), the world's largest selling drug at $12 billion yearly.
Pfizer is a big company -- a great company -- but being big doesn't mean your efforts to develop new drugs will succeed, as Trocetrapid demonstrated. The company spent $800 million researching and evaluating the drug, and its return added up to zilch.
As one expert put it, "Science isn't a terribly efficient business." If you spend big money, you can get a great house or a terrific car, but the expenditures don't necessarily mean you'll get a great drug -- or even a usable drug.
To remain a big, strong company, Pfizer can't live on past laurels. It has to keep discovering blockbuster drugs, those that will generate billions of dollars in sales. If it doesn't do so, it will sooner rather than later become a small company.
The problem is that it's relatively easy to develop drugs that are a lot like ones that already exist. In the pharmaceutical business, they call them "me toos." Think of the various analgesics (aspirin, bufferin, advil, and many others), which are good medicines, but are basically imitative, low-margin products.
The diseases pharmaceutical companies are tackling now -- things like cancer, heart disease, Alzheimer's, arthritis, and diabetes -- are complex. It's harder to come up with safe, effective medicines to defeat such maladies.
As the drug expert I mentioned earlier put it: "Drug companies have always been a very profitable investment -- until now."
What if the big pharmaceutical companies become less profitable, both because of competitive and political reasons? Then, they will produce fewer big, difference-making drugs. And investors will take their money elsewhere.
But couldn't the nation (and the world) rely on smaller pharmaceutical companies, which have produced some important contributions? The problem is that the small companies get much of their money for research from the big ones.
Frankly, cancer-cures and stroke preventatives don't get discovered in somebody's basement or a storefront lab. They have their origins either in companies like Merck and Pfizer, or in enterprises financed by such concerns.
If you think about what I'm saying, the implications are clear. The problem is that they aren't clear to many of the new political leaders, the Pelosis, Hoyers, and the like, not to mention my favorite whipping boy: Jason Altmire.
Unfortunately, there's political gain to be made from sticking it to Big Pharma (or Big Oil). In the cases of drugs, there's also a loss in doing -- a loss of human life and health.
Pfizer spends more money on medical research than any entity in the world, including governments . . .
Do they need the money?
The Veterans Administration does negotiate
Why the big companies? Because the small companies don’t have the resources – don’t have the billion dollars –
Early stage research – small companies do it.