GlaxoSmithKline (GSK), the British drugs group, will announce plans for further restructuring with the loss of 4,000 jobs, nearly half in the research and development departments.
The job attrition reflects widespread unease among drug companies about the loss of revenues from a small number of blockbuster medicines.
For example, this year GSK will lose patent protection for Seretide, an asthma treatment worth $4 billion.
GSK started reshaping its business in 2007 by focusing on three areas: vaccines, over-the-counter medicines and non-medical products, and emerging markets. GSK diverted investment away from pure research and toward products that enabled the company to catch a greater share of the consumer dollar.
However, GSK is not the first drug company to announce job cutbacks and realignment of their target markets, with a path toward vaccines. Novartis, Merck, Pfizer, Novartis, and Sanofi Pasteur are just a few of the Big Pharma members that have done this within the past two years.
And while the recession definitely played a part in this, the truth is, plans to switch to the vaccine market were already in place, long before the recession began.
If nothing else, this announcement proves what I’ve been saying all along – that, contrary to what they’d like you to believe, vaccine makers are not philanthropists just looking to do benevolent philanthropy for the world with their products.
They are businesses, first and foremost, whose primary goal is to earn profits for their stockholders.
It has become clear to me that there is a major shift occurring. It is becoming increasingly difficult to find new blockbuster drugs so the new emphasis will be on introducing more and more mandated vaccines which provide nearly unending annuities to continue to increase their revenues
You will see more and more vaccines introduced as time goes on.
The Big Picture
Please remember that collectively the drug cartels make over half a TRILLION dollars every year by selling their product. That amount of money yields enormous power and leverage and they are focused on earning even more.
And how do they do that?
By finding a product they can manufacture in massive quantities and sell to infinite numbers of people at whatever price they want to charge. For a long time, psychotropic drugs and therapeutic medicines were the yellow brick road to that Wall Street goal.
Just a few years ago drug giants like Merck, Eli Lilly, GlaxoSmithKline, and Astra Zeneca were dancing in the land of Oz with blockbusters like Vioxx, Zyprexa, Paxil, and Seroquel. But when the Emerald cities they’d built with these drugs became blighted with a cyclone of lawsuits, their profits quickly began to melt.
Add in pending expirations of patents on key products, and accusations by the European Commission that they purposely delay generic medicines by offering payments to rival manufacturers, and these companies knew they had to change the road they were on, even before the recession hit.
It’s All about the Money
The line up of Big Pharma companies that have been announcing job cutbacks and realignment of their product lines over the past two or three years is impressive:
Novartis announced in December 2007 that it planned to cut 2,500 jobs worldwide by 2010 in an attempt to save $1.6 billion. Citing expiring patents, generic competition, and increased industry costs, Novartis said that poor US pharmaceutical sales had forced this reorganization.
Noting that it had experienced “strong growth” in its vaccines and diagnostics division, Novartis said it planned to expand its presence in emerging markets in Africa, Central Asia and Southeast Asia.
Merck announced job cuts in its US sales force a month ago, saying that the cutbacks were part of its merger with Schering-Plough. In all, the newly married company plans to reduce its global workforce by 15 percent, for a savings of nearly $3.5 billion.
But even before Merck and Schering-Plough became a couple, Merck had already begun making job cutbacks, as part of its 2005 restructuring plan.
A major focus of that plan, Merck told its stockholders in 2005, would be to enter, and become a leader in, emerging markets, which “provide enormous opportunity” for Merck’s medicines and vaccines.
Saying that the company planned to rely less on US markets and more on global initiatives, Merck told Nasdaq in December 2009 that 40 percent of its job cuts would be in the US, as the company moved its market focus to worldwide ventures.
But Merck and GSK aren’t the only ones totake this route: Johnson & Johnson announced in November 2009 that it was cutting 8,000 jobs.
Pfizer said it was cutting 20,000 jobs, or 20 percent of its workforce, as part of its merger with Wyeth; Eli Lilly said it was making a 13 percent reduction totaling 5,000 jobs; Astra Zeneca it was cutting 7,000 jobs, or about 10 percent of its workforce.
But simultaneously with job cut announcements, they all have alluded to, or plainly said, emerging markets are where their new focus lies.
Of course, it’s all about the money and the bottom line – which isn’t a bad thing, since these companies are for-profit entities. But what is this thing, “emerging markets,” anyway, and how do drug companies’ desires to follow emerging markets affect the rest of the world?
Emerging Market ‘Inoculations’
The Wall Street Journal probably said it best when it called this new pharma marketing strategy emerging market inoculations. Referring to Novartis’ purchase of an 85 percent stake in a Chinese vaccine maker, and a similar investment by Sanofi Aventis, the WSJ used this term to describe the drug companies’ plans to expand production and sales in vaccines.
Emerging markets are areas of the world that are beginning to show promise as a profitable venture for many products, including vaccines. And emerging markets – primarily in developing countries in Southeast and Central Asia, and Africa – have been on vaccine makers’ radar for quite some time.
One reason that vaccine makers are interested in these parts of the world is that that’s where most of the world’s deaths from major infectious diseases occur.
World health leaders have long believed that most, if not all, of these diseases could be prevented by vaccines.
The only problem has been that, until recently, making vaccines for undeveloped countries with no money to pay for them, was not exactly a profitable goal for vaccine makers.
In 2001, an article in Tropical Medicine & International Health chastised the pharmaceutical industry for thinking too much about the bottom line, and not investing more in neglected diseases. Accusing them of being more interested on return in investment than in global health needs, the article’s author urged drug companies to re-evaluate their priorities.
It also urged national and international reorientation of public health policies:
“New and creative strategies involving both the public and the private sector are needed to ensure that affordable medicines for today's neglected diseases are developed,” the article said.
The article made several suggestions as to how these new policies could come about, from a legal and regulatory standpoint, as well as from research-and-development and distribution of needed drugs for mainly third-world countries.
And Then Something Changed
Fast-forward to February 10, 2010. Suddenly, third-world countries are exactly where the previously maligned drug companies want to be. In a market study released this month, these companies said that vaccines are the new bottom line.
“The developed world has been the initial focus of vaccine makers due to the better healthcare and higher price levels,” the report said. “However, facing increasingly saturated markets in the West, companies are looking to expand into new geographies, such as Asia's emerging markets.”
You have to purchase it to see the complete study on emerging markets. But GSK has its May 2009 emerging market plan posted, free, on the Internet. Listing the top 10 countries that are “big and growing fast,” GSK said these countries represent 85 percent of emerging market potential.
Emerging markets will soon outgrow developed markets by hundreds of billions of dollars, the GSK report says. One way to make that happen will be to “build and capture” the vaccine market, the report explains.
And the way to do that, it goes on to say, is through growing government attention to the public health agenda, capitalizing on birth cohorts for pediatric vaccines, and by concentrating on new vaccine products.
Say ‘Hello’ to Advance Market Commitments
So what happened between 2001, when world health leaders were criticizing drug makers for not making exactly this kind of investment, and the past couple years, when vaccine makers suddenly started beating a path to third-world countries?
I can assure you it wasn’t because the 2001 chastisement shamed them in to it. Rather, I can just about bet next week’s paycheck that it had more to do with the promise of a new bottom line – sales of vaccines through something called Advance Market Commitments – than anything else.
Between 2001 and 2005, several vaccine researchers and market developers responded to the 2001 chastisement by writing numerous articles about why drug companies were getting out of the vaccine business. Declining markets, increased costs, and regulatory issues were the top three reasons.
Fix those problems, and everybody would be happy to concentrate on vaccines for developing countries, the responses all said.
Concerned that developed countries would have little or no resources for addressing serious infectious diseases if vaccine makers continued their pull-out, the World Health Organization and the G8 – the top developed countries in the world – responded with a plan for inducing vaccine companies to stay in the business.
That plan was called Advance Market Commitments. Under AMCs, developed countries make legal, binding agreements to purchase vaccines that are needed in low-income countries. The purchase guarantees a bottom line for the manufacturers. In return, the manufacturers promise to sell those vaccines at reduced prices in the countries where they are most needed.
Dozens of New Vaccines in the Pipeline
Do an Internet search on Advance Market Commitments and you will find a whole new vaccine world you most likely didn’t know existed. Start by going to the WHO website, and by reading its August 2007 draft global policy on AMCs. The document focuses on financing and funding health research and development of drugs, vaccines and diagnostics for neglected diseases.
The WHO acknowledges in this document that private, public and not-for-profit donations and investments have helped fight neglected diseases – infections that are prevalent in mostly low-income, third-world countries. But those investments are not enough, the WHO says. And that is why AMCs are necessary, the WHO says.
It sounds like a good plan: Establish a market that heretofore was considered not profitable and, therefore, not worthy of investing in. Promise incentives to lure vaccine makers in to the research and development of new vaccines. And then, stimulate market competition through increased sales and reduction of costs in vaccine programs.
To show how well it could work, a pilot Advance Market Commitment was launched in February 2007 for pnuemococcal vaccines. In June 2009, the WHO and the GAVI announced that that plan had finally come to fruition. Now, thanks to AMCs, a $70 pneumococcal vaccine can be distributed in desperately poor countries for just $3.50.
Sounds like a win-win situation – at least for vaccine makers and the countries where the vaccine’s going.
Serious Concerns about this Program
The reason I’m wary of this plan is that legally binding, advance market commitments to purchase vaccines that are mostly needed in third world countries could backfire on developed countries that don’t need – or want – certain vaccines.
Think about it: The top neglected diseases that world health leaders want to address with AMCs besides pneumonia are HIV-AIDS, malaria, human papilloma virus (HPV), rotavirus, and tuberculosis.
And what do you see?
Standing out big and clear are HPV and rotavirus – two diseases that are relatively rare in the US and other developed countries. (There are over 100 HPVs; the new vaccines address four HPVs that cause 70 percent of cervical cancer and genital warts. In developed countries, death from cervical cancer is very rare, while in third world countries, it is a leading cause of death in women.)
Yet, these are diseases with new vaccines that, for some reason or other in the past few years, have been recommended by the US Advisory Committee on Immunization Practices for babies (rotavirus) and adolescents (HPV).
While the ACIP only recommends vaccines, states are free to do what they choose, and we all know where that leads: to mandates of vaccines that more and more people are beginning to question the need for.
And that’s why I am leery of vaccine makers who announce they’re on their way to third world countries in an effort to boost their bottom line. I don’t fault any profit-driven business for wanting to do things that will make share holders happy.
But I do question where these ventures are headed.
Many scientific journal reports have already revealed that a malaria vaccine is on the verge of being marketable. It only leaves me wondering if that will be the next one on the ACIP’s list.
So stay tuned.
Dozens of other vaccines are in the pipeline, from one for strep throat to another for simple ear infections. I promise this won’t be the last you hear of AMCs and mandated vaccines in the US – what better way is there to “guarantee” a vaccine market than through mandates to help pay for it?