Archive for August, 2008

Wyeth’s ‘Project Impact’ Is Not Having an Impact

August 25, 2008

Back in January, Wyeth introduced its “Project Impact” effort. The company wants to cut 10% of its jobs over the next three years to reflect the loss of Protonix, one of its bestsellers, which went generic. Most of the cuts are in sales and marketing.

The company told investors recently it would create up to $1.5 billion in savings by doing this. So, six months later, are the cuts reflected in the company’s bottom line?

Not really. I looked at Wyeth’s financial statements and asked two questions: How many dollars does Wyeth earn in revenue and gross profit per dollar it spends on marketing (i.e. SG&A)? And is that ratio growing or declining?

It turns out that Wyeth is pretty much back where it started in the 3rd quarter of 2007, earning $3.24 in revenue and $2.33 in gross profit for every dollar it throws at sales reps and TV ads.

You can see the progress on this Excel chart (below), which shows that the productivity of Wyeth’s marketing dollars are currently in decline.

What does Wyeth have to say about this? In its 2Q 2008 conference call, CFO Greg Norden told investors:

We are on track to achieve approximately a 6% reduction in overall headcount by the end of the year and continued to expect ultimate headcount reduction to approximately 10%. We anticipate overall cost reductions from Project Impact to yield annual savings of between $1 billion and $1.5 billion to be realized over the next several years … SG&A growth for the second quarter was 3% versus the prior year and down 1% excluding the effects of foreign exchange.

That sounds wonderful, doesn’t it? (Unless you’ve been laid off, of course.) But the real explanation of how Wyeth has managed to cut all those jobs without seeing any effect on its margins came in its press release:

The 2008 second quarter and first half charges included expenses of $155.2 million and $340.8 million, respectively, primarily for severance and other employee-related costs associated with a reduction in workforce of approximately 6%, many of whom were selling and marketing personnel who supported Protonix. The 2008 first half productivity initiatives expenses were offset, in part, by a $104.7 million gain on the sale of a manufacturing facility in Japan in the 2008 first quarter. The 2007 second quarter and first half included productivity initiatives expenses of $49.8 million and $92.4 million, respectively, primarily related to manufacturing site network consolidation initiatives.

So there you have it, Wyeth’s money-saving drive has somehow managed to cost enough money to wipe out the gains it was hoping for. These are one-time charges, of course, and so shareholders can assume that in future quarters those efficiencies will start kicking in, and showing up in the form of extra net income and possibly even free cashflow … Any day now.

For other examples of companies that have somehow not gotten their marketing expenses under control, see my previous chapters on:

It’s Athiests vs. Christians in Holy War at Genentech

August 20, 2008

This Genentech bulletin board thread at Cafe Pharma now has more than 500 posts and 16,000-plus pageviews, making it one of the longest, most-seen debates on the whole site. It’s gotten more attention from Genentech staffers than the Roche takeover bid has.

What has got the DNA folk so riled? A single post:

All things are possible through God. It has been a good week. We all have a nice home, good meals and a place to work. Have a great week-end and I hope you can attend church this Sunday.

OK, so it’s a little bit Ned Flanders, but who cares, right? For some reason, that single message — typed back in April 2007 — has started a massive flame war that continues to this day.

The athiests want the Christians to admit there is no god (pictured), and vice versa. In between, pretty much everyone else has been thoroughly insulted — jews, blacks, gays, Roche executives, etc. It’s all text-based, but don’t read it at work if your company dislikes you looking at things that have lots of four-lettered words in them.

Here’s the most recent post:

God will be with you in the soup line while you ponder your sexuality in the Castro District.

And that’s one of the polite ones.

What’s Wrong With That Big NYT Piece on Gardasil?

August 20, 2008

The NY Times today published 4,100 words on Merck’s Gardasil under the rubric “The Evidence Gap.” the Times touts the story this way: “this series will explore medical treatments used despite scant proof they work and will consider steps toward medicine based on evidence.”

Scant proof that Gardasil works? Oh boy! This is the big one. The Times is finally bringing down the hammer on one of the most controversial drug launches ever, just like I predicted … right?

Er, no.

The piece has a number of problems that will leave drug industry folk scratching their heads as to why it was published. Doubtless the folks at Drug Wonks are already banging furiously at their keyboards in outrage at the Times’ anti-pharma bias.

More seriously, it’s long, boring, and filled with old news and non-news. So that you don’t have to read it yourself, here’s a users’ guide:

First, despite the bug-line, there’s no evidence in the article that the drug doesn’t work. Merck has never marketed Gardasil as a vaccine for all HPV, just some of the major strains.

Second, the Times’ math as explained in the story doesn’t add up. (Regular readers will be familiar with the fact that the Times is not great at explaining its numbers.) The drug costs $400-$1000 for a complete treatment, but the Times then says “Health economists estimate that depending on how they are used, the two cervical cancer vaccines will cost society $30,000 to $70,000, or higher, for each year of life they save in developed countries — a cost commonly seen in treating people already suffering from deadly cancers.” There is no explanation of how these economists got from $400 to $70,000, which would be nice, because on its own the claim makes no sense. Readers are asked to speculate that perhaps because patients who have Gardasil will be less likely to die of cervical cancer they will live longer and use more healthcare resources for different chronic diseases? Who knows. I’m just guessing.

Third, the story claims that “experts worry about the consequences of the rapid rollout of the new vaccines without more medical evidence about how best to deploy them.” Then it admits a few grafs later that Gardasil and Cervarix between them have been through eleven and a half years of trials. Gardasil alone has been through 16 million doses. From all that, there are only 9,749 adverse event reports at the FDA and 20 deaths. Even of the fatalities, there’s “no indication that the deaths or serious side effects were caused by the shot,” the Times reports.

The most inflammatory part of the story goes like this:

Phillip and Barbara Tetlock, both professors at the University of California at Berkeley, are asking whether Gardasil shots that their daughter, Jenny, received last year contributed to her illness, an extremely rare form of progressive paralysis that has left her bed bound and needing assistance to breathe at age 14.

The Tetlocks, who are not pursuing legal action, are appealing to the C.D.C. and Merck for more data and searching for other girls with similar conditions through their blog (www.jenjensfamily.blogspot.com). “Her parents are scientists – they know better than to assume Gardasil caused her disease,” said Terry Murray, a close friend speaking for the family. “But you have to explore the possibility.”

[Dr. Diane Harper, a professor of medicine at Dartmouth Medical School ] said she believed the vaccine was generally safe. She vaccinated her own children. But with Gardasil’s use having grown so fast, she added, … “The Tetlocks are right to ask these questions.”

Well, sure, but by the evidence presented by the Tetlocks, their friends, their blog and the Times itself, there’s zero connection whatsoever to Gardasil other than the fact that this poor girl got sick around the time she had the injections.

Most of the rest of the story is about two years old — there’s a complete rehash, for instance, of Merck’s clumsy and cynical lobbying campaign in Texas and Virginia, which was widely reported in both local and national media at the time.

Did the Times get anything right? Credit where it’s due: It was certainly worth reporting this conflict of interest:

Gregory A. Poland, a vaccine expert at the Mayo Clinic, was a nonvoting member on the C.D.C. panel that recommended Gardasil in 2006 and has publicly defended the panel’s decision. Records show he received at least $27,420 in expenses and consulting fees from Merck from 1999 to 2007. Both the C.D.C. and Dr. Michael Camilleri, chairman of the Mayo Clinic Conflict of Interest Review Board, speaking on Dr. Poland’s behalf, said the payments complied with institutional requirements.

But beyond that, I am mystified as to why this deserved such massive airtime this late in the day.

Has Merck Suddenly Lost the Ability to Count?

August 15, 2008

In my look at the argument of drug companies who say they cannot estimate their legal liabilities, it struck me that at least one of those companies — Merck — has a history of actually being quite good at just that.

You’ll remember back in 2005, one analyst estimated that Merck’s legal bill for Vioxx might reach $50 billion. Take a bow, David Moskowitz of Friedman Billings Ramsey. Moskowitz later lowered his estimate to $18 billion, and then $12 billion, thus proving that analysts aren’t good at estimating drug companies’ potential legal bills.

But does this mean that the companies themselves don’t have a handle on it?

No.

Take a look at what Merck itself did over the Vioxx legal battle time period. First it set aside just $675 million for its legal bills.

Then it fought a few cases and demonstrated that plaintiffs weren’t going to win them all. The losses cowed the plaintiffs’ bar and they entered settlement talks. Merck escaped by paying just $4.85 billion to settle the whole thing.

In this light, Merck’s sudden claim that it is not very good at accounting for potential future legal losses doesn’t look that strong.

It looks to me as if Merck’s management is actually a bunch of geniuses at such estimates — they were the only people who believed and acted as if the Merck mess was going to be a lot smaller than everyone else thought it was, at least financially.

That Bizarre Website Promoting GSK Exec Steve Stefano’s New Book

August 15, 2008

This was the post I enjoyed writing the most over on BNET this week. It’s simply a long list of quotes from Steve Stefano’s personal website, which he has devoted to promoting his new book. The book is about leadership, and how you should wrap your empathy in a “crust of passion,” or something.

Not all GSK execs think Stefano’s book is Pulitzer-worthy, however. Here are a couple who gave it negative reviews.

It just goes to show, just because you’re an expert at marketing drugs it doesn’t mean you can market anything.

Anti-Addiction Efforts of Painkiller Companies Met With Yawns

August 15, 2008

I’ve been writing in Brandweek this week about companies that are reformulating opioid painkillers and the like so that they can’t be as easily abused by pill-popping addicts.

King, Purdue, Acura and Pain Therapeutics all have products in the pipeline that deliver pain medicine but make it harder for people to turn them into recreational drugs.

Here’s a couple more companies that didn’t make it into the story for space reasons:

  • Alpharma in Bridgewater, N.J., filed in June to market Embeda, a morphine sulphate that has an embedded capsule of naltrexone hydrochloride inside. If the pill is crushed, the naltrexone renders the morphine inactive. Alpharma expects approval to launch by as early as the end of this year, according to Jack Howarth, vp-investor relations.
  • And Elite Pharmaceuticals in Northvale N.J., is in late-stage trials of another naltrexone pill, this one combined with oxycodone.

The FDA seems keen on these products, so it’s surprising that these seemingly sensible developments have been met with hostility by investors. Ed over at Pharmalot detailed BioLogic Investment Research and Consulting’s finding that King and Acura’s Acurox would be a revenue deterrant. Here’s the original note.

What struck me about this topic is how Wall Street may be underestimating the desire of the public to see these drugs get to market. Some anecdotal evidence: My story on Brandweek was one of the most-read stories this week, and if you look at the comments section you’ll see that parents are very passionate about the need for companies to pull their heads out of the sand when it comes to medicine abuse.

This is an issue that crosses the OTC line — down the road, I predict much PR pain coming toward Shering-Plough regarding its position that Coricidin HBP should remain on drugstore shelves and not go behind the counter with its harder-to-abuse neighbor, Sudafed.

Sepracor Marketing Efficiency Tanks

August 13, 2008

If you’ve been following my pharma news feed over at BNET, you will have seen this story about Sepracor’s not-very-successful cost-cutting drive.

The bottom line: The company laid off 300 sales reps and still somehow managed to decrease revenues, increase expenses, and lower the efficiency of its reps. The company claimed to investors that the opposite was the case.

I know what you’re all asking: Isn’t there a cute powerpoint chart with pink and blue lines that depicts this disaster?

Yes there is. See below. (And if you’re late to this series, start here and click your way backward.)

What’s Wrong With Prof. Light’s Argument That New Drugs Are More Dangerous Than Old Ones?

August 11, 2008

Pharmagossip recently highlighted a new study by Prof. Donald Light of UMDNJ which states that “new drugs are twice as likely to harm patients as to provide them with benefits superior to existing drugs.”

That’s a bold claim. Is it true?

I’ve relied on Light as a source in the past and found his arguments to be powerful. However, he also tends to overstate his case. Here’s an old story about his criticisms of the Gates Foundation effort to cure malaria. He’s yet to be proven right or wrong, but almost no one has taken up his position that the effort is misguided.

So I decided to look through Light’s PowerPoint presentation on his data. (Does absolutely everything have to be in PPT? Please?) There appears to be some statistical wiggle room, to say the least.

Look at slide 2, where he notes that the FDA recorded 32,000 cardiac events related to Vioxx. (Side thought: see here for a brief critique of why relying on FDA adverse event reports isn’t the wisest thing).

Then, on slide 3, we find that according to Light’s calculations cardiac events have jumped to 1.9 million. That’s a big slippage. Either the FDA missed 98% of all cardiac events — despite most people thinking that the FDA tends to overstate adverse events — or this number is wrong.

Put another way, if you took Vioxx, the odds of experiencing a cardiac event were either 5% or 0.09%, depending on whether you go with the Light or the FDA, respectively.

Knowing Prof. Light, I’m about to receive a lengthy email that will require several writethrus of this post.

Let me just say this: Most people think Michael Moore is the biggest threat to Big Pharma. They’re wrong. It’s probably Light. Unlike his bearded colleague, Light actually musters the stats in favor of his points. One of these days he’s going to do some damage with them …

If You’re Going to Criticize Big Pharma, at Least Learn to Spell

August 11, 2008

Take a look at this campaign briefing from Consumers International, an organization that wants to end “irresponsible drug promotion.”

C.I. wrote to 12 drug companies in May and asked them whether they were prepared to disclose the gifts they gave to doctors, consultants and patient groups. Of the nine companies that replied, none said they would disclose the data.

This was a laudable effort given the recent controversy over whether Big Pharma should disclose the cash and gifts it spreads around the medical profession.

However, the campaign briefing is so riddled with distracting typos that I could barely make my way through the document. Among the gems:

  • “Astra Zenica”
  • “organizations” and “organizations” (One is the American version, the other the British.)
  • “Senofi-Aventis”

It’s a shame because there’s a couple of interesting nuggets in here, including the fact that AZ, Lilly and J&J are all planning to make more gift disclosures in the future; whereas Novartis, Merck and Roche all politely said they had no intention of becoming more transparent.

Is Kurt Anderson the Doctor in GSK’s Valtrex Commercial? (Probably Not.)

August 10, 2008

Weird question, I know. But every time GSK’s commercial for herpes med Valtrex comes on the TV, I think I’m hearing Kurt Anderson’s voice.

Kurt himself doesn’t appear, but the white-coated doctor who explains the drug sounds exactly like him. See for yourself.  Here’s a clip of Kurt, the former editor of New York magazine and now the host of WNYC’s Studio 360 show, on Charlie Rose. Could Anderson being doing a voiceover for the Valtrex doctor?

As you can see from the comments box, Anderson (or at least someone claiming to be him — but we’ll trust him for now) says it isn’t him:

“It’s not me, i swear,” Anderson says. “But now I want to see the ad.”

Unfortunately, despite searching high and low through the interwebs, I have failed to find a video of the Valtrex ad in question. I suspect GSK has deliberately not pursued a YouTube strategy on this brand. Perhaps my loyal readers can locate a link for me, so we can compare and contrast? Email me at jimedwards123 (at) hotmail dot com.

If you think this is totally crazy, bear in mind that it is quite common for actors to do commercial voiceovers but not appear themselves. That way the company gets the benefit of the familiar, trustworthy voice, and the actor gets a big bag of cash without the embarrassment of admitting they do TV ads.

GSK’s Marketing Is Treading Water

August 10, 2008

As GSK lays off hundreds of scientists in an attempt to make nice with Wall Street, it’s worth asking whether the folks in the company’s marketing and sales arms are picking up the slack.

The chart below suggests they’re just about treading water. Growth in the revenue yield and gross profit yield of every dollar GSK spends on selling, general and administration was flat in the last quarter, down from 1% and 7% the quarter before. (If you want an explanation of this chart see here and here.)

What this means is that GSK is still getting a little more out of each dollar than it spent in the quarter before, but the progress of that investment is fragile at best. The overall trend seems to be down — and if you’ve been keeping up with this series you’ll know that GSK is not alone in seeing the power of its marketing dollars dwindle.

Click on the chart if you want to see a bigger version.

A Classic Example of How Not to Handle Layoffs

August 6, 2008

GSK is in the middle of a round of layoffs of hundreds of scientists in its R&D labs. You can read the details on BNET, where I’m still guest blogging.

There are two things that are interesting to me about the GSK layoffs:

1. The top estimate for the layoffs is 350 of GSK’s 17,000 R&D staff force, which isn’t that many. A lot, to be sure, but not like over at Pfizer where 10,000– yes, that’s Ten Thousand — have been given the pink slip.

2. Despite the small numbers, GSK is getting panned across the web for its move.

Check out Derek Lowe’s comments section on his blog (which you can access through the BNET link, above). It’s filled with GSK staffers ripping the company. That’s a lot of comments activity. Pharmalot, the best-read blog in the drug sphere, gets a lot of comments —  but nothing like this.

So what has GSK done to calm the waters?

Er … nothing.

There’s still no statement on its web site about what’s going on and who exactly is affected.

I’ve said it before and I’ll be forced to say it again: Transparency is the key. This round of layoffs could have been a blip on the radar had it been announced with some definitive facts, contrite statements, and a feasible explanation of the strategy.

Instead, GSK concentrated on informing Wall Street, in detail, about exactly what its strategy was, as far back as October 2007. Check out this earnings call transcript. CEO JP Garnier makes it quite clear he’s going to take the ax to the oncology divisions and farm out the work to China.

If only those American, British and Italian scientists had known that, they could have spent some time updating their resumes … and GSK would have gotten a lot less bad press over what is, in the grand scheme of things, not the worst layoff mess in the business right now.

Is Schering-Plough’s ‘Productivity Transformation Program’ Actually Making S-P Less Productive?

August 1, 2008

Lots of bad news for Schering-Plough today. You can read that here.

But if you go back to S-P’s second quarter earnings call, you’ll note that the company is on a cost-cutting drive.

They have a name for that drive, the “Productivity Transformation Program.”

So, just how productive is it?

CFO Robert J. Bertolini said this:

“To date, we have achieved about $100 million in savings, including about $70 million this quarter. Most of the savings were in SG&A.”

Sounds pretty impressive. But does it hold up to analysis?

Regular readers will remember that NRx recently did an experiment regarding SG&A at drug companies. I asked, How efficiently do drug companies handle their selling, general and administrative budgets? And how profitable are the results of those budgets? By comparing SG&A to revenues and gross profits, we can plot the growth – or lack thereof – of the productivity of SG&A.

(Don’t understand this? All you need to “get” is that we’re figuring how many dollars each company makes in revenue and gross profit for each single dollar it spent on marketing.)

Here’s a chart of growth rates of revenue and gross margin yield from S-P’s SG&A spend. (In general, you want to see the pink and blue lines either flat or pointing upward, and above the 0% level.)

As you can see, despite cutting $100 million ($70 million this quarter!) the growth in S-P’s yields declined. The revenue yield of its marketing investment actually declined into negative territory. And the growth in profitability of that investment slowed considerably, from nearly 15% to less than 10%, meaning that the company is currently destroying the value of its SG&A investments, not increasing it.

So much for PTP.

FDA’s Most Embarrassing Moments

August 1, 2008

You can read them in detail here.

But here’s a summary:

1. After rule-change that allowed consumer drug advertising, didn’t hire enough staff to police consumer drug advertising.

2. Post-marketing monitoring no good. Why? FDA doesn’t know how to do post-market monitoring.

3. Took 11 months to successfully execute an off-label violation warning letter.

4. Supposed to be inspecting foreign drug manufacturers, but, uh, can’t speak foreign languages.

5. Decided that emergency contraceptive should not be available to under-age rape victims.

6. Although elderly people take most drugs, forgot to ask companies whether they had tested their drugs on the elderly.