At the risk of making this blog too self-referential in its first week, I'd like to weigh in on the merger of the pharmaceutical giants Pfizer and Wyeth, a subject my fellow contributor Derek Lowe ably tackled on Friday.
Pfizer will acquire Wyeth for $68 billion in a deal the firms announced Monday, The New York Times reported. It's a big deal in every sense of the word and, as the Times pointed out, the largest merger since AT&T-BellSouth in 2006 -- and it's happening at a time when credit is hard to come by. Plus, there could be more M&A in the pharma sector, The Wall Street Journal speculated.
How bad is it for pharma? So bad that federal auditors credited sluggish growth in drug prices and spending during 2007 as the main reason national health care spending increased at its slowest rate since 1998. Here's an excerpt from my story about this report:
Prescription drug spending increased 4.9 percent in 2007, reaching $227.5 billion. That rate of growth was the lowest since 1963. In 2006, prescription drug spending rose 8.6 percent. Drug prices grew just 1.4 percent in 2007 compared to 3.5 percent in 2006.This won't shock anyone who's been paying attention, but the drug industry is enduring some hard times. These companies have had trouble getting new products to market and been laying off workers and disappointing shareholders for a while now. Recent and future losses of patents on a slew of "blockbuster" drugs are certainly a major part of that. In 2011, Pfizer will lose the exclusive rights to the world's number-one selling Rx drug, Lipitor, sales of which made up a quarter of the company's $48 billion revenue in 2007.
But there's an underlying current to the Pfizer-Wyeth deal: the upheaval it faces in the marketplace is coinciding with a disadvantageous shift in the political dynamic.
During the eight years of the Bush administration -- including the last two when Democrats controlled Congress -- the pharmaceutical industry was characteristically effective at fighting off bills and regulations it didn't like and getting results on the ones it favored.
They may not be able to do that as well during the Obama administration. There's a litany of legislative and regulatory items in the Democrats' pipeline (sorry) but mentioning just a few should illustrate the point. Among other things, President Obama and congressional Democrats want to:
- Establish federal negotiation of prices for the Medicare prescription drug program;
- Permit bulk "reimportation" of medicines from Canada and other countries at the government-set prices paid in those nations;
- Fund comparative effectiveness studies of drugs and other therapies, which could set up winners and losers in coverage decisions made by public and private insurers;
- Appoint a Food and Drug Administration commissioner more skeptical of the pharmaceutical industry; and
- Roll out a comprehensive health reform plan that could affect pharma in countless ways.
What all this means is that while Pfizer, et al., are feverishly trying to work out how to stay in business, they'll also be lobbying in a hostile environment against changes to federal policy that Democrats have waited years to put in place. That's a tough sell. While the drug lobbyists are in those meetings, I wonder if they'll just go for broke and ask for a bailout while they're at it.
Jeffrey Young is a staff writer at The Hill.