A bitter pill


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President of Wyeth Pharmaceuticals Joseph Mahady talks to Arabian Business about the challenges facing global pharmaceutical firms and his plans for weathering the economic storm.

Pharmaceutical companies have historically weathered economic downturns better than most. Like washing up liquid and toothpaste, medicine is one of life's essentials.

But traditionally drugmakers have not had to deal with a barrage of lawsuits, significant patent losses and a changing US administration, topped off with one of the worst global downturns seen in decades.

The New Jersey-based drugmaker is set to face a number of significant hurdles in 2008, partly driven by America’s upcoming change in administration.

But Wyeth president Joseph Mahady takes it in his stride. "They [drugs] are not optional. People will struggle to pay for them but the beauty is that they change people's lives and that is always what has protected us in the past," he tells Arabian Business during his one-day trip to the firm's Middle East hub in Dubai's Healthcare City.

The global economic crisis is the latest in a series of blows dealt to US drugmakers who, according to market data firm IMS Health Inc, are set to lose $84bn of patent protection by 2012. Whereas patent losses would normally be cushioned by the release of new drugs to market, increased scrutiny from US drug regulators has seen drug approvals fall to their lowest level in 24 years.

In keeping with the unusual market conditions, pharmaceutical firms look set to break with another tradition: the idea that the industry is recession-proof.

"We are used to saying that drug companies fare fairly well during economic downturns," admits Mahady, who took the helm at Wyeth Pharmaceuticals in January last year. "[But] I don't think we've seen an economic downturn with a pharmaceutical environment like this."

The combination of challenges has taken its toll on Wyeth, with shares down 24 percent year-to-date. The firm has also registered a slowdown in drug consumption, particularly in its largest market, the US - despite data from IMS showing barely any decline in physician visits through to September.

Mahady lays the blame at America's underinsured healthcare system, where patients are often left to foot medical bills.

"I think in this environment you are likely to see consumption either decline or shift. Patients may try and stretch their medications out and we have data to suggest that patients are skipping visits to their physicians."

Last January, several months before the impact of the downturn was felt across the world, Wyeth announced the launch of Project Impact, a cost-cutting initiative aimed at growing the company into a more efficient machine. Under the proposal, Wyeth said it would slash its workforce by 6 percent by the close of the year. By 2010, the company would extend that cut to 10 percent.

"In the developed world, people are telling us that pharmaceuticals cost too much," Mahady explains. "We have always been proud we spend a lot of money and the way we read it is that the market is telling us we either need to succeed more or spend less.

Last month saw the drugmaker cut 276 jobs at its Puerto Rico plant.

While Project Impact is unlikely to affect Wyeth employees in emerging markets such as the Middle East, Mahady says its ideas will be utilised across the world.

"In areas like the Middle East, Russia, Eastern Europe and China, while we encourage Project Impact thinking... we are investing more. There is much more of a significant growth in healthcare [in those regions]."

Wyeth has had a presence in the Middle East for more than 50 years, but has registered its most significant growth since the introduction of its blockbuster vaccine Prevnar to market. The drug came endorsed with a World Health Organisation recommendation that all developing countries add the drug to their vaccine schedules.

Prevnar, the first immunisation for infants against pneumococcal bacteria, a common cause of pneumonia and ear infections, is now mandatory in countries including Kuwait and Qatar, and in Dubai and Abu Dhabi. Largely on the back of these national immunisation programmes, third quarter sales of Prevnar rose 13 percent to $717m.

"Wyeth is one of the few multinationals that is growing at the rate [it is]," Mahady claims. "It is a combination of incredibly good performance on our nutritional products and in two significant areas: Prevnar, which has had remarkable successes here, and then behind that Enbrel [a treatment for arthritis] and a couple of other products.Mahady is pleased with the speed the region has embraced Wyeth's drugs but says he is constantly looking for better growth.

"Sometimes the first dollars are the easiest ones. You get excited, you have a national immunisation programme and you go into new territory. But in the second, third and fourth years the [territories] are much more challenging to deal with, either from an economic effort or they have become more demanding in terms of what they expect from the pharmaceutical companies."

While Wyeth may be scaling back its staffing needs, it still plans robust investment into research and development. It is realigning its research projects to concentrate on six therapeutic areas and 27 diseases in a bid to increase the likelihood of finding another blockbuster drug.

Do we budget a fair amount of money for defending these cases? Obviously the answer is yes. Our legal bills go up every year.

Oncology will be one of the focus areas, in line with predictions from IMS and other data agencies marking cancer as one of healthcare's fastest growing sectors. IMS is predicting a 16 percent increase in cancer spend in 2009. Globally, the market is currently worth around $52bn.

Obesity is another key area. Last month saw Wyeth purchase the tiny biotechnology firm Thiakis for $30m. The British firm has focused its research efforts on obesity therapies, and will prove a valuable addition to Wyeth's drugs pipeline if its therapies prove effective.

The New Jersey-based drugmaker is set to face a number of significant hurdles in 2008, partly driven by America's upcoming change in administration. Mahady is under no illusion that an Obama government will pose a tougher test for big pharmaceutical firms in terms of regulation from the Food and Drug Administration (FDA). But he believes a more challenging process will eventually benefit the industry.

"I think we genuinely believe [it will be a] tougher environment but I am not as concerned as maybe people might think I would be," he explains. "I think one of the big things we need in the US for drug approval is a strong leadership at the FDA level.

"I believe the approval process requires courage from the FDA and I think they only have that courage when they have a strong leader. We have done better as an industry with FDA commissionaires that were tough on us."

A harder line from the FDA, however, will make Wyeth's patent losses harder to bear. With few new drugs on the market, all pharmaceutical firms are bracing against competition from generic products and a likely loss in market share.

Last year saw Wyeth lose the patent lock for the antidepressant Effexor, a drug that has netted $3.79bn in annual sales, and it faces unanticipated generic competition for its anti-acid Protonix. Mahady concedes generic drugs are likely to be one of the biggest challenges next year, but says the rivalry does have its advantages.

"There was a point in time when you would fret that the generic was coming. While we don't like it when it happens to our brand name product, generic drug availability has been a way of taking the pressure out of the system," he says. "When drugs go generic the cost picture changes and to some extent we hope it creates a supply of revenue to be supplied to new drugs."

But time in the laboratory is fast being rivalled by the time Wyeth spends in court. The pharmaceutical industry suffered a barrage of lawsuits in 2008, and the trend looks set to intensify. According to newswire Bloomberg, as of October 29, Wyeth faced around 8700 legal claims from women in the US who contend Prempro, its hormone replacement therapy, caused breast cancer.

The drugmaker is also the subject of a Senate investigation, amid accusations it hired ghostwriters to pen favourable articles about its drugs for medical journals and then signed academic scientists as authors. Bringing up the rear is a pending appeal at the US Supreme Court, concerning a $7m payout to a patient who suffered complications after taking the antinauseant Phenergan.

"It's unfortunate [and] it's an incredibly significant consumption of management time to deal not only with the act of lawsuits, litigation and government threats, but the time spent trying to avoid those issues," Mahady admits.

It was reported that the firm set aside more than $21bn to resolve lawsuits over its fen-phen (anti-obesity) diet combination but, unlike its research budget, Mahady denies that Wyeth sets aside a specific budget for future lawsuits.

"Do we budget a fair amount of money for defending these cases? Obviously the answer is yes," he acknowledges. "Our legal bills go up every year."

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