What’s ailing Big Pharma

Recently, as pharmaceutical companies engaged in another of their periodic benders of merger-mania, I spoke to a group of students at Scripps College in Claremont. The students were in exactly the demographic the industry has spent hundreds of millions of dollars to woo with drugs for attention-deficit disorder, depression and bipolar illness. And they weren’t happy.

The students’ beef with Big Pharma is simple. The drugs don’t work that well, or, if they do, only for a short while. Just look at what happened to David Foster Wallace, the students told me. He used drugs for depression but he still committed suicide.

They had a point. For some time, even the industry’s trade publications have made the same observation. Most of the drugs introduced to treat chronic disease over the last 20 years work for only about 50% of patients. So it’s no surprise that pharmaceutical sales have tanked.

Pharma’s troubles have been exacerbated by generic competition, which last year caused former cash cows Zoloft, Flonase and Ambien to post their worst returns ever. And future projections look even worse. As Bloomberg News Service recently reported, the world’s pharmaceutical firms need to find replacements for $84 billion in sales now generated by products ending their patent life.

Yet if you ask the typical Pharma executive why sales are down, you get an alternative reality. The devil isn’t in their drugs, it’s in -- surprise -- onerous government regulation, penny-pinching insurers and, of course, that perennial boogeyman: healthcare reform. That’s why they need to merge.

And so, barring interference from the Justice Department, Pfizer will gobble Wyeth, Merck will grab Schering-Plough and Roche will acquire most of the Genentech stock it does not already own. But even after all the frenzy, the central problem facing the companies will remain: Why doesn’t Pharma produce better drugs?

One reason is that, since deregulation in the early 1980s, drug companies have transformed themselves from science enterprises into consumer goods companies, behemoths that see their principal mission not as developing new and better drugs but as developing new ways to sell drugs. They want every drug to be a blockbuster. Direct-to-consumer advertising, on which drug companies spend in excess of $4 billion annually, is but one obvious indicator of this trend.

Companies such as Pfizer, Merck, Glaxo and Eli Lilly spend huge sums trying to “get into the mind-set,” as one trade journal put it, of their customers. To do so, they employ all the expensive, baloney-filled tactics of modern marketing. They’ve used focus groups (Glaxo once paid physicians to make collages depicting “their feelings” about asthma), “experiential marketing” (Pfizer once set up a health spa in New York’s Grand Central Station to sell a new migraine remedy) and theme-park-like rides (a pharmaceutical pavilion at the American Psychiatric Assn. convention a few years ago used sound and visual effects to help doctors experience what schizophrenics feel riding on a public bus). One company looking to reach young people staged a rap battle for sales representatives, and Pfizer created a pop museum exhibit, “World of Your Brain,” which had a section on depression that put forth pharmaceutical-friendly notions about the disease.

From time to time the industry seemed to realize that it was going down the wrong path and took to research again, usually by scooping up cash-strapped start-ups with promising new compounds. But even then Pharma continued to search for ways to turn expensive experimental drugs into blockbusters. The result is an industry without a clear mission.

One way out might be through enlightened medical and scientific leadership, but the same forces that transformed pharmaceutical companies -- Wall Street’s demand for higher profits, competition from generics and pressure to discount -- also transformed their executive suites. Pfizer is now run by a lawyer. Other giants are run by marketing whizzes and career functionaries.

The result? Scientific innovation has plummeted, and drug safety recalls have skyrocketed. The public has become so jaded that the industry can’t get enough patients to volunteer for important clinical trials. Mergers may save money by cutting out redundant divisions, but they will not cure the industry.

For that, Pharma’s leaders should look back in time to the example of Roy Vagelos, who led Merck through the 1980s and made the company the darling of stockholders, managerial elites, patients and scientists. Not surprisingly, Vagelos was a scientist himself, a pioneer in cholesterol research, and at Merck shepherded the world’s first statin. In recent years, Vagelos criticized Pharma often, disapproving of its emphasis on media and noting, in one speech, that the industry had “wasted a lot of goodwill.”

Can it get that goodwill back? Perhaps. It can start by listening to voices like those of the students I met -- and by treating consumers not as a malleable audience but as something once known as