Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post
Newsgroups: americast.wpost
From: americast-post@AmeriCast.Com
Organization: American Cybercasting
Approved: americast-post@AmeriCast.com
Subject: The Drug Industry's Worsening Headache; Criticism Likely to Result in Lower
Date: Thu, 29 Oct 92 04:29:59 EST
Message-ID: <4.1992Oct29.042959@AmeriCast.com>

The Drug Industry's Worsening Headache; Criticism Likely to
Result in Lower Profits<By Sandra Sugawara<Washington Post Staff
Writer=

 Battered by a barrage of attacks from irate consumers, Congress
and Democratic presidential candidate Bill Clinton, the highly
profitable pharmaceutical industry is headed for leaner times,
according to analysts and industry officials.

 With a number of politicians criticizing drug price increases
that in the 1980s far exceeded the inflation rate, and increased
competition expected from generic manufacturers as patents on
many best-selling drugs expire in the next couple of years,
analysts are predicting a major shakeout in the industry.

 Some of these forces can be seen at work already. Last week,
Syntex Inc.,  a Palo Alto, Calif., pharmaceutical company, an-
nounced layoffs and a restructuring.  Its patent on Naprosyn, an
anti-arthritis drug that accounts for more than 50 percent of the
company's revenue and profit, will expire next year.

 A day earlier, Eli Lilly & Co. of Indianapolis announced its
first quarterly loss, $268.5 million. Upjohn Co., which  in-
creased earnings by significantly boosting prices in recent
years, has had flat earnings this year, and patents on two of its
major products - Halcion and Xanax - will run out next year.
Many industry officials privately predict that a Clinton adminis-
tration - should the Democratic candidate  win - would exert
further pressure on their profits. They cite Clinton's call for
pharmaceutical companies to restrain price increases and his oth-
er  proposals to contain health costs.

 "Folks are worried and angry," said a Washington lobbyist for
one pharmaceutical company. He and other  industry officials de-
clined to talk on the record because of fear of alienating a pos-
sible new administration, but they privately argued that drug
companies were being made a scapegoat by politicians because
drugs are one of the few out-of-pocket health care expenses that
many people must pay. Prescription drugs often are not covered by
health insurance.

 The pharmaceutical industry "is in the early stages of a major
fundamental change in (its) very nature," Steven B. Gerber, a
physician and analyst with the brokerage Oppenheimer & Co., said
in a recent bulletin to customers. "At an unprecedented pace,
enormous changes are taking place in virtually every facet of the
industry simultaneously."

 Steven Burrill, a drug industry expert with the accounting firm
of Ernst & Young, agreed. "We are about to see the most fundamen-
tal restructuring that the pharmaceutical industry has ever gone
through. We will see a dramatic skakeout

 Burrill predicted a number of mergers, acquisitions, new alli-
ances and company restructurings in the coming years.

 Industry executives and analysts predict that this will mean
less money to develop new products. But they also  say it might
force some positive changes in an industry that has become heavy
with bureaucracy.

 The latest political attacks occurred last weekend when Rep. Ron
Wyden (D-Ore.) protested that Bristol-Myers Squibb Co.  plans to
put too high a price tag on its anti-cancer agent taxol, and
asked the National Cancer Institute to investigate.

 Sen. David Pryor (D-Ark.) has ferociously attacked drug price
increases and is pushing a proposal, endorsed by Clinton, to take
away some non-research and development tax breaks from companies
that raise their prices  at a rate surpassing the inflation rate.
Some pharmaceutical companies have responded by voluntarily keep-
ing price increases to the inflation rate.

 This comes at a time when "the pharmaceutical industry has gone,
in the space of only a few years, from being a well-organized
lobbying force to being fragmented and seemingly defenseless"
against political attacks, Gerber said.

 The industry's price  increases also are under scrutiny by big
buyers that have aggressively negotiated large discounts. These
customers include health maintenance organizations (HMOs), mail-
service pharmacies and government agencies. Unlike private prac-
tice physicians, who as a rule have paid little attention to the
price of drugs they have prescribed, these large customers are
extremely cost conscious and are expected to be a growing force
in the market.

 Institutional customers now make up about one-third of the
domestic pharmaceutical market, and are expected to account for
two-thirds in five years, according to Gerber.

 A Clinton administration presumably would speed that trend. His
proposed national health care  commission, which would set a
ceiling on health care spending,  would be designed to encourage
more hospitals and doctors to join HMOs and other health care
networks that aggressively manage their costs.  Certainly not all
pharmaceutical companies have yet felt the impact of these pres-
sures. A number of large pharmaceutical firms  continue to report
double-digit growth. And analysts point out that the pharmaceuti-
cal industry started out at such phenomenal heights that even
lower growth rates are respectable, compared with those of many
other industries.

The pharmaceutical industry's average profit margin in 1991 was
12.8 percent, four times the median, or midpoint level, for  For-
tune 500 industrial companies and more than twice as high as the
second-most-profitable group, the beverage industry.

 But the days of double-digit sales growth may be over for many
companies, according to Viren Mehta, a partner with Mehta and
Isaly, a New York-based health care investment group.

 Much of that growth was due to rapid escalation of drug prices.
"Take out the price increases and the (sales) growth would have
been more in the 4 to 7 percent range," said Mehta.

 Mehta predicted that the current political climate and the rise
of large institutional customers means that drug prices will
probably only be able to increase at about half the rate of re-
cent years.

 But one  industry official disagreed with some of the more dire
predictions. He said he believes that a Clinton administration
would mean more people being able to receive medical care.  So
even if drug prices were lower, companies would have more U.S.
customers, he said.

"I'm voting for Clinton," he confided. "But don't tell anyone. I
want to keep my job."<02:03 10-29C9999-----

Copyright 1992, The Washington Post.  This story is from the
Washington Post's Capitol Edition On-Line and is not to be ar-
chived or redistributed.

For more information, send-email to American Cybercasting Cor-
poration (usa@AmeriCast.COM)