Safety Worries a Problem for Drug Makers

It has been a rough spell for big pharmaceutical companies. The latest blow is research that shows users of the diabetes drug Avandia increase their risk of heart attack. The concerns about drug safety are pressuring the bottom line as well.

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The latest big pharmaceutical company to run into trouble is GlaxoSmithKline. Shares of that company fell this week after published research on its diabetes drug, Avandia; that research said the drug substantially increased the risk of heart attacks and cardiac-related deaths.

The drugmaker says it strongly disagrees with the findings. Glaxo is not the only drug company giant to be facing an array of problems from concerns about drug safety to pressure on the bottom line.

NPR's Wendy Kaufman reports.

WENDY KAUFMAN: Glaxo's drug Avandia is highly profitable, and news that the drug may carry substantial health risk prompted an immediate reaction from Wall Street. Jamie Rubin, a managing director at Morgan Stanley, called it a serious setback for the company.

Ms. JAMIE RUBIN (Analyst, Morgan Stanley): Avandia would have been an approximately $3 billion drug this year and we think overall it could lose about a third of those sales over the next several years. It's pretty serious.

KAUFMAN: And serious is how one might describe the industry's woes over the past several years. While the S&P 500 is just about back to where it was at it's peak in early 2000, most big pharmaceutical stocks are far from their historic highs. Jamie Rubin says the issues that the company has faced in the early part of the decade were enormous.

Ms. RUBIN: They went through a major patent expirations, pricing pressure. A lot of big products failed in clinical trials. Vioxx was pulled. There were obviously product liability issues. Nothing went right for this industry. But they really have turned themselves around since then.

KAUFMAN: The Morgan Stanley analyst notes that the stocks of some major drug companies have outperformed the overall market this year. And Rubin, whose firm has significant stock holdings and other financial interests in major drug companies, is fairly optimistic about the industry's future.

But others say that many of the problems drugmakers faced earlier in the decade persist. For example, Pfizer's patent on Lipitor, one of the best-selling drugs in the world and one which generates about half of the company's profit, expires in the year 2011.

And the cholesterol drug that was supposed to be the company's next blockbuster was abruptly scrapped in December. Patients in clinical trials experienced increased heart problems and death. The industry-wide shift from name brand drugs to generics is also hurting profits.

Mike Nichol, a pharmaceutical economist at the University of Southern California, says much of that shift is being driven by changes made last year in Medicare's prescription drug coverage.

Mr. MIKE NICHOL (University of Southern California): Generic prescribing as a part of the market went from about 46 percent to that 52 percent, and you think a six percent difference, that's not really a huge issue. But actually, within a one-year time period, that is really a huge change.

KAUFMAN: And its blockbuster drugs, not generics that drive big pharma's profit.

Mr. BILL SHIPLEY(ph) (Managing Partner, Accenture): Pharma companies, you know, are going to have to radically rethink their operating model. They can no longer live within the traditional model they have.

KAUFMAN: That's Bill Shipley, a managing partner at the consulting firm Accenture. He and others have concluded that the big drug companies will have to cut their costly sales force, create new drugs faster, rely less on blockbusters, and more on niche products.

Mr. SHIPLEY: It may have looked very different from what a traditional vertical pharmaceutical company looks like today, but there's lots of opportunity there to be had.

KAUFMAN: Many of the big drug companies have the cash to take advantage of those opportunities, and Shipley says they're beginning to do so.

Wendy Kaufman, NPR News.

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