Time to embrace change, not fight it

About the Author

Richard Meyer is a passionate Internet DTC marketer with over 15 years of progressive experience in consumer marketing who`s worked on top pharmaceutical brands like Cialis, Prozac and Sarafem, as well as two years with Medtronic Diabetes. He is currently consulting for his own company, Online Strategic Solutions, and writes a DTC column for PM 360 magazine and blogs for Eye for Pharma in addition to his own blog, World of DTC Marketing.

A new tax on profits from some patents and other intangible assets parked in overseas tax havens by American companies. That was the land mine in President Obama’s budget this week. The drug industry giant Pfizer which has said that 88% of its $56 billion in income from 2004 through 2008 originated overseas, could be subject to the corporate 35% tax rate on at least some of its foreign profit in the future if the president’s proposal goes through.

All the big drug makers engage in offshore tax sheltering of one sort or another. And the portion of overseas profit and revenue has been growing in recent years. Typically when a pharmaceutical company develops a new drug, it transfers it to a holding company in a tax haven like Bermuda or the Cayman Islands, usually on very favorable terms. Pfizer has reported that 58 percent of its revenue came from overseas in 2008, compared with 39 percent a decade earlier. For other drug markets, overseas revenue in 2008 amounted to 46 percent for Lilly, 44 percent for Merck and 42 percent for Bristol-Myers.

So what does all this really mean?

As I have written here many times the drug industry industry is addicted to a business model heavily dependent on “blockbusters”. When one blockbuster came off patent there always seemed to be another “new and improved” product in the pipeline but for some unknown reason the drug industry strategic people didn’t catch the change in the wind direction. More drugs are failing in clinical trials and the FDA is making harder to get new drugs approved. On top of that payers want clinical evidence that new drugs provide better patient outcomes and consumers have become empowered patients and are not buying drug industry marketing anymore.

The drug industries response has been to;

-Lay off as many people as possible

-Cut R&D funding and kill drugs that don’t show a valuable ROI

-Merge and acquire other companies thus in some cases requiring more overhead dollars to sustain the bigger company

-Cut DTC funding and try and have procurement redo contracts with agencies.

Sure the environment for marketing drugs has changed and is still evolving but it’s not like this was out of the blue; these changes have been coming for a long time. The Internet has given everyone with access to a computer more information about drugs and health than ever before and people are taking advantage of that information. The media has been hypercritical of the drug industry but some of their missteps have been huge blunders and clearly show that the focus was on sales not customers at a time when the focus on customers has become more and more important. Is it any wonder that consumers have a very low opinion of the drug industry and the FDA?

Smaller maybe better in the coming years for many industries including pharma. Maybe it’s time to break up the words “big pharma” ? The future right now is fewer drugs in development which means that patients are the ultimate losers. A fair and balanced approach is needed to ensure the industry remains healthy but the drug industry needs to acknowledge that a lot has changed and stop fighting change instead of embracing change.