Big Pharma Feels Free Market Pain

In an article entitled “In Sour Economy, Some Scale Back on Medications”, The New York Times reports on a prescription for a dose of reality for big pharma.

Pfizer’s (PFE) Lipitor sales were down 13% year over year for the third quarter as consumers with limited resources must choose which medicines are most important. Drugs which don’t fill immediate needs, such as pain relief and controlling diabetes, become consumers' lowest priorities. Feel good drugs, which help patients stay awake or sleep, become a luxury in tough economic times. And cholesterol drugs for potential future disease prevention drop out entirely.

Capitalism is about making choices and private healthcare is facing real capitalism for the first time in years. Pfizer realized this and announced it’s refocusing on more value adding products. The statin days are waning. Too bad for Pfizer and rest of big Pharma that the next Administration will likely implement cost-benefit guidelines following the UK’s National Health Service, which private health insurers will likely adopt. Big biotech is not exempt, as Genentech (DNA) found out with Avastin in the UK.

When healthcare capitalism faces limited resources the industry rhetoric turns to socialism. The perversion is choice and rationing is called socialized medicine, while unlimited resources imply free market medicine. Isn’t the opposite the truth?

Seniors have to be convinced to continue buying pharmaceuticals when they hit the doughnut hole in Medicate Part D ($2510 to $5726). If the seniors don’t see immediate value they stop buying the drugs. Co-pays are also increasing for working families. For the first time since direct to consumer advertising started, consumers are questioning the value proposition of their drugs. And the drug companies have not done a very good job of creating value in the consumer’s mind.

The new mantra will be to advertise value and cost-benefit to consumers, because consumers won’t “ask their doctors” for a drug that costs too much and has little therapeutic value.

Disclosure: Author is long PFE.