Pharma isn’t using the tax cut money for R&D

KEY TAKEAWAY: Pharma CEO’s have indicated that they are going into “acquisition mode” with the savings from the just passed tax cut bill. Why? Because its cheaper to buy a company with a promising pipeline than to pour the money onto R&D which doesn’t have as good an ROI.

Pharmaceutical giant Pfizer said it would be ending its neuroscience discovery programs following a review, and 300 jobs would be lost.  The Alzheimer’s Society called the news “disappointing” and a “heavy blow” to those living with dementia.

In a separate announcement the CEO of Lilly, said that the company would use money from the latest tax cuts to look for possible acquisitions.

Welcome to the new pharma economy, same as the old one.

How long has PhRMA been telling us that pharma companies need high drug price for R&D?  That as we now know is a pure canard. They need the money to both buy back stock and purchase smaller companies often driving away the innovative employees that made that smaller company grow.

Pharma companies are a business, I get that, but they are a business whose products saves lives.  Yet we continue to see price increases that are a lot higher than inflation. For example, take Humira. Humira is the best-selling prescription drug in the world. The price of Humira, an anti-inflammatory drug dispensed in an injectable pen, has risen from about $19,000 a year in 2012, to more than $38,000 today, per patient, after rebates, according to SSR Health, a research firm. That’s an increase of 100 percent.

Then, when a drug comes off patent, they simply lay off the people who built the brand.  As one executive said to me, “you have to have a screw loose to want to work for a pharma company today”.

I recently spent some time contacting people within the industry and all of them said that there have been huge cuts to R&D budgets with the loss of a lot of great people.  Some are leaving to spearhead R&D at smaller companies where they can be more nimble without big pharma bureaucracies, but VC investors usually love it when big pharma comes courting as they can make a huge payday.

It’s a bad time to in the pharma industry and it seems that courageous CEO’s are a rare breed.

One thought on “Pharma isn’t using the tax cut money for R&D

  1. I joined a pharmaceutical company in Cambridge fresh out of MIT. The first three years were amazing but last year I started to see a shift from management towards strictly quantitative measurements on every dollar in our budget. Even though we had some very promising compounds in development getting budget approvals to proceed was almost impossible. I think, more now than ever, investors and analysts dictate company direction. Like you said, it is a sad state of affairs. I have left pharma and now work in academics.

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