BrandweekNRX

Cruise ship bomb turns out to be . . . heart medication.

About 1,700 people were waiting to embark on a cruise on the Celebration Carnival Cruise Ship from Jacksonville on Saturday.

At 12:45 p.m. a suspicious package was reported and since we live in fear of terrorism, bomb-sniffing dogs were brought out.

The dogs singled out some bags, which were investigated.

The packages didn't contain a bomb - they contained heart medication.

That took about 6 hours to determine. The American Red Cross of Northeast Florida brought food and drinks. (The same Red Cross was sued a week ago by J&J for using the red cross.)

The ship, which had been scheduled to leave at 4 p.m., heading to Key West and Nassau, Bahamas, for a five-day cruise eventually left at 10 p.m. and passengers were given a $15 ship credit for their trouble.

Lesson number 1: When on a cruise, your time is worth $2:50 per hour. And, if you bring heart medicine, please make sure you have a doctor's note that they are not a bomb.

This story kind of resembles what happened when some ill advised runners were marking a path through an IKEA parking lot, with flour, and ended up arrested. The IKEA store was shut down and the shoppers kicked out. Local police were scared into thinking that the flour was a terrorist threat.

Lesson number 2: Don't ever drop your grocery bags outside a shopping center. You may be charged with a felony and detained as a terrorist.

Don't believe these are real stories? Check here and here. Welcome to America anno 2007.

- Peter Rost, M.D. is a former VP of Pfizer and the author of Killer Drug and The Whistleblower.

Hickup.

The Healthcare 100 blog ranking appears to have had a small hickup, as described here.

Fortunately, it looks like everything is well again, and one pharma blog has moved "up 55 places on the Healthcare 100" . . . find out which one, here.

And if you're not already subscribing to BrandweekNRX, here's your chance:

- Peter Rost, M.D. is a former VP of Pfizer and the author of Killer Drug and The Whistleblower.

Pfizer should buy Wyeth. Here's why.

Barbara Ryan, an analyst at Deutsche Bank who rates Pfizer stock a "buy," says she expects Pfizer to "trade like a treasury bond" until Pfizer takes a big strategic step, like a major acquisition.

Due to a raft of upcoming patent expirations, the future is bleak for Pfizer. Among others, Pfizer will lose the blockbuster Lipitor, as early as 2010. Lipitor generated 2006 revenues of $13.6 billion, which was 28% of Pfizer's $48 billion in revenues. And Lipitor is already being hurt by generics, because Lipitor’s competition is going off patent. In Pfizer’s most recent quarterly report, U.S. sales of Lipitor dropped 25% from a year ago; worldwide, Lipitor sales were down 13%.

So what would you do if you were Pfizer?

There is no magic in business. Pfizer needs another major acquisition to go anywhere and Pfizer’s new CEO Jeff Kindler doesn’t have a choice, if he wants to become as rich as his predecessor Hank McKinnell who walked into the sunset with close to $200 million in his knapsack.

“As we wrote in our March 20 note “Global Pharma M&A,” we believe WYE is one of the two (with BMY) most likely takeout candidates in the US and EU major Pharmaceutical groups. Pfizer in particular would be a fitting takeover partner.” This statement comes from Credit Suisse analyst Catherine Arnold, in an August 20th research report entitled, "What To Do With Wyeth . . ."

She also wrote that “The recent share price decline could increase Wyeth’s acquisition attraction and our SOTP analysis implies a take-out value of $69/share. Our March 2007 M&A report highlighted Wyeth’s strategic and financial prospects as a target for Pfizer, GlaxoSmithKline & Novartis. A Pfizer acquisition is particularly interesting as Wyeth would provide significant access to biologics, yet provide upside to its primary care business including franchises in depression and osteoporosis.”

But there are plenty of people who disagree. One of them is Fortune writer, John Simons who today penned the article, “Why a Pfizer-Wyeth merger is a bad idea.” His basic concept is that “Pfizer's new size was its chief advantage, but also its Achilles Heel.”

And he’s right about that. Bigger means you need bigger drugs to succeed, which makes success more elusive. Getting smaller, however, is not rewarded by Wall Street, and so the only way forward for Pfizer is to get even bigger. And to do this organically is all but impossible.

Fortune also points out that “Wyeth's fortunes aren't much better [than Pfizer’s].”

But if two big pharma companies are going down, they’d go down more slowly if they could devour each other and cut costs in the process.

And the fact is that short-term there is money to be made.

Credit Suisse writes, “Wyeth is undervalued even in our worst case scenario (Protonix brand erosion in 2008) and shares offer more than 20% upside potential in our base case scenario and more than 40% upside potential in a takeout scenario.”

Pfizer has about 150 drugs in development, but Morningstar analyst Brilliant says the pipeline is weaker at the late stage, where Pfizer needs to produce blockbusters to replace Lipitor and other therapies scheduled to lose their patents. "Any drug that is not going to well exceed $1 billion [in annual sales] is not going to move the needle for them," Brilliant said, according to BusinessWeek. Brilliant, too, expects Pfizer to focus on acquisitions.

So stay tuned. Pfizer + Wyeth may very well become true. This is what's happened to the two companies since speculation about a merger started:

- Peter Rost, M.D. is a former VP of Pfizer and the author of Killer Drug and The Whistleblower.

What did Med Ad News write about BrandweekNRX this week?

Find out here.

Scientists report: Redheads going extinct.

Redheads could be extinct in 100 years, according to genetic scientists.

So is this a marketing opportunity?

We certainly think so.

After all, the fewer readheads, the more desirable this color will become, if the law of supply and demand is to be believed.

National Geographic magazine reports that less than two percent of the world's population has natural red hair, created by a mutation in northern Europe thousands of years ago.

And the more redheads mate with non-redheads, the more diluted the gene gets, since it is recessive. It only takes one red-haired parent to produce a redhead baby, but two redheads create a much stronger possibility.

Scortland has the world record when it comes to redheads. Fourty percent of Scots carry the red gene and thirteen percent actually have red hair.

Once upon a time the red gene had the beneficial effect of increasing the body's ability to make vitamin D from sunlight. However, with today's sun filled vacations, redheads are more likely to develop skin cancer.

As for a redhead as a fashion statement, the fewer the better.

- Peter Rost, M.D. is a former VP of Pfizer and the author of Killer Drug and The Whistleblower.

Vacation time!? Vacation time!

Ed Silverman from Pharmalot, the most prolific pharma blogger and one of the few who actually gets paid for blogging, is going on vacation.

For a full week.

Ed writes today, "The usual flow of news, views and chattiness will be suspended until after Labor Day. Generally, this is a slow time of year, and we all need a respite now and then. You understand."

Since this is BrandweekNRX we focus on the marketing impact of this vacation. Our conclusion is that this is an outstanding marketing move. Blogs are like friends, and you miss them when they go away. We expect many Pharmalot readers will exhibit withdrawal symptoms by the end of next week.

Have a great vacation Ed!

- Peter Rost, M.D. is a former VP of Pfizer and the author of Killer Drug and The Whistleblower.

Drugmakers accused of cheating on taxes. Again.

Drugmakers are in trouble again. Tax authorities in the small Baltic country Lithuania accuses them of tax evasion and demands that they pay up. A tax audit concluded that some of the pharmaceutical manufacturers, who claimed that they only did “marketing,” in Lithuania, are in fact engaged in “selling.” And if they sell something, Lithuania wants sales tax.

The companies involved were not named, but Eli Lilly, Pfizer and AstraZeneca have come forward and said that they would fight the demands that they pay their taxes. Hence, we assume that they are involved.

It appears that this dispute relates to the fact that drug companies have avoided paying sales tax in Lithuania by sending invoices to local wholesalers and pharmacies in Lithuania from their operations outside Lithuania, instead of sending the invoices from their Lithuanian affiliates. Full story in the Baltic Times.

This is not the first time the major drug makers are in tax trouble.

The biggest tax scam on earth has a very innocent sounding name. It is called “transfer prices.” Abuse of transfer prices is a key tool many multinational corporations use to fool the U.S. and other jurisdictions to think that they have virtually no profit; hence, they shouldn’t pay any taxes. 

Last year U.K.-based GlaxoSmithKline (GSK), one of the largest pharmaceutical companies in the world, was forced to pay $3.4 billion to the IRS to settle a transfer pricing dispute dating back 17 years. The IRS alleged that GSK improperly shifted profits from their U.S. to the U.K. entity. 

And Merck, the famous U.S. drug company, also settled with the IRS, paying them $2.3 billion. According to the IRS, one of the schemes Merck used to cheat American tax payers was by setting up a subsidiary in tax-friendly Bermuda. Merck then quietly transferred patents for several blockbuster drugs to the new subsidiary and then paid the subsidiary for use of the patents. The arrangement in effect allowed some of the profits to disappear into Merck’s own “Bermuda triangle.” 

Merck also faces legal action in Canada for $1.8 billion dollars in back taxes and interest “related to certain inter-company pricing matters.”

For companies in certain businesses, such as pharmaceuticals, it is very easy to simply “invent” the price a company charges their U.S. business for buying the company’s product which they manufacture in another country. And if they charge enough, poof; all the profit vanishes from the US, or Canada, or any other regular jurisdiction and end up in a corporate tax-haven. And that means American, Canadian or Lithuanian tax payers don’t get their fair share.

Of course, no company should have to pay more tax than they are legally obligated to, and they are entitled to locate to any low-tax jurisdiction. The problem starts when they use fraudulent transfer pricing and other tricks to artificially shift their income to a tax-haven.

According to current OECD guidelines transfer prices should be based upon the arm’s length principle – that means the transfer price should be the same as if the two companies involved were indeed two independents, not part of the same corporate structure. Reality is that standard operating procedure for multinationals is to consistently bend this rule. And why shouldn’t they? After all, it takes 17 years for them to pay up, per the GSK example above, even when they get caught.

There is only one problem for U.S. companies with this strategy, and that is that if they repatriate this money to the U.S. they have to pay full corporate taxes. In fact, according to BusinessWeek, U.S. multinational corporations have built up profits of as much as $750 billion overseas, much of it in tax havens such as the Ireland, Bahamas, and Singapore to avoid the stiff 35% levy they'd face if they repatriated the funds back into the U.S.

To rectify this problem, Congress generously provided for a one-time provision in the corporate tax code, so that multinational corporations could repatriate profits earned before 2003, and held in foreign subsidiaries, at an effective 5.25% tax rate. 

And so the game goes on. 

The people left holding the bag are you and me.

- Peter Rost, M.D. is a former VP of Pfizer and the author of Killer Drug and The Whistleblower.

Novartis really hates India.

Nope, we don’t think the headline is too strong. According to FT, Novartis CEO Vasella “is likely to switch hundreds of millions of dollars in planned investments from India to other locations in the next few years in response to an Indian court ruling that weakens intellectual property rights on new medicines.”

Novartis lost the Glivec patent ruling in India, and so, like a little boy stomping his feet in the ground, Vasella says: "This [ruling] is not an invitation to invest in Indian research and development, which we would have done. We will invest more in countries where we have protection. It's not a punishment. It's just a question of the culture for investment. Do you buy a house if you know people will break in and sleep in your bedroom?"

Here’s the problem for the drug industry: They keep stomping their feet and challenging sovereign nations and lawful court decisions based on established laws, over and over, behaving like spoiled little brats.

First we had former Pfizer CEO McKinnell warning Germany about their drug prices, saying investment would suffer if Pfizer didn’t get the Lipitor price the company wanted. Clearly the drug industry hates price limits in Europe, and would rather invest anywhere else.

Then we had Abbot which refused to sell seven drugs in Thailand, because of another patent dispute. So Asia is no fun, since they really can’t afford branded drugs and want to manufacture generics instead. And let’s not even start about the patent situation in Latin America and Brazil.

Quite frankly, the only remaining region which the drug industry isn’t upset about is the U.S. But that’s only half the global market, hence, not a viable business model.

And so, the foot stomping these CEOs do around the world ain’t going to do them much good. It may feel good, and they may get backslaps when they return to HQ, but let’s face it; the foot stomping doesn’t enhance share holder value.

To the stomping CEO’s we have one suggestion: Grow up.

- Peter Rost, M.D. is a former VP of Pfizer and the author of Killer Drug and The Whistleblower.

Mass firings of crocked Bristol-Myers employees?!

Bristol-Myers Squibb is a company which has been in trouble. The company has paid hundreds of millions in fines for accounting fraud, a court appointed monitor oversaw management for several years, and the prior CEO was forced out soon after FBI agents raided his office.

Clearly the new boss, Jim Corneilus, who was appointed permanent CEO as recently as April 26, 2007 wanted to start with a clean slate. And he sure did.

He just sent a highly unusual letter to his employees, in which he wrote, among other things:

"Your compliance and integrity will be vital as, moving forward with our productivity transformation, we will empower decision-making at the appropriate levels throughout the company . . . In two separate areas of our company, concerned employees contacted our compliance hotline when they thought colleagues might be violating company policies. After a thorough review, employees in both groups were terminated. I commend our employees who brought these issues to our attention, but also hope that future violations of policies are few and far between - or non-existent - as we strive to be a company that operates with the highest integrity."

During the past year both AstraZeneca and Pfizer have terminated employees after significant blog coverage of alleged misdeeds, so it sure is nice to see one drug company which does not only do the clean-up before bloggers force them to take action, but also admit that's what they did.

See below for Cornelius' unusual letter.

Hat tip Pharmalot.

- Peter Rost, M.D. is a former VP of Pfizer and the author of Killer Drug and The Whistleblower.

Which countries permit Rx drug ads on television?

Q: How many countries in the world allow prescription drug commercials on television?

A: 2.

Q: Which ones?

A; The U.S. and New Zealand. Don't bitch, reference Forbes and CBC News.

And this is, of course, great for drug companies, advertising agencies and television networks in the U.S. The latter have come to depend more and more on the revenues of those ads.

According to the New England Journal of Medicine, direct-to-consumer advertising increased by 330 percent in the ten year period after 1996.

Now the FDA plans to study how 2,000 people react to television drug ads, to determine whether they have an overwhelmingly positive impression of products despite audio warnings about potential side effects.

Kind of interesting that it took the FDA ten years to make that decision. And that virtually none of the other industrialized countries have followed the U.S.

- Peter Rost, M.D. is a former VP of Pfizer and the author of Killer Drug and The Whistleblower.