Business
5:15 am
Thu May 8, 2014

Drug Industry Moves To Cut Costs, Banks On Future Big Sellers

Originally published on Sun May 11, 2014 6:32 pm

Transcript

RENEE MONTAGNE, HOST:

And this week, Bayer has announced it's buying the consumer care business of pharmaceutical company Merck. That business includes a portfolio of big name brands like, Claritin, Coppertone and Dr. Scholl's. The deal - which will cost Bayer over $14 billion - would make it one of the biggest players in the over the counter help business. It's the second blockbuster deal announced in the pharmaceutical industry in recent weeks. Novartis and GlaxcoSmithKline announced a big complicated deal last month, and there's yet another in the wings, Pfizer is trying to take over AstraZeneca.

To make sense of all this, we're joined by NPR's Scott Hensley, who's the host of the Shots blog on npr.org. Good morning.

SCOTT HENSLEY, BYLINE: Hi, Renee.

MONTAGNE: So first, why did Merck sell off these household names?

HENSLEY: Merck decided, as a lot of the drug companies are lately, that it needed to be big just focused. And in the case of these consumer brands, it has Coppertone, for instance, and some other drugs and over-the-counter products but it didn't really have the scale that it thought it needed around the world to be as successful in the business as maybe Bayer would be.

MONTAGNE: And speaking of the larger picture, these deals are being announced apparently in a rather profound reorganizing of assets in the pharmaceutical industry. What exactly is happening?

HENSLEY: It's absolutely right. The fundamental problem is that companies have just had trouble replacing the blockbuster medicines that fuel their profits over the last decade or so. It's been hard for them to find new drugs, so to buy time they're buying other companies in the hopes that they can cut costs. And also maybe, as Pfizer as saying in a deal that it announced, pick up some promising experimental drugs that in a few years might become big sellers.

MONTAGNE: And Scott, how do generics figure into all of this?

HENSLEY: Salon of the big problems for these drug makers is that these big hits of theirs are now available as generic. So Lipitor, which for years was Pfizer's cash cow, is now generic. You can buy it for a few dollars a month. If a company wants to come up with a new drug to lower cholesterol, it is pretty hard to beat Lipitor and especially when Lipitor is available for such an inexpensive amount of money.

At the moment, around eight in 10 prescriptions in the United States are filled with generic drugs. So in a sense, these drug companies have to compete against each other and also themselves. Their big hits of the past are being made cheaply and insurance companies are driving consumers to use the generics whenever possible.

MONTAGNE: Well, you just brought up Pfizer, another company in the midst of a big deal. Pfizer is trying to take over the British drug company AstraZeneca. What's going on there?

HENSLEY: Pfizer is the master of ringing out cost savings when it takes over other companies. It's done when big deal after another over the last few years. And in the case of AstraZeneca, one of the appealing aspects for Pfizer is that it might reincorporate itself as a British company and lower its tax rates substantially. Right now, Pfizer pays a tax rate of about 27 percent. AstraSeneca's is around 21 percent and going lower. And also, as it has done in the past, one could expect that the company would lay people off, close factories, shut down research labs that kind of overlap. And so it would buy itself time to find new drugs, and also make the sales of the existing drugs more profitable.

MONTAGNE: Well, why not group of drugs that seem to continue to be of interest to some of these companies are cancer drugs?

HENSLEY: Absolutely. Right now if there's a bright spot in drug company research, it's cancer drugs. There's real progress being made and there are quite a few drugs that are on the verge of coming to market. Most cancers are not treated with a single drug, it's usually a combination and so there are reasons that companies want to either combine in alliances or buy one another outright to sort of get the drug that they think will be the most effective and profitable combinations for treatment down the road.

MONTAGNE: And where does all of this leave the consumer?

HENSLEY: I think in the short term, there won't be very many effects of note. But over the longer haul, one has to wonder what industry concentration will do for pricing and the availability of medicines.

MONTAGNE: Scott Hensley is the host of the Shots blog on npr.org. Scott, thanks very much.

HENSLEY: You bet. Transcript provided by NPR, Copyright NPR.