“pruning the tree when spring starts”
End of month July and Pfizer is spinning off Upjohn to generic drug/device company Mylan NV. Pfizer bought 57% of the unnamed (mid – 2020) new company. This move comes under Pfizer CEO Albert Bourla who took over the reins from Ian Read in January, 2019. Bourla has been with Pfizer for 25 years. Before becoming the CEO, Bourla was the Chief Operating Officer (COO) overseeing the company’s commercial strategy, manufacturing, and global product development functions.
CEO Bourla has been making strategic moves following what he has called a “pruning the tree when spring starts and Pfizer is in the spring of high growth” strategy. What caught my eye is this one comment in the Wall Street Journal about remaking Pfizer into a company focused on patent-protected prescription medicines with the potential for significant sales growth from a more diversified but slower-growing player. To me, this translate into a; “hey the Mylan EpiPen strategy worked, lets do the same with other products” strategy.
To date, he has overseen a restructuring at the company and made smaller deals to boost Pfizer’s pipeline of cancer and other drugs under development. Still not the biggest deal which would make Pfizer a giant. He has been guiding the combining of a division selling Advil, vitamins, bathroom found meds with GlaxoSmithKline PLC’s own consumer-health business to be spun off in a joint venture. Nothing earth-shattering there.
CEO Bourla focus for Pfizer on higher profit, exclusive, prescription drugs while moving the rest of its lower profit operations into other ventures. Off-patent drugs such as Lipitor and Viagra having lower profit margins would be targeted for joint ventures and Pfizer would still retain sizeable amounts of cash flow from these drugs to fund R&D. Pfizer is shifting the declining brands to Upjohn. The intent is to consolidate this business with Upjohn and merge Upjohn with the EpiPen company Mylan and rename the two.
The new Pittsburgh – based unnamed company is expected to be among the world’s largest sellers of generic and off-patent medicines with more than $19 billion in yearly sales. Pfizer Shareholders will own 57% of the new company and Mylan shareholders would the rest. Pfizer would be paid $12 billion raised from new debt acquired from the joint venture. Upjohn would return to the US from its corporate base in Shanghai, a reversal of its earlier inversion.
To me, this is a strategic move along the lines of Pfizer selling off the marketing of EpiPen to Mylan and keeping the manufacturing of it. Pfizer owned Meridian Medical Technologies manufactured EpiPen for Mylan and it will now be a part of the sale to Mylan. EpiPen was a huge success story for Mylan. A quadrant strategy of milking of a cash cow to fund new ventures.
Including EpiPen, “Mylan’s operating profit for its Specialty segment grew from about 35% in 2012 to roughly 60% in the second quarter of 2016.” Most of this can be traced back to the change in design of the EpiPen (cap) , exclusivity of it due to design changes which was covered by patents, and the rejection of Teva’s generic by the FDA due to a difference in application.
Add to this strategy story, Eli Lilly’s Alex Azar’s success profiteering off of the decades old diabetes drug Humalog and one can begin is imagine what the new “unnamed” company’s role will be under CEO Albert Bourla’s direction . . . more of the same.
In its analysis, World Health Organization determined the expenditure of one dollar in R&D being covered by $14.50 profit for cancer pharmaceuticals or more than enough to recoup expenditures for R&D and provide a healthy return for investors. The generics Upjohn will acquire have more than paid back the costs of R&D and are more than likely to be in a decline in producing profits. The question then becomes how to enhance the return on these generics.
Mylan changed Pfizer’s EpiPen design to achieve patented exclusivity. Teva could not duplicate it as a generic because patients could not use the Mylan instructions in applying the Teva generic. According to FDA’a rules, the Teva product could not be cast as a generic for the Mylan EpiPen in the marketplace as it could “not” be used in the same manner..
EIi Lilly’s Humalog, same formulation as what was made decades ago. The list price for one vial of Humalog has nearly tripled over the last decade. No new and improved or patent changes. Lilly appears to be taking increased profits from the price changes and passing on a larger slice to Pharmaceutical Benefit Managers to gain preference by healthcare insurance plans represented by the PBMs.
The same at the other diabetes med manufacturers Sanofi and Novo. Sanofi, a diabetes drug manufacturer and competitor to Eli Lilly gave insurers and pharmacy benefit managers rebates totaling more than half of its gross sales in the U.S. last year, resulting in net price declines across its portfolio despite list price hikes taken on dozens of its prescription products.
What is occurring is “shadow pricing” increases where one company raises pricing and the others follow.
A lawsuit filed in 2017 alleged three companies (Eli Lilly, Novo Nordisk, and Sanofi) intentionally raised the list prices on their drugs to gain favorable treatment from pharmacy benefit managers, who work with health insurers and drug makers and help decide how a drug will be covered on a list of approved drugs. Insurance companies do not pay manufacturer list pricing. The PBMs negotiate a rebate to the insurance companies from which they take a portion of it for themselves. The insured gets the net price after Rebates are paid to insurance company minus the PBM bonus for negotiated price.
It is in this circus of net profits after rebates and bonuses, I believe the Upjohn/Mylan “nameless” new company battle will be fought to increase Pfizer’s profit. This is not like the EpiPen medical device where a change in design of the pen can be made and a new patent secured. Some drugs may be changed which would result in a new patent. I suspect much of Upjohn/Mylan product profit improvement will be fought by getting preference from Pharmacy Benefit Managers.
CEO Albert Bourla will be watching the new company to see how successful they are in creating preference with PBMs and the resulting profit.
Why are our drugs so Costly? Watch the YouTube Presentation to Understand why Drugs are so Expensive to You.
Run75441 (Bill H)
Pruning a tree when spring starts is a good way to kill the tree. You want to prune a tree in the autumn or winter, ideally when it is dormant. Then again, knowing Pfizer, this is a probably a better metaphor than it seems.
Drug companies sell pharmaceuticals to insurance companies. Insurance companies sell insurance to employers. Patients are the ones who need the drugs, and they fit into this scheme somehow. Like most modern American institutions, it is horribly corrupt, much like just about everything in he latter days of the USSR.
Kalesburg:
Watch the YouTube at the bottom. I do not want to repeat it in print here. It is kind of complex in how they do the negotiations and kickbacks. I was finally able to find a YouTube that shows how it happens.
I prune after things are leafed out so I can see the branches and which are dead or not. I cut whole branches and not tips. Most people cut tips and kill the branch. And yes you have to be careful.
And yet we still have dem’s running for president who throw out the line about taking peoples private insurance away that they love.
This morning I heard one even use Unions and their negotiated benefit as part of their pay that would be taken away if we went single payer.
Can you fear monger any harder?
Hi Daniel:
I found what I wanted to use as a comment to you. What is at issue with private insurance and the users (insured) of it is the costs are out running both payees (insurers and insured). Without some push back on healthcare beyond insurance and the insured, private healthcare insurance will disappear. Kocher and Berwick in a private paper citing a JAMA paper (I cited this paper in “Does Trump Read Open JAMA?”) said hospital inpatient and outpatient costs is the leading reason for insurance premiums to increase. ProPublica has some stuff out also. Here is a comment from another article.
“Health care costs already consume a significant portion of the median household’s after-tax earnings. This would indicate that consumer-driven price elasticity strategies are a fool’s errand, and one with potential iatrogenic effects. If an insurer with 70% market share has not been able to address the cost problem, how can an individual consumer? The current system is too opaque, and fraught with competing interests and goals, none appear to be focused on affordability.” Michael Seibold.
I would fear costs killing private healthcare insurance more than single payer.
Cost killing private insurance may do the job, but that is not how the presentation of the argument against single payer is being presented.
It is very clear that one of the strategies to stop the move to single payer, beyond the ACA is to pit those in the labor force with employer provided coverage against those without.
It’s a false argument, which stop well clear of understanding what the US citizen is paying for now and how they are paying for it. I think they are counting on such people seeing their coverage as a perk and not as having actually worked for it and thus as part of their pay.
The Premiums, CoPays, and Deductibles are increasing as we speak as well as the payout by insurance. Private could be sustainable if there was cost controls in place which would exclude all the extras hospitals are throwing into the cost which Seibold is stating. The excess costs killed no-fault in Michigan for 220% of Medicare charges which is also too high if insurance is paying 140% – 180%. No transparency.