Are More Rent-A-Reps On The Way?

That's what Deutsche Bank analyst Barbara Ryan suggests in an investor note after digesting the news that Pfizer is cutting about 2,400 sales reps, or roughly one-third of its sales force, as part of its ongoing downsizing.

In her view, tapping contract sales organizations makes sense, since revenues now follow a "cyclical pattern surrounding patent expirations" and most US drugmakers will lose more than 25 percent of their revenue base during this upcoming period. The answer? A new model, of sorts, that involves moving from a fixed cost to a variable cost base in order to maintain margins.

How would it work? A mix-and-match approach that calls for augmenting a drugmaker's best salespeople with a CSO. "Mature brands will be managed by less costly outsourced sales forces, which could cost as much as 25 percent less, which can be pulled before patent expirations," she writes.

Of course, such gambits are already under way. Ryan, in fact, points out that Merck tried this a few months ago by signing a deal with InVentiv Health to market Cozaar and Hyzaar just as the drugmaker axed 1,200 sales reps. These sorts of efforts, by the way, were foreshadowed in an IN VIVO article in 2006:

"The drug industry has accepted the need to outsource R&D--now, with sales productivity down, and the rising cost and risk of owning too much commercial infrastructure, why not outsource more of the sales effort, too? Big and small pharmas resist the idea but will eventually have to accept it."

And since then, the need for a new model has been hastened by a few familiar factors - more product recalls, fewer product approvals and ongoing complaints from some physicians about the number and effectiveness of reps walking through their doors. The bright side? This is one job that can't be outsourced overseas.

image from flickr user 'Howdy, I'm Michael Karshis' used under a creative commons license

Globalization and its Discontents: Finger-Pointing Over Heparin

The US Food & Drug Administration's investigation into adverse reactions associated with Baxter's now-recalled heparin products is a major public health priority and a growing political liability for the agency.

It may also become another strain on relations between the US and China.

FDA is now confident that the reactions were indeed caused by a contaminant introduced into the raw material used by Baxter and its suppliers to produce heparin, a contaminant that FDA suspects was introduced deliberately somewhere early in the supply chain in China. The agency convened the latest in a serious of media conference calls April 22 to outline its findings so far. (Click here to read coverage of the conference call in PharmAsia News.)

Chinese regulators disagree, and called their own press conference at the Chinese embassy in Washington to make their position clear. They believe the problem is more likely the result of impurities introduced in the final production processes in the US, and plan to inspect Baxter's facilities themselves. (Here is The Washington Post's coverage of the press conference.)

Baxter, understandably, agrees with FDA's interpretation of events thus far. Assuming FDA is correct, Baxter's own liability for the adverse events will be less obvious: the company itself is presumably a victim of whomever is responsible for introducing the contaminant. (Though, as we have noted previously, the US Food Drug & Cosmetic Act is a strict liability statute that at least in theory allows for the punishment of Baxter simple because it ultimately introduced a tainted a drug.)

But the issue is a double-edged sword for the biopharmaceutical industry. If indeed the contaminant turns out to be a case of economic fraud initiated by an unscrupulous business in China, that may help Baxter, but it will also fuel the misgivings of many US consumers and politicians about the globalization of trade--and especially concerns about the perceived dangers of outsourcing to China.

The Democratic Presidential campaign is increasingly sounding some protectionist themes, and the political anxiety about the rise of China as an economic rival to the US is palpable. Then there is the sensitivity of the Chinese government to its global reputation, including outrage at the protests surrounding the Olympic torch relay.

We ink-stained wretches at the IN VIVO Blog don't fancy ourselves experts on international relations, nor do we have a crystal ball to say what if any difference the heparin issue will make in the great game of global diplomacy.

But we do know this: global pharmaceutical corporations--and investors seeking opportunities in emerging markets--have to factor in the political dynamics of globalization into their planning. If protectionists on either side win out, plenty of players in the biopharma sectors will be among the losers.

Heparin Investigation Takes an Ugly Turn for Baxter, Industry

There's nothing like a picture of pig intestines being sorted in China to dramatize the fears that outsourcing is jeopardizing the safety of the US drug supply.

The picture to the right is just one in a series posted on-line today by the Wall Street Journal, showing the first step in the production process for heparin, one of the mostly widely used hospital pharmaceutical products in the US. (You can see the rest of the pictures here if you have the stomach).

You can expect those photos of the heparin production process to show up again, any time someone wants to question the impact of manufacturing outsourcing in the pharmaceutical industry. Like maybe when House Agriculture Appropriations Subcommittee chair Rosa DeLauro holds a hearing on drug safety issues (and especially the Trasylol controversy) February 27.

The photos accompany a lengthy discussion of the investigation into an apparent increase in adverse reactions associated with Baxter's heparin product, which has been recalled in the US. The Chicago Tribune also weighs in with a story including some comments from Baxter CEO Robert Parkinson.

Now, bear in mind that no one knows for sure at this point that the Chinese facility has anything to do with the heparin adverse events. Not that that will make too big of a difference in how much damage the story will do to confidence in FDA, the industry and the drug supply.

First came the embarrassing admission by FDA that it never inspected the plant in China that serves as one raw material supplier for the product in question. That prompted a key overseer of FDA--Michigan Democrat Bart Stupak--to call for the resignation of Commissioner Andrew von Eschenbach.

But Baxter may face some tough questions of its own--at least based on comments made by top agency enforcement officials during a Food & Drug Law Institute conference February 19-20. According to the Tribune, Parkinson says Baxter wasn't even aware that the plant in question was part of its supply chain, since it was a subcontractor to the firm Baxter relied on for bulk API.

David Elder, director of the agency's Office of Enforcement, pointed out that FDA believes it is the responsibility of the finished dose product manufacturer to assure the quality of its products. He was responding specifically to a question about components of medical devices, not heparin. But he pointedly expanded to his answer to include finished dose pharmaceutical manufacturers being responsible for their suppliers.

Deputy Chief Counsel for Litigation Eric Blumberg also discussed the agency's ability to hold individual corporate executives criminally responsible for allowing adulterated products on the market. The authority--known as the Park doctrine after a Supreme Court ruling upholding the principle--allows FDA to file misdemeanor cases against executives even if there is no evidence of intent or even knowledge of GMP violoations.

The principle, Blumberg reminded FDLI, is that an executive has at least the opportunity to prevent a dangerous product from entering the market, while consumers cannot protect themselves from a contaminated drug once it is in distribution.

If Congress does look more broadly at supply-chain responsibility, things could get really interesting.

Both the Journal and the Tribune quote American Pharmaceutical Products Inc. CEO Patrick Soon-Shiong, asserting the advantages of his company's approach to supply chain management. APP is the big winner (if there is one) in the heparin recall, since its product is now the only one available.

Soon-Shiong has been in the news before. APP was the subject of a front page story in the New York Times in 2002 because of its relationship with the group purchasing organization Premier; that was during a time when Congress was looking into GPO practices following allegations by small device manufacturers that they were being shut out of the market.

Before that, Soon-Shiong played a part in the controversy surrounding generic launches of Bristol-Myers Squibb's paclitaxel (Taxol). APP asserted that a patent it held on a cremaphor free formulation of paclitaxel should block generics of the Bristol product. The issue briefly delayed generic launches and prompted a Federal Trade Commission inquiry. (Bristol ultimately settled a series of antitrust claims regarding its patent defense strategies for several brands; APP was never charged.)

One last thing: APP also has first-hand experience with the challenges of global supply chain management. The company acquired its injectable generic product line from Fujisawa USA in the 1990s. Shortly after the acquisition, APP had to recall injectable gentamicin due to endotoxin contamination. The culprit? A Chinese raw material supplier.

Soon-Shiong should make an interesting witness...