Archive for November 28, 2011

Posted by FOX Business

The cost of doing business for big pharma is rising – dramatically. And it’s not because of research and development of new blockbusters to cure cancer, alleviate pain or help people get a good night’s sleep.

Merck (NYSE: MRK) on Tuesday said it will pay $950 million to settle criminal and civil allegations brought by the U.S. Department of Justice related to Merck’s marketing of Vioxx, a widely-used painkiller that was pulled from the shelves in 2004 after a study revealed the drug increased the risk of heart attacks.

To make a very long story short, prosecutors believed Merck knew the drug posed a threat but lied about the potential risks in its marketing and sold it anyway. Why not? The drug raked in $2.5 billion in revenue in 2003.

The astounding thing about the Merck settlement is that it’s not even the largest of its kind this month.

Three weeks ago, British drug maker GlaxoSmithKline (GSK: 42.35, +0.85, +2.05%), which, like Merck, has extensive operations in the U.S., reached a $3 billion settlement related to sprawling allegations tied to that company’s marketing of its diabetes drug Avandia.

The GlaxoSmithKline deal broke a record, topping a $2.3 billion settlement reached by Pfizer in September of 2009. And Pfizer’s deal came hard on the heels of a $1.4 billion settlement reached by Eli Lilly in January of 2009.

So, for those keeping score, Merck’s payout ranks fourth on the all-time list of massive settlements stemming from allegations of fraudulent marketing tactics by giant pharmaceutical companies.

Wall Street takes these settlements in stride, shrugging them off as “the cost of doing business.” To wit, a note to investors from Barclays Capital analyst Brian Bourdot earlier this month in the wake of the record-breaking Glaxo deal: “We regard such disputes as an innate risk for large multinational pharmaceutical companies,” the analyst wrote in a note published in the New York Times.

Indeed, Glaxo’s shares have barely moved since the Nov. 3 announcement of the huge settlement, and its shares are up more than 3% from a year ago. Merck’s shares we down 50 cents, or 1.48%, Wednesday. But that had little (if anything) to do with Tuesday’s announcement and everything to do with another broad market selloff tied to Europe’s debt crisis.

The fines levied against big pharma have gotten markedly bigger in recent years, perhaps growing in direct proportion to the industry’s desperate need to generate additional revenues. Profit growth has stalled over the past five years as, one after another, the companies have lost huge revenues as patents have expired on blockbuster drugs and competition from cheaper generic products has eaten away market share.

That loss of revenue has created intense pressure on companies like Merck, Pfizer and GlaxoSmithKline to either come up with new blockbusters or wring every last nickel out of the blockbusters they still market.

In the next year or so 10 of the top selling blockbuster (sales of $1 billion or more) prescription drugs will see their patents expire, which will allow competition from generic products. This is good news for consumers but not so much for the drug companies that make the blockbusters.

Pfizer’s cholesterol fighter Lipitor is probably the most well-known and widely-used of these blockbusters. Lipitor earned Pfizer $11 billion in 2010 ($5.3 billion in the U.S. alone), but a generic version is now available. Merck’s Singulair, used by asthma sufferers, took in $5 billion in 2010. A generic version is due next summer.

To put big pharma’s recent settlement figures into perspective, consider the following: in July 2010 Goldman Sachs (GS: 91.59, +2.84, +3.20%) reached a record-breaking settlement with the Securities and Exchange Commission related to charges of fraud. Goldman allegedly profited from securities it created and sold to its own clients, products Goldman knew from the outset were lousy investments.

Goldman’s fine, touted by the SEC at the time as the “largest-ever penalty paid by a Wall Street firm,” was a mere $550 million, a sum that wouldn’t even crack the top 10 for drug company settlements.

Cynics suggest the reason Wall Street fines pale in comparison to those shelled out by big pharma is that Wall Street wields far more power in Washington, D.C. Political contribution figures compiled by the non-partisan Center for Responsive Politics bear this out: in the 2010 election cycle financial sector interests contributed $317 million to federal candidates and committees, according to the CRP. Big pharma, meanwhile, contributed $31.6 million.

Do the math.

Posted by the ACLU

Yesterday, the ACLU and over 30 other organizations sent a letter to the Senate asking them to oppose an effort in Congress that threatens to revive the use of torture and other inhumane interrogation techniques. If passed, an amendment introduced by Sen. Kelly Ayotte (R-N.H.) to the Defense Authorization bill would roll back torture prevention measures that Congress overwhelmingly approved in the 2005 McCain Anti-Torture Amendment, as well as a 2009 Executive Order on ensuring lawful interrogations. It would also require the administration to create a secret list of approved interrogation techniques in a classified annex to the existing interrogation field manual.

In a related development, republican presidential candidate Michele Bachmann renewed her attack on the prohibition of waterboarding and other forms of torture in her claim that the ACLU runs interrogations. But in fact, the director of the CIA, General David Petraeus and the Secretary of Defense (and former CIA Director) Leon Panetta have both said that the 2009 Executive Order applying the Army Field Manual government-wide and the 2005 McCain Anti-Torture Amendment work and are consistent with good national security.

Such a move to undermine these protections in the Senate would fly in the face of American values and U.S. legal obligations, and would obstruct U.S. military missions and endanger troops deployed abroad. The ACLU is far from alone in opposing the use of torture. Senior military officers and interrogation experts agree that U.S. interrogators need not and should not resort to so-called enhanced methods of interrogation because they are unnecessary and counterproductive. Even the Bush Defense Department opposed the inclusion of a secret annex to the military’s interrogation manual because such secrecy would inhibit training and obstruct collaboration with our allies in the field.

Our letter argues that we “cannot afford to return to practices that degraded our country in the eyes of the general public,” and asks the Senate to oppose the Ayotte Amendment. You can join our call by asking your Senators to oppose Amendment 1068.

The Senate will return to the Defense Authorization bill next week (we’re also fighting indefinite detention provisions tucked inside the bill — you can read more details here).

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