Some of these companies are now doing in the tens of billions of dollars per year in sales. The drug industry is the most profitable industry in the world today bar none. The returns on invested capital, and profit margins are extraordinary

President Bush, and the then Republican Congress created the prescription drug program for seniors in an attempt to reverse the tide for these companies. The drug manufacturers have been a major contributor to the Republican Party for more than a decade. Both Merck, and Pfizer have begun downsizing their sales forces in response to the slow down.

The problem for these companies is that they have gotten so big in terms of their sales bases, that they are having great difficulty generating new drugs on a scale that can compensate for the slowdown of their current portfolio of drugs. In addition many of these fabulous drugs currently being sold are going off patent protection, and that means a collapse in sales revenues. Once the generics take over, than it’s over for the original creator of the drug.

What has Merck done NOW?

Merck has created a new cervical-cancer vaccine. The American Cancer Society tells us that a little more than 11000 women this year will be told by their doctors that they have this terrible disease. What’s worse is that more than 3500 of those women will eventually succumb to it.

Let’s put this in perspective. About 180,000 women this year will be told they have breast cancer. About 40,000 of these previously diagnosed women will eventually die from breast cancer, and its complications. Between 8 times and 10 times the number of women who die from breast cancer, will die from heart disease this year. As you know breast cancer gets all the publicity compared to the other two diseases.

This new anti cervical-cancer vaccine is a wonderful creation,and everyone at Merck who participated in its creation should feel great pride in their work. What about the executives, and marketing people at Merck. Well, that’s a different story. Merck has decided to attempt to force the use of this vaccine onto every female pre-teenager, and teenager in America. They are pulling out all the stops in an attempt to influence every legislator they can find to mandate this vaccination be given to children regardless of their parent’s wishes.

Merck got TEXAS on board first

Could you believe it? Merck got Texas Governor Rick Perry to sign an executive order. Such an order negates the need for the Texas legislature to get involved. This order will require every young girl in Texas to receive the Merck vaccination Gardasil at $360 for three shots of the vaccine, and yes all three are needed. You are probably aware that there is a measles-mumps vaccine that has been on the market for years. The measles shot costs only $43 per dose by comparison.

The way the deal works in Texas is that unless you can demonstrate proof that you have taken the shots, you are not going to be allowed to go to school. At the moment it looks like your health insurance is going to pick up the cost, but of course there are millions upon millions of uninsured young people in this country. Who is going to pay for them? Apparently a former Chief of Staff to Governor Perry is a lobbyist for Merck, which is the same thing as saying she works for Merck, isn’t it. It’s amazing what a couple of dollars paid to a lobbyist can achieve.

Merck hiring lobbyists EVERYWHERE

When Merck’s back is to the wall, Merck knows how to respond. Merck is feeling the heat from a number of drugs going off patent, and is therefore pulling out all the stops to systematically have each state mandate the use of this vaccine. The states that are currently considering forcing pre-teenage girls to take this vaccine are:

California Maine
Colorado Michigan
Connecticut Minnesota
District of Columbia Mississippi
Florida New Jersey
Hawaii New Mexico
Illinois Oklahoma
Indiana South Carolina
Kansas Texas (DONE)
Kentucky Virginia

The question now becomes how many lobbyists will Merck hire, and how many legislators will receive political contributions in order to create state mandated programs that will result in billions of dollars of this vaccine being sold. There is also the issue of the safety of the vaccine.

When the clinical trials were done, the participants were mostly older women. Only a small minority of the participants were teenagers, yet teenagers are the target market. Without a much broader test of the teenage market, it may be too early to tell if there is a problem. The vaccine is being rolled out in massive quantities in the interim.

Merck and the hit major drug manufacturers are in a state of decline. Their in-house research laboratories can no longer create the drug stream that is necessary to sustain them at their current levels. They are also cutting drug reps by the thousands. These are the good looking men and women with master’s degrees that know more about these drugs than the doctors who prescribe them. They visit doctors incessantly, buying them lunches, giving away pads, pens, and gifts in an attempt to convince the good doctor why he should be prescribing certain drugs.

The growth ahead seems to be in the young and middle stage biotech companies that do their research differently than Big Pharma. The biotech research facilities are routinely located in direct vicinity of major college campuses which are receiving billions of dollars of funding from the taxpayer through the National Institute of Health.

If Big Pharma is to effectively compete against the upstart biotech firms, than companies like Merck, Pfizer, and the others will have to continue to cut costs, and exert their political power in an attempt to align their goals with the goals of the federal government. After all, the largest user of drugs in the United States is Medicare / Medicaid recipients, and then the Veterans Administration. It looks like the next year or two is going to be mighty interesting for the old line drug manufacturers. Stay tune for more.

Goodbye and Good Luck

Richard Stoyeck’s background includes being a limited partner at Bear Stearns, Senior VP at Lehman Brothers, Kuhn Loeb, Arthur Andersen, and KPMG. Educated at Pace University, NYU, and Harvard University, today he runs Rockefeller Capital Partners and StocksAtBottom.com

http://www.stocksatbottom.com