After their daughter suffered seizures following the administration of a diphtheria–pertussis–tetanus vaccine, Russell and Robalee Bruesewitz went before the “Vaccine Court” that Congress established in 1986 to adjudicate such claims. The tribunal, which has decided against two out of every three plaintiffs, found that the Bruesewitzes had failed to prove that the vaccine had harmed their daughter.

Seeking compensation, the family filed a product-liability lawsuit. Their lawyer argued that Wyeth-Lederle, the vaccine’s manufacturer, had the technology to produce a less reactive, purified pertussis vaccine, but declined to do so. The case was moved to federal court at the company’s request, and a series of judges ruled that federal law prohibited the case from proceeding.

The case hinged on the 1986 law that created the Vaccine Court. It states that vaccine manufacturers cannot be held liable for damages arising from a vaccine-related injury or death “if the injury or death resulted from side effects that were unavoidable even though the vaccine was properly prepared and was accompanied by proper directions and warnings.”

The Court’s decision sets out an interpretation of this language, which Justice Ginsburg found confusing. “If a manufacturer could be held liable for failure to use a different design, the word ‘unavoidable’ would do no work,” wrote Justice Scalia in the Court’s opinion.

But Justice Sotomayor’s interpretation of the clause was exactly the opposite of Scalia’s, showing that the confusion has not been dispelled. The “text, structure, and legislative history compel the conclusion that Congress intended to leave the courthouse doors open for children who have suffered severe injuries from defectively designed vaccines,” she wrote in her dissent.

The Court’s decision means that patients can only seek redress from the Vaccine Court, and not through civil lawsuits. Since the Vaccine Court’s compensation fund comes from an excise tax on vaccines, drug companies will not have to pay any damages resulting from claims of harmful vaccines. The Supreme Court’s decision protects manufacturers from having to pay ruinous amounts in damages, but making patients pay compensation when drugmakers’ products cause harm strikes me as distinctly unfair. I think we need legislation that restores patients’ rights to seek damages, re-establishes accountability for drugmakers, and helps ensure an adequate supply of vaccines for the country.

After receiving a diphtheria–pertussis–tetanus (DPT) vaccine, Hannah Bruesewitz began having seizures and later experienced developmental problems. Blaming the vaccine, the girl’s parents turned to the “vaccine court” established by Congress. The court denied them compensation because the alleged injuries had been removed from a list of those that qualified. The Bruesewitzs subsequently filed a product-liability suit against Wyeth, which had acquired the vaccine’s manufacturer. Lower courts ruled that the Vaccine Act of 1986, which established the vaccine court, barred such claims.

Justice Ruth Bader Ginsburg finds the law’s language confusing, according to a report by UPI. It says that “No vaccine manufacturer shall be liable in a civil action for damages arising from a vaccine-related injury or death associated with the administration of a vaccine after Oct. 1, 1988, if the injury or death resulted from side effects that were unavoidable even though the vaccine was properly prepared and was accompanied by proper directions and warnings.” Congress “could have said simply that no vaccine manufacturer may be held civilly liable if the vaccine is properly prepared and accompanied by proper directions and adequate warnings,” Ginsburg said last week. Despite being asked to amend its statement, Congress did not. The Court could conceivably interpret the wording about unavoidable side effects as leaving the door open to product-liability suits.

Drugmakers might fear that such an interpretation would lead to a flood of lawsuits that could drive vaccine manufacturers out of business. The Vaccine Act was passed to prevent such an occurrence and maintain the country’s vaccine supply. In the 1980s, before the Act, many patients filed claims against makers of the DPT vaccine. Courts required some manufacturers to pay claimants large awards, and many companies ceased production. Through the Vaccine Act, Congress established the vaccine court, which pays compensation from a fund generated by an excise tax on vaccines.

If we do not maintain our supply of vaccines at an adequate level, public health naturally will suffer. Yet I am sympathetic to the idea that consumers should have recourse, and that drugmakers should bear responsibility, if a vaccine can be shown to cause avoidable and harmful side effects. Funding claims with an excise tax on vaccines protects drugmakers from potentially ruinous settlements, but the tax’s practical effect is that patients pay for damages when drugmakers are responsible.

The Supreme Court’s verdict could affect our health, as well as drugmakers’ costs. Patients and industry alike should follow this case closely.

The job cuts are part of the company’s restructuring program that began after the merger with Schering-Plough (Kenilworth, NJ). Certain manufacturing facilities and research and development (R&D) operations will be consolidated, but the company has not yet said which. In addition, positions that are considered “duplicative” will be eliminated.

Job cuts such as these, although unfortunate, are commonplace after mergers. For example, Pfizer (New York) has eliminated positions as part of its own restructuring program since it acquired Wyeth (Madison, NJ). But terminations are occurring even at companies that have not merged with or purchased any competitors.

One case in point is Eli Lilly (Indianapolis, IN), which will cut 5500 jobs worldwide. The cuts are intended to reduce costs and dodge the one-two punch of upcoming patent expirations and competition from generic drug companies. In 2009, the value of Lilly’s stock fluctuated widely and ultimately fell by 11%. The compensation of John L. Lechleiter, Lilly’s top executive, increased, however, by as much as 44%, depending on how you look at the numbers.

And, as I noted previously, AstraZeneca (London) will cut 3500 R&D jobs by 2014 to achieve “flexibility” and “effectiveness.” The company is hunkering down and cutting costs for reasons similar to those given by Merck.

Lean workforces seem to be the order of the day for Big Pharma. As a cost-reduction strategy, job cuts might be effective. Some manufacturing operations might be larger and less efficient than they could be. Yet the industrywide terminations do make me worry about the industry’s future. The cuts to R&D operations are particularly troubling, considering the industry’s recent history of lackluster pipelines.

I hope we are not witnessing Big Pharma cutting its nose off to spite its face. And I hope that laid-off employees can find rewarding work elsewhere and can continue to pursue pharmaceutical innovation.

The job cuts are part of AstraZeneca’s restructuring program, the goals of which are to cut costs and achieve an “effective and flexible R&D operating model.” In a report of the company’s 2009 annual results, Anders Ekblom, executive vice-president of development, said AstraZeneca would focus investment on “prioritized disease areas.” This might be the strategy for achieving “effectiveness.”

After the in-house R&D employees are let go, AstraZeneca will hire contractors to discover and develop drugs, presumably to attain the desired “flexibility.” Observers say that firms in China, Europe, and the United States likely will be beneficiaries of this strategy, according to in-Pharma Technologist. This could be an opportunity for scientists unfortunate enough to be dismissed from Wyeth (Madison, NJ) and Schering-Plough (Kenilworth, NJ) during the consolidations that have followed the acquisitions of these companies. AstraZeneca’s plan might provide a glimmer of hope for scientists in my home state.

But why are R&D workers being shown so little love? One theory is that AstraZeneca’s plan is partly intended to reduce the effect of generic competition. Money budgeted for in-house R&D could be used to realize AstraZeneca’s stated intention to add more branded generics to its portfolio. That’s plausible. Asthma drug Pulmicort and breast-cancer treatment Arimidex will both lose patent protection in 2010, which will be two blows to the company’s bottom line.

Still, I can’t help but be skeptical about the wisdom of the company’s plan. Cutting R&D jobs to invest in branded generics might boost AstraZeneca’s revenue stream in the short run. But the company will still need to discover and develop innovative products to remain competitive. As I recently wrote, outsourcing R&D might not be the best way to discover new products. In this competitive economy, sponsors might choose to work only with discovery teams that can prove that their drugs will be successful. Likewise, contract researchers are less likely to spend money on potentially groundbreaking research if the risk of failure is high.

Tight funding will favor conservatism in R&D, which is not likely to yield promising or exciting discoveries. Unless the economy improves, or AstraZeneca’s outsourcing plans prove disastrous, it may be a while before R&D scientists get their props.

The loss of these jobs is certainly a blow to my home state, and it also made me wonder about the future of innovation in the pharmaceutical industry. As Pfizer and Merck absorb their respective acquisitions, their R&D staffs will become leaner. But will this mean that they will be more efficient or better able to find new drug candidates? R&D isn’t necessarily a clear process with a defined endpoint like manufacturing is. I don’t think R&D efficiency could be gained by using the same strategies that improve production processes.

One might also argue that mergers are bad for pharmaceutical R&D because, besides reducing the number of active researchers, they also reduce the amount of competition between companies. The greater the number of drugmakers battling for market share, the greater the incentive for creativity and persistence in R&D.

Mergers are also heightening companies’ desire to outsource R&D. Jim Miller writes that contract research organizations (CROs) are receiving more requests for proposals and more new project awards. Outsourcing R&D could certainly bring cost benefits, but I doubt that, on average, CROs are better able to discover new molecules than in-house R&D departments.

So, in New Jersey and around the world, we’re left with smaller workforces and an uncertain future for pharmaceutical pipelines.

In a speech last week to the City Club of San Diego, John Lechleiter, chairman and chief executive officer of Eli Lilly, offered very candid remarks about the state of innovation in the pharmaceutical industry, saying that the engine of biopharmaceutical innovation is “broken.” His comments may be a bitter pill to swallow in light of escalating investment in research and development (R&D), but his frankness may just be the remedy the industry needs to reinvent itself.

“At a time when world desperately needs more new medicines—for everything from H1N1 to Alzheimer’s disease—we are taking too long, spending too much, and producing far too little,” said Lechleiter. “Repowering pharmaceutical innovation is an urgent need not only for our company and our industry but for our nation—and for communities like San Diego and Indianapolis [the headquarters of Eli Lilly] that have a huge stake in the life sciences. We remain dependent on a society that welcomes and values new ideas, and public policy that enables innovation to be rewarded for the value it creates. But we also know that we need to change.”

Lechleiter outlines three major challenges for the industry. These include: a loss of trust in product safety and in the honesty of pharmaceutical businesses, for which he said, “we mostly have ourselves to blame;” a risk-averse policy and regulatory environment that has led to hurdles for new drugs; and the pressure of the healthcare system, where the pharmaceutical industry has become an attractive source for policymakers to seek cost savings, even though prescription-drug spending accounts for only 10% of healthcare spending.

Lechleiter suggested using the three “C’s” for pharmaceutical innovation: collaboration among the large pharmaceutical companies with smaller companies, academia, and government; competency by advancing scientific tools to better understand human biology; and culture by developing a mindset that places patients and improved outcomes at the center of the research process. On a company-specific note, Lechleiter said that Eli Lilly is espousing those philosophies. He points to the company’s fully integrated pharmaceutical network (FIPnet) model as a vehicle for external collaboration; the company’s use of advanced analytics and clinical trial designs; and cultural changes to create a greater focus on the patient.

It is clear that the pharmaceutical industry is at a moment of change. In 2008, the US biopharmaceutical industry spent a record $65.2 billion on R&D, according to a report by the Pharmaceutical Research and Manufacturers of America (PhRMA). At the same time, however, the the level of innovation has not appreciably improved. The average number of new drugs approved in the US (as measured by the number of NMEs and new biologic license applications approved by the US Food and Drug Administration’s Center for Drug Evaluation and Research) between 2005 and 2008 was 21. Moreover, only 2 of 10 marketed drugs ever return revenues that match or exceed R&D costs, according to the PhRMA report.

Some pharmaceutical majors have turned to a proven formula in seeking to improve near-term and long-term results, namely building critical mass through mergers and acquisitions (M&A). Pfizer’s $68-billion acquisition of Wyeth, Merck’s $41-billion pending acquisition of Schering-Plough, and Roche’s $47-billion acquisition of Genentech are three large-scale acquisitions in 2009. What remains to be seen is whether the new R&D structures announced by these companies will be able to succeed in improving R&D productivity.

In announcing its integration with Wyeth, Pfizer said it will operate through “patient-centric” business units in its two major areas: biopharmaceuticals and diversified businesses. It formed two R&D groups in biopharmaceuticals, one focused on small molecules and related modalties (the PharmaTherapeutics Research Group) and one on larger molecules and vaccines (the BioTherapeutics Research Group). The individual units within these two research organizations are led by chief scientific officers, who will act as single points of accountability for delivering proofs-of-concept for development.

In acquiring a full stake in Genentech earlier this year, Roche said it hoped to continue its successful relationship with Genentech in drug innovation by allowing Genentech to operate as an independent research and early-development center within Roche, seeking cross-fertilization of technologies and expertise between the two companies as a vehicle for innovation.

As it waits for its acquisition of Schering-Plough to be finalized, Merck announced a new structure for Merck Research Laboratories. Merck says the structure is designed to foster innovation and create greater accountability at all stages of research and development through two core functions: (1) discovery and preclinical development and (2) clinical development and regulatory affairs. In addition, a new central franchise structure focused on portfolio management will be aligned with the company’s global human health division. Also, the new Merck Research Laboratories will include a worldwide licensing group.

The impetus behind M&A activity often leaves companies in a “Catch-22” situation, a problem not unique to the pharmaceutical industry. On one hand, greater critical mass is required to fund product development, but as organizations increase in size, size itself can stifle innovation. Let’s see if the pharmaceutical industry is up to the task in overcoming that challenge.

UnitedHealth Group, a Minneapolis-based healthcare company, recently announced that it would soon provide a price break to members who correctly use certain asthma and antidepressant drugs. The news was reported in a Wall Street Journal article by Peter Loftus of Dow Jones Newswires.  

To get the $20 copay discount, members must refill their prescriptions within about 30 days after their last prescription runs out. Eligible drugs include GlaxoSmithKline’s Advair, AstraZeneca’s Symbicort, Eli Lilly’s Cymbalta, Wyeth’s Effexor XR, and Wyeth’s Pristiq. The discount applies to members who have a normal copay of $50 on these drugs, meaning the new copay would be $30, according to Loftus’ article.

The idea of rewarding patients who adhere to their prescribed medications is a win-win situation. The patient is able to continue his drug regimen and get the treatment he needs—while saving some money. In the current economy where some patients are discontinuing their prescriptions because of cost, this financial motivation is especially important. The insurance company is able promote the patient’s health and, theoretically, save money in the long run by preventing the patient from becoming more sick and then requiring additional medical care or medication.

Asthma and antidepressant drugs make perfect sense for this type of plan because a lack of necessary medication or a gap in a medication regimen can negatively affect the patient’s health. If this plan works, UnitedHealth and other health insurance companies may consider expanding the program to those individuals on medication for diabetes and other long-term conditions that need to be controlled in order to reduce the risk of complications. 

A prime benefit of the acquisition is that it gives sanofi a portfolio of new vaccines in development, said Christopher A. Viehbacher, the company’s CEO, in a press release. This emphasis on biological medicines was a major reason behind Roche’s (Basel) purchase of Genentech (South San Francisco, CA), Merck’s (Whitehouse Station, NJ) acquisition of Schering-Plough (Kenilworth, NJ), and Pfizer’s (New York) purchase of Wyeth (Madison, NJ). The sanofi–Shantha deal also provides more evidence that Asia and emerging markets are where it’s at.

Several factors should make the transition a smooth one. For starters, sanofi aventis is no stranger to large-molecule production. In 2008 alone, the company’s vaccines division, Sanofi Pasteur, produced more than 1.6 billion doses of vaccines to protect against 20 diseases.

What’s more, sanofi is buying a majority stake in Shantha from a subsidiary of Mérieux Alliance (Lyon), which has its origin in Institut Mérieux (Lyon) just as Sanofi Pasteur does. Alain Mérieux, chairman of the Mérieux Alliance, will chair a strategic committee to oversee the acquisition. Mérieux’s stewardship will surely bridge any cultural gaps there might be between sanofi and Shantha, but the companies’ common heritage makes me doubt that a clash would arise.

The New York Times suggested that Roche’s acquisition of Genentech would be relatively easy because of the two companies’ long history together. I’d expect smooth sailing for sanofi and Shantha, too. Let’s see whether the deal brings sanofi even closer to the top of the pharmaceutical-industry pyramid than it already is.

Wyeth’s chairman, Bernard Poussot, stated in a release the deal will bring added resources to the company’s biopharmaceutical division as well as to its human, consumer, and animal healthcare divisions. But some industry observers have speculated that Pfizer may sell off Wyeth’s consumer healthcare units. Last week, the European Commission approved the $68 billion deal but required the companies to divest its animal healthcare businesses.

The dwindling number of new chemical entities and the shrinking number of small-molecule blockbusters have made expansion into biologics a necessary strategy. Still uncertain, however, is the effect these shifts will have in employment. Observers have speculated whether the Pfizer-Wyeth deal will include a repeat of the job cuts Pfizer imposed after its mergers with Warner-Lambert in 2000 and Pharmacia in 2003. Pfizer claims the Wyeth deal will be different. The focus, it says, is on building a strong biopharmaceutical unit, not cutting costs. Job cuts will be relatively minimal at 15% (or 20,000 jobs), and the number of sites will most likely be reduced from 46 to 41.

Perhaps the greatest uncertainty is whether the Wyeth deal will echo results from the Warner Lambert agreement, under which Lipitor became the world’s best-selling drug, or will it flake like the Pharmacia deal, under which Celebrex nose-dived Pfizer’s stock?

Yesterday, the US Justice Department accused Wyeth (set to be purchased by Pfizer in a $60 billion deal by the end of this year) of charging Medicaid more than it had charged several hospitals for two versions of Protonix, a stomach acid drug. The government says that between 2000 and 2006, the company bundled the i.v. version of the drug with the oral version and offered these at a discounted price for hospitals but then hid information about the discounts from Medicaid. Sixteen states joined the Justice Department in filing the lawsuit in a Massachusetts federal district court. The government seeks penalties of as much as three times the amount lost by Medicaid (the total amount has not been released).

Meanwhile Pfizer continues to deal with a separate Medicaid-related lawsuit. In February 2009, a Dane County, Wisconsin, jury found Pfizer’s Pharmacia unit guilty of defrauding the state Medicaid program and violating consumer protection laws. The state accused Pharmacia of publishing false average wholesale prices. The company was ordered to pay $9 million. In addition, the jury found that Pharmacia violated the Medicaid Fraud law 1.44 million times. Last week, Wisconsin’s Attorney General J.B. Van Hollen requested forfeitures related to these violations to the amount of nearly $212 million.

For many years, the industry has struggled to defend the prices of its products by pointing to the high cost of research and development. Good-neighbor programs such as “Maintain” may help build consumer faith in the industry. However, until Big Pharma comes clean with Medicaid patients, the road to consumer confidence will be a rough one.