Learning about the media by looking at Pharma

by Daniel R. Hoffman, Ph.D.

Published May 12, 2014, 12:08 p.m. ET

Since Thomas Hines, Carlin Romano, Phil Sheridan, Pete Dexter, David Cay Johnston, Tim Weiner and a handful of others from the Gene Roberts era left town, the best Philly writer in daily journalism is the Inquirer's Frank Fitzpatrick.

Fitzpatrick is the historian of the sports page, the man who brings context to the section of the paper that otherwise has none because it appeals to a child's sensibility. Each of his articles will add to a reader's appreciation of either some event, an issue, an individual, a sport, Philadelphia or ourselves and our childhoods.

Possibly the finest of Fitzpatrick's many insightful columns appeared on Sunday. In it he made the compelling case that baseball, its players and its owners, have enjoyed unparalleled prosperity since the game was unionized in the mid-to-late '60s. The average annual salary for a Major League ballplayer is now $3.4 million, up from $14,000 in the mid-'60s, while the market value of each team has grown to $500 million at the low end and $2.5 billion at the top. As this trend of baseball prosperity was proceeding, the unionized percentage of the total American workforce has declined to less than one-third of what it was in the 1950s. Not coincidentally, inflation-adjusted income for workers during this period remained stagnant or declined in constant dollar terms.

Fitzpatrick's message carries an important lesson for assessing current activities in the pharmaceutical industry because, in the words of a Wall Street Journal story headline, "In Drug Mergers, There's One Sure Bet: The Layoffs," (see here).

Beginning late last year and continuing now with greater public scrutiny, New York-based Pfizer has been trying to acquire the British-based AstraZeneca, which has one of its two main U.S. sites in Wilmington. Industry observers in the U.S., while pointing out many inconsistencies and shortcomings in Pfizer's underlying strategy, generally accept the inevitability that the deal will put a lot of people out of work.

Not so in Britain, even though the ruling Conservative Party there seeks to encourage foreign investment by offering tax advantages to corporations. The legacy of worker rights still flickers in the UK.

Pfizer's principal motive for trying to buy AstraZeneca consists of "redomiciling" the company in Britain where the American pharma can pay a lower tax rate, even though operations, management and the board will remain in New York. But Brits are far less inclined than their American cousins to lie down in the face of corporate decision making that will worsen their lives. With growing fervor, the Labor Party, the unions and several scientific societies have all raised serious objections to the takeover because they know Pfizer will lay off workers, close facilities and end research programs.

Sir David Barnes, the former chairman of AstraZeneca's predecessor company, Zeneca, even likened Pfizer to a "praying mantis," when he told the BBC that it will "suck the lifeblood" out of the British pharma (see here). The country's Business Secretary, Vince Cable, told parliament that the likely job losses there and the shutdown of scientific work pose a national security threat.

Pfizer responded with some noncommital assurances involving the "Golden Triangle" of research sites in the UK and maintaining a percentage of its global R&D personnel there, but the Brits promptly saw through the weasel wording and they would have none of it. In The Independent last Thursday, Jim Armitage wrote (see here) that while Pfizer claims the deal will:

" 'speed development of treatments,' [that is highly] unlikely: scientists fear the merger will disrupt funding of potentially successful projects and disband close-knit research teams.

"It talks of how the deal will 'deepen research efforts.' " AstraZeneca employees read that as 'merge R&D teams.' No thanks.

"It says it will strengthen areas like oncology. Translation: 'give Pfizer shareholders a chunk of the benefits of AstraZeneca's cancer breakthroughs.' "

Consternation among the British public, high and low, about a business transaction that will throw thousands of people out of work has led several committees in the House of Commons to convene hearings on the matter beginning this week. That clearly contrasts to responses in the U.S. where members of Congress feel their appropriate role is that of handmaiden to the CEOs who fund their campaigns.

To further appreciate how corporate brainwashing has shriveled American thinking, consider another series of pharma deals that also came to light in the last two or three weeks.

GlaxoSmithKline (GSK) and Novartis did a series of buy and sell trades where Novartis sold its vaccine business to GSK, which in turn sold its oncology business to Novartis. At the same time the two companies decided to combine and jointly manage their consumer businesses.

Now the point to keep in mind is that a central feature of most buyouts and mergers consists of shaving down costs by eliminating duplication, that is, reducing headcount. That always makes it questionable whether the acquiring company will add new people. In this case, a healthy chunk of GSK's oncology business that will go to Novartis is located in its Collegeville facility. That part of the deal represents a likely job loss for this area.

While GSK will augment its existing vaccine business, the company does its principal work on that product category in Rixensart, Belgium and a bit in Marietta, west of Lancaster. So in the unlikely event that vaccines would bring more people to GSK, they won't be coming to the Philly metro area.

In the same way, it seems doubtful that the joint venture between GSK and Novartis in OTC consumer products will employ more people than the two companies do now. Glaxo runs its consumer business from sites in Pittsburgh and Parsippany, New Jersey while Novartis Consumer is also based in Parsippany.

Yet at a press conference held by GSK's top executive to announce the deal, CEO Andrew Witty fed reporters this incredible line: "On day one, there is a significant net influx of people to GSK, and therefore in most of our geographies - and the Delaware Valley, I suspect, will be no exception - there might be net benefit."

This was reported by the Inquirer without so much as a hint of skepticism or the context about what mergers generally mean for employment numbers. The story was headlined "Glaxo Boss Says Region Could See More Staffing."

So it often appears that media coverage of pharma sometimes lacks both historical context and an effort to explain glaring contradictions. That probably just means that both the sports and the business sections each have their own jock sniffers as well as their sharp-minded historians.

If the sports page can feature a wise fellow such as Frank Fitzpatrick, then why can't the pharma industry, given its importance to this area and rest of the country, do the same?