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Drug industry could use a face lift
Cast as villain in new movie, drug industry's reputation is hurting but sales are strong.
August 19, 2005: 6:46 PM EDT
By Aaron Smith, CNN/Money staff reporter

NEW YORK (CNN/Money) - "Big pharmaceuticals, they're right up there with the arm dealers."

This line is from "The Constant Gardener," a movie opening on Aug. 26 that won't be doing any favors for the drug industry's public image. Based on John le Carre's 2001 novel, the thriller depicts a fictional drugmaker that uses the Kenyan population as guinea pigs for a fatally-flawed drug.

Drug companies, once seen as heroes toiling to cure the ills of mankind, have become villain fodder for Hollywood as public perception continues to decline. But sales and equity values for most of the companies have thrived.

"There's a rarely a day that goes by where there's not a negative story about a drug company," said Anthony Butler, analyst for Lehman Brothers. "The only thing that's been delivered to the public is negative information, and it leaves the public with a sorry taste in its mouth."

Public sentiment of the drug companies has taken a dive over the past year, particularly following Merck's (down $2.35 to $28.06, Research) withdrawal of the arthritis painkiller Vioxx in September, 2004 after a study showed increased health risks. Thousands of lawsuits have been filed against Merck, some of them alleging that the company deliberately concealed information about the health risks of its drug.

The industry suffered another blow in October, when the Food and Drug Administration required that all antidepressants carry warning labels.

"Their reputation has taken a huge plunge," said Fran Hawthorne, author of "Inside the FDA." "The teenagers using antidepressants and all those stories about kids committing suicide, and then the Vioxx withdrawal. This is what led to people getting upset about the ads."

But has the bad image hurt the drug companies? Not yet.

Despite the decline in public perception, most of the major drug companies have thrived in terms of revenue and stock value. Merck sales dropped 7 percent in the first half of 2005, hurt by the absence of Vioxx, a $2.5 billion drug.

Pfizer (down $0.33 to $25.55, Research) and Eli Lilly & Co (up $0.05 to $52.57, Research). saw increases of 3 percent and Bristol-Myers Squibb's (down $0.20 to $24.68, Research) sales were practically unchanged year-to-year.

Sales in other big drug makers, including GlaxoSmithKline (down $0.08 to $48.21, Research), Schering-Plough (down $0.19 to $20.89, Research), Abbott Laboratories (down $0.19 to $45.83, Research), Novartis (up $0.02 to $49.06, Research), Wyeth (down $0.21 to $45.89, Research), and Johnson & Johnson (down $0.35 to $63.57, Research) all jumped significantly.

Stock prices, a strong measure of investor sentiment, have increased for most of the drug makers over the last year. Merck has not recovered after losing one-third of its stock value immediately following the Vioxx withdrawal, and Lilly and Pfizer are also down significantly. But the other drug makers have seen their stock value rise.

Consumers will continue to buy the drugs they need despite the industry's bad rap, analysts say, and investors tend to make their decisions based on financial data, rather than public perception. But the specter of costly regulatory pressures, such as requiring bigger clinical tests with more patients, has pressured Big Pharma to try and clean up its image.

Politicians and the FDA are responding to public dissent over direct-to-consumer (DTC) ads. Senate Majority Leader Bill Frist called on all drug companies to self-impose a two-year moratorium on advertising for newly approved drugs. The FDA said it is considering a public forum on DTC ads that could lead to further rule-tightening.

"Public perception caused the FDA and Congress to want more regulations," said Hawthorne. "It's under tremendous pressure for letting the advertising get out of hand."

So how does Big Pharma clean up its image?

Butler believes that Big Pharma needs an inspirational spokesman who can inspire people to fight a common threat, like cancer.

"I believe that you need a spokesfigure and he needs to be someone with whom everyone can identify," said Butler, who suggested cancer survivor and seven-time Tour de France winner Lance Armstrong as a spokesman for the industry. Armstrong already serves as a high-profile fundraiser for cancer research.

But Dr. John Abramson, clinical instructor at Harvard University, former family doctor and author of "Overdosed America: The Broken Promise of American Medicine," believes the image problem comes from an industry that chases after "short-term profits" that lead to "long-term liability."

"I think the negative perception is the cost of doing business the way they're doing business," said Abramson, referring to the drug companies. "They're marketing hype. They're selling the belief that their drug is superior, but they're not marketing superior drugs. If they want to improve the public's perception of their work, then they better improve their work."

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