A billion here, a billion there...

Pretty soon you're talking about a pharmaceutical company that could be in trouble:

The news came to Pfizer’s chief scientist, Dr. John L. LaMattina, as he was showering at 7 a.m. Saturday: the company’s most promising experimental drug, intended to treat heart disease, actually caused an increase in deaths and heart problems. Eighty-two people had died so far in a clinical trial, versus 51 people in the same trial who had not taken it

Within hours, Pfizer, the world’s largest drug maker, told more than 100 trial investigators to stop giving patients the drug, called torcetrapib. Shortly after 9 p.m. Saturday, Pfizer announced that it had pulled the plug on the medicine entirely, turning the company’s nearly $1 billion investment in it into a total loss.

Which nicely illustrates Richard Epstein's argument in this Boston Globe piece:

...critics treat the industry's multibillion dollar profits as a sure sign of its permanent robust economic status. But those numbers conceal deep vulnerabilities. It is no accident that the shares of major pharmaceutical houses have been hammered over the past three of four years, even as profits appear to be at record highs. Wall Street values companies not only on current earnings, but also on long-term prospects, which are cloudy at best for research pharmaceutical firms. Just this past week, for example, Pfizer announced plans to cut one-fifth of its United States sales force, with a promise of further restructuring in January.

We shouldn't be surprised. The huge profits of major drug firms are often tied to one or two drugs, such as Pfizer's Lipitor or Viagra -- profits that evaporate when their patents expire and generics enter the marketplace. The Standard & Poor's review of pharmaceuticals thus starts somberly, noting that products with $21 billion in US drug sales are going off patent in 2006, with another $24 billion to follow over the next three years -- a sharp dent for an industry that today generates about $250 billion in revenue. All the while, the pharmaceutical houses also must absorb the legal and business risks needed to identify, patent, test, license, and market any new drug.