Pharma: 99% or 1%? Which way will it go?

A few days ago Andrew Witty, GlaxoSmithKline's CEO, gave vent to the industry's consternation over the fact that European countries, in their efforts to control drug costs, have resorted to more "reference pricing."  Plainly stated, that means the Europeans are basing the allowable prices within their own countries on what low-priced neighbors such as Greece and Rumania will allow.  Along with that, arbitrage drug trading within the continent has also increased, meaning traders will buy drugs for super-low prices in Greece and sell them for a markup in France at prices that are still below what the French would otherwise pay.

Witty is currently serving as president of a trade lobby, the European Federation of Pharmaceutical Industries and Associations. His remarks are best viewed within the context of expressing the industry's resentment at being considered a mature sector that governments will no longer coddle. To the contrary, European nations during this recession are controlling drug prices more aggressively because they expect pharma to shoulder a burden commensurate to the margins it has enjoyed over the past 30 years.

The remarks by Witty provide a companion piece to Joe DiStefano's article that summarized the results of a survey taken by fund manager John Coyne and his team at Brinker Capital Inc.  Coyne polled his high net worth clients and found that for a majority of them, their top "concern is that a Democratic administration is going to try to bail out the deficit on the backs" of the wealthy. Worries about a stagnant economy, home foreclosures, lagging job gains and a European financial crisis creating a U.S. recession all stand well behind the one-percenters' tax fears. The prospect that they may have to pay tax rates comparable to what their rich counterparts did from the 1950s through the 1990s has led them to create a fictional bogeyman out of a moderate-conservative president.

The survey results, together with Witty's comments and the rantings of Tea Partiers and their clones all reflect the resentment of established, corporate and individual (largely white) segments that feel themselves threatened, either economically or culturally. They abhor that the U.S. is rapidly becoming a country of predominantly ethnic minorities and they refuse to acknowledge that Obama is conservative in the manner of every president since FDR — he wants to use the government to preserve existing institutions. The mythmakers focus instead on his multi-racial, multi-cultural cosmopolitanism as a rebuke to their sense of specialness and entitlement.

These disparate groups constitute what sociologists call the "status anxiety" of social classes fearing downward mobility, one of the great, driving forces of history. Going back to at least Roman times, some classes in the midst of status anxiety go radically right, others go left. Those that ruled in a military culture went right (the writings of Cato the elder appear unaltered from those of contemporary, neoconservative warmongers) while elites based on the "learned professions" often went left (e.g., Progressive U.S. clergymen during the late 19th and early 20th centuries).

In determining which way industry sectors go during economic upheavals, those on the upswing (technology, for example) generally align themselves with progressive social movements while sunset industries usually side with the right by trying to protect wealth and privilege to the detriment of society as a whole.

If pharma remains true to its heritage as a research-driven industry, focused on growth as a result of scientific innovations that improve health care, it will abandon its retrograde positions on public policy, along with the panegyrics favoring elitism and plutocracy. On the other hand, if finance and law breaking continue to drive pharma, then the efforts to protect wealth will continue unabated.

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