Category: Big Business

Posted on

Drug Deal

I know this story about the generic release of Plavix requires some knowledge of how the pharmaceutical industry works, but it’s a really funny tale of corporate manuevering. The CEO of the generic company (Apotex) gives an interview with the Times in which he goofs on Bristol-Myers Squibb and Sanofi-Aventis as a couple of pikers:

Mr. Sherman, in a telephone interview, all but ridiculed his two big rivals, saying they had naïvely agreed to conditions that allowed his company to bring [generic Plavix] to market even though the deal was rejected by regulators.

“I think they acted foolishly in a number of ways,” said Mr. Sherman, a Toronto billionaire who amassed his fortune in the generic drug business.

Mr. Sherman said that he had never expected the American government to approve the deal, but that he had conducted the negotiations in a way to let him push the Apotex drug onto the market.

The twist is that BMS & SA were trying to use a loophole agreement with Apotex to keep generic Plavix off the market till 2011. Instead, the deal got shot down, but its side-provisions give Apotex 5 business days to push its drug into the distribution chain before they can lodge a complaint. So Sherman’s company is trying to get as much as $1 billion in product out before any injunction can stop it.

I know it’s another business article, but you oughtta give it a read, just for Sherman’s incredulous take on the agreement.

Posted on

Malibu’s Most Wanted

We all say dumb things when we’re hammer drunk, and I think they generally fall into one of three groups:

Maudlin sentimentalities: “I love you guys,” “I could’ve gone pro if I didn’t blow out my shoulder,” or “My life is f***ed.”

Pronunciamentos: “David Duke is right! Who’s standing up for the rights of white men?” “This country will never be safe until we deport all the Eskimos,” or “The Jews are responsible for all the wars in the world.”

Things we say to get into someone’s pants: “Your poetry’s really good,” “I like Radiohead, too,” or “What do you think you’re looking at, sugar tits?”

Which brings us to the case of Mel Gibson’s DUI bust. It was funny enough to see that he’d been busted, but the humor level went through the roof when the report came out about his anti-semitic tirade toward the arresting deputy.

Dan Drezner has a neat chain-of-events that will spin out of the weekend, Chris Hitchens offers a great subhed for his Gibson column (“He is sick to his empty core with Jew-hatred”), the Times has the meta-story about the speed of scandal, and Gregg Easterbrook has a football column up at ESPN.com.

Why mention that last one? Because Disney-owned ESPN fired Easterbrook a few years ago for what were perceived as anti-semitic remarks directed at movie studio owners. I wrote about the situation here and here. For a while, Easterbrook’s Tuesday Morning Quarterback column was carried at NFL.com. It returned to ESPN this season without a comment. At the moment, it’s the lead item on ESPN.com, with the headline “Easter Tuesday.”

Maybe ESPN was just waiting for Disney CEO Michael Eisner to leave before bringing Easterbrook back. Or perhaps Willow Bay was a big fan of the column. The cold medication’s kicking in too strongly for me to make any real point here, but Easterbrook’s been “forgiven” by ESPN (which shouldn’t have fired him to begin with), even if they couldn’t get around to explaining how their interpretation of his comments has changed. Gibson, on the other hand, with his tortured apology, seems to be intent on proving the South Park guys right.

(In the process of “researching” this post, I came across a batshit-crazy anti-semitic website devoted to explaining Jewish ownership of American media. Enjoy.)

Posted on

Present success is no indication of future failure

In the New Yorker, James Surowiecki tells us to take a chill pill over Airbus’ current struggles.

In 2003, Business Week declared that Boeing was “choking on Airbus’ fumes,” and warned that Boeing’s “slip to No. 2 could become permanent.”

The problem with such prognostications is that they infer basic truths about a company’s prospects from its short-term performance. In fact, present success is often determined as much by context and chance as by fundamental viability. This is particularly true of the aerospace industry, because success is heavily dependent on a small number of big gambles. If you bet right, you look like a genius for a few years, even if the success of your bet was due to factors out of your control.

In the first few seasons after Jason Kidd joined the Nets, he would have two- or three-week stretches of lights-out shooting, leading commentators and sportswriters to announce that Kidd had “turned the corner” and become a good shooter.

Unfortunately, Jason Kidd is a career 40% shooter. All the good runs have been balanced out by below-average runs, leaving him exactly where he’s been since the start of his career: hitting 40% of his shots.

It doesn’t mean he’s not one of the best point guards of the last 30 years; he is. He’s just not a good shooter, and statistical blips are just that.

Posted on

And they said I’d never amount to anything

I’m interviewing a pair of companies this morning for an article in my September issue. Their combined 2005 revenues were $126 billion.

One’s a major drug company, the other a major healthcare distributor. Margins are a funny thing: the drug company had around $52 billion in sales, with a cost-of-goods of $8.5 billion, while the distributor had $74 billion in sales, with a cost-of-goods of $70 billion. On the other hand, the drug company’s selling, general, and administrative costs were $17 billion while the distributor’s SGA costs were $2.8 billion.

Reminds me of those differences in R&D costs from a few posts back.

Posted on

Alta Vista

Microsoft is trying to get PC designers to get some of that Apple feeling, by incorporating such exTREME! trends as the use of black! and white!

The PC world used to be divided into two camps: those who made lucrative software and the poor schlubs who built the low-margin hardware it ran on.

Apple has turned that model on its head. From the beginning it has managed to create a unified design for its products by building everything itself, first with the Mac and then later with the iPod. Although Apple sells one computer for every 20 PCs, the iPod’s success has proved how crucial it is to create a seamless experience for consumers, who are buying much of the gear these days. Says a top PC design executive: “You’re going to see more and more of this desire to integrate hardware and software.”

Even if it means borrowing from Apple. Microsoft denies doing that, saying it’s simply responding to demand for good design. Yet its approach has more than an echo of the Apple ethos.

“We’re decomposing the look and feel of Vista and bringing it into a language that hardware designers understand,” says Steve Kaneko, design director of Windows hardware innovation. And here’s another Apple-esque detail: The Zune player will work only with Microsoft’s planned music service, sources say. In other words, it will be part of a closed system, like iPod and the iTunes Music Store.

Decomposing? Anyway, given that a huge chunk of the Wintel PC market is based on churning out units as cheaply as possible for a customer base that wants to pay $499 for a computer, it’s unlikely that this initiative is going to yield anything half as elegant as the flatscreen iMac or the Mac Mini. But I give ’em credit for trying, even if it does put me in mind of that great “what if?” video about Microsoft designing the packaging for the iPod.

Posted on

Hey, Raj, What’s Happ’nin’?

It’s long-ass essay day here at VM! Here’s a piece from the new ish of Foreign Affairs about the economic dynamo in India. I think India’s in a far better position to succeed than China in the long-term. If you read Mr. Das’ article, you’ll see that there are some major reforms India still needs to implement (in order to get itself out of the way), but I think the Indian version of entrepreneurialism trumps the totalitarianism that still lurks over the Chinese model.

I used to think that the main advantage of India was the bureaucracy installed by the British, but Das’ interpretation is that the bureaucracy is a major problem for the country. It’s possible that we’re both right, insofar as the bureaucracy and its focus on education were necessary for India’s development, but have now grown out of control:

Today, Indians believe that their bureaucracy has become a prime obstacle to development, blocking instead of shepherding economic reforms. They think of bureaucrats as self-serving, obstructive, and corrupt, protected by labor laws and lifetime contracts that render them completely unaccountable. To be sure, there are examples of good performance — the building of the Delhi Metro or the expansion of the national highway system — but these only underscore how often most of the bureaucracy fails. To make matters worse, the term of any one civil servant in a particular job is getting shorter, thanks to an increase in capricious transfers. Prime Minister Singh has instituted a new appraisal system for the top bureaucracy, but it has not done much.

The Indian bureaucracy is a haven of mental power. It still attracts many of the brightest students in the country, who are admitted on the basis of a difficult exam. But despite their very high IQs, most bureaucrats fail as managers. One of the reasons is the bureaucracy’s perverse incentive system; another is poor training in implementation. Indians tend to blame ideology or democracy for their failures, but the real problem is that they value ideas over accomplishment. Great strides are being made on the Delhi Metro not because the project was brilliantly conceived but because its leader sets clear, measurable goals, monitors day-to-day progress, and persistently removes obstacles. Most Indian politicians and civil servants, in contrast, fail to plan their projects well, monitor them, or follow through on them: their performance failures mostly have to do with poor execution.

Anyway, Das makes some neat points about India’s development, most notably the fact that it jumped from essentially an agrarian society to a service-based one, without spending much time as a manufacturing/industrial power.

Just another example of stuff I find fascinating, but probably bore the crap out of you.

So here’s Tom Spurgeon’s writeup about the just-concluded San Diego Comic-Con. Enjoy.

Posted on

Today’s post is brought to you by the letters R and D

BusinessWeek has an essay about the lack of innovation at the major telephone companies (yet another installment in the “I care about this stuff; no reason for you to” series). Mind-blowing quote:

One way in which these companies are very different from the old phone monopoly is that while the original AT&T had a world-class research operation, its successors don’t. One of the signal facts of the communications revolution is that virtually all the new technologies that made it possible were developed outside the phone world. Last year, Verizon’s revenue came in at nearly $80 billion. AT&T (without BellSouth or Cingular) had revenue of $44 billion. And yet while Intel Corp. spent $5.1 billion last year on research and development, AT&T spent just $130 million. The word “research” doesn’t even appear in Verizon’s annual report.

Now, in the pharma industry, there’s a lot of talk about “rethinking R&D,” as major companies learned that simply pumping more dollars into the process doesn’t necessarily yield results. When I compiled this year’s Top Pharma Companies report, I noticed that plenty of big guns have reduced their R&D budgets — not drastically, but it was certainly a change from past double-digit increases. And these annual R&D figures were at least $1 billion for the top 17 companies on the list.

Obviously, the drug industry is keyed by development of new products; patent terms dictate that every product has a brief lifespan. When the R&D pipeline falls short, companies turn to in-licensing new drugs. In my many Yankees = Pfizer comments, this equates to buying free agents when the farm system isn’t producing good players.

Turns out that this is the main model for the telcos.

There is something to be said for “buying it elsewhere.” If the big telcos built everything themselves, there would be no Cisco and no Motorola. But years of buying it elsewhere has yielded a culture distrustful of technology — and of progress: It’s impossible to imagine Microsoft developing a big new product and having the lead engineer shift from foot to foot in the corner pretending to be just another customer. It has meant, as with AT&T’s Lightspeed, that telcos are likely to offer services that only match, but not surpass, those available from others. And increasingly their approach has put the telcos on the wrong side of technological innovation, leaving them in the position of protecting their investments in their networks from the encroachments of new ideas.

Anyway, I’m fascinated by the ways major industries function, and this essay provides some neat insights into what it’s like to be an $80 billion player with razr-thin (ha-ha) profit margins. So give it a read.