Sunday, July 24, 2011

What are doctors worth?

US doctors have historically been among the best paid members of a community. One list puts surgeons ahead of CEOs, while another study (based on BLS data) shows medical and dental professionals best represented among the top 25 professions.

However, in countries where government runs and controls healthcare, the premium for doctors is not so high: doctors are paid like government professionals rather than self-employed small business owners. A NYT report puts doctors’ pay in some of the Scandinavian countries at half that of the US. Not surprisingly, many economists expect that (for good or for bad) if the US system continues to evolve towards the European model, doctors’ salaries will do likewise.

Now a Business Week report suggests the premium for doctors in China is ridiculously low:
A newly qualified doctor makes about 2,000 to 3,000 yuan ($309 to $464) a month, while a one-bedroom apartment in Dalian, a city of 6 million people, goes for 2,000 to 2,500 yuan. Typically three or four newly qualified doctors will rent a flat together to defray their costs, Mao says.

Shi Yingkang, dean of the West China Medical School at Sichuan University in Chengdu and vice-president of the Chinese Medical Doctor Assn., says half his students spurn local hospitals for better-paying jobs overseas or in drug sales. “To them, the pay does not match the effort put in,” explains Shi, who says pharmaceutical reps can earn two to three times more.
In fact, the article is about how the doctors are quitting their practice to become sales reps for Western pharma companies, including Pfizer, Sanofi and Bayer. An estimated 30-40% of sales jobs in China are staffed by doctors, with pharmacists and nurses also being targeted.

I would be curious to see how the salaries of Chinese doctors compare to party officials, entrepreneurs or software engineers. But with the state in full control of this segment of the economy, it’s not like they have a choice — other than to join the pharma companies or emigrate.

BTW, it had occurred to me that top US sales reps might be paid so generously that they are paid better than doctors. Certainly I’ve met B2B sales representatives who are paid $100k, $200k or more. But according to, the median compensation (salary+commission) for pharma sales reps with 20+ years experience is only $125k.

Still — as with any government policy to set salaries — there are important questions about what is a fair price for doctors. The medical profession is highly skilled, with long training required and a need to attract the most talented people. Even for systems that set pay by central planning (rather than the market), one would expect doctors to command a salary well above average.

Saturday, July 2, 2011

If pharma R&D is broken, what will replace it?

The last few weeks, I’ve been watching some disconcerting news that adds to existing concerns about funding pharma research.

At Forbes, Matthew Herper presented two graphs. One shows the number of approved new molecular entities (NMEs), which has wild swings (and an impressive peak in 1996) but no overall trend despite the huge upswing in pharma and biotech R&D.

The second graph is the one that (as Derek Lowe noted) is the depressing one:


Two parts are depressing. First, of course, that we’re getting fewer not more drugs per dollar as time goes on. But almost as depressing, the obstacles are not just the limits of science, but also the regulatory regime which at times can distort the curve (good or bad) with fairly arbitrary decisions.

If that’s not depressing enough, then there was this post (at the NY Post) by former Wyeth chemist Josh Bloom, which opens:
The folks at Scientific American have launched "1,000 Scientists in 1,000 Days" -- a program to bring together scientists, teachers and students to improve America's "dismal" showing among wealthy countries (27th out of 29) in graduating college students with degrees in science or engineering. I'm sure they mean well -- but, at least as it applies to the field of chemistry, "1,000 Unemployed Scientists Living With Their Parents at Age 35 While Working at the Gap" would be a better name.
In addition to the soaring costs of bringing a NME to market and the FDA, Bloom points to offshoring:
To trim expenses, companies began to outsource research to India and China. It started as a trickle, but soon became a tsunami, leaving many thousands of highly intelligent and well-trained professionals with nothing to do -- a shameful waste of talent.
My colleagues and I at Wyeth watched helplessly as one company after another shed employees in huge numbers -- 300,000 since 2000. When Pfizer -- facing the looming expiration of its Lipitor patent and a poor research pipeline -- bought Wyeth for its portfolio of products in 2009, it cut about 25,000 jobs, with more to come.
Now Ph.D. chemists can’t even get a job teaching high school chemistry — or at least in New Jersey, where they’re a dime a dozen.

Bloom seems to think that US drug discovery is not cyclical, but in fact in a permanent decline. Let me offer two historical analogies.

For now, IT seems to be cyclical. I remember after the end of the dot-com era, software engineers were also laid off as IT companies died while the survivors offshored most of the routine work to Bangalore. Now, experienced engineers are once again in high demand in Silicon Valley “as they benefit from a tech job market that hasn't been this overheated since the dot-com bubble in the late 1990s” (as the San Jose Mercury put it a week ago.)

When I was growing up in San Diego, the demand for aerospace engineers was cyclical — layoffs and shortages all throughout the 1960s and 1970s. The Reagan buildup brought it back one last time, but eventually the SoCal aerospace industry died after the end of the Cold War. The cycle has ended and the industry is gone.

What’s interesting is that (iPhone Apps notwithstanding) the sale of software products is also in a steady decline. The growth is mostly in software-as-a-service (SaaS) models like Google and Facebook and the rest of “The Cloud.”

People have been talking for years about a similar shift for medicine, from mass-producing little pills to providing personalized medicine. In 2004, IBM’s consulting arm (the former PWC) released a report entitled “Pharma 2010,” which envisioned such a shift. (Such complex service-oriented businesses would play to both IBM and PWC’s strengths). It didn’t happen by 2010, but that doesn’t mean it won’t happen.

So what is the future?
  1. Less spending on R&D
  2. Spending on R&D but mostly offshore
  3. A shift from mass R&D to custom (bioinformatics-based) research
I don’t know what the future holds, but the employees (and shareholders) of the big pharma companies hope that their brands, distribution, manufacturing and (yes) R&D will give them a significant role to play in that future.