Biotechnology company Amgen Inc. (AMGN) saw the price of its shares fall from a high of $77 to around $55 as of October 2, 2007. The decline in Amgen stock followed news of reduced sales forecasts for its best-selling drug, Aranesp. With declining revenues from drug sales, Amgen is being forced to trim expenditures. The company announced it was laying off between 12 – 14% of its workforce and planned to cut capital expenditures by $1.9 billion. See the related news story is the resources box.
Surprisingly, Amgen plans no reduction in staff in its Global Health Economics and Outcomes Research (HEOR) unit. This unit comprises a hodgepodge of professionals with Ph.D.s in economics, pharmacists, medical doctors, and assorted analysts with data manipulation backgrounds. Their mission is to analyze pre-clinical trial design and post-clinical trial data to extract some causal relationship between an Amgen drug and a positive benefit to clinical trial patients. Normally, the competent medical doctors supervising a clinical trial at field locations can observe whether a drug is having any positive benefit for patients. These doctors are perfectly capable of assessing the efficacy of a drug being evaluated in the clinical trial.
The HEOR unit is called to action to verify statistically what the doctors claim they observe in the field and to try to find additional, unintended benefits from the drug so that Amgen can apply for a patent on the unintended consequence. Due to the large number of clinical trials that do not reveal efficacy of proposed drugs, the primary work of Amgen’s HEOR unit seems to be salvaging any possible value or use for an Amgen drug rejected by the medical community.
There is a fine line between manipulating data to illustrate a deeply hidden benefit for patients versus trying to find a benefit where none exists. Relying on various statistical methods, Amgen’s HEOR staff proposes causal relationships and desperately seeks data to confirm them. Only people with a certain mentality can be stimulated by the daily prospect of sifting through garbage in hopes of finding a diamond.
From what the HEOR staff told me, on and on the data manipulation goes trying to prove the drugs rejected by the medical professionals in clinical trials do in fact show some obscure, often trivial, benefit to patients. The Health Economics and Outcomes Research staff would like to believe it is smarter than the doctors in the field, because the HEOR staff claim they can find medical benefits that doctors treating patients failed to observe. In my opinion, the Amgen HEOR staff research models and their statistical results are often tenuous, at best, and ludicrous, at worst. I teach Health Care Economics at both the undergraduate and graduate level. Having seen how my undergraduate students critique health care policy initiatives and the pharmaceutical industry, I have no doubt they would easily tear apart the assumptions, analyses, and conclusions of the Amgen HEOR studies and reports. Investors have to wonder why Amgen spends an estimated $25 million in salaries for its HEOR professionals if their output is susceptible to rebuke by undergraduate students with no pharmaceutical training.
Another sign of the poor quality of Amgen’s Health Economics unit is its lack of publications. Amgen certainly takes pride when its staff can get research results published in peer-reviewed journals. Professional journal publications by Amgen staff aid the company’s marketing campaigns, add to the prestige of the company, and help enable them to recruit leading scientists. On October 2, 2007, I searched the Nexis “All Full-Text Medical Journals” database using the keyword “AMGEN” in the same sentence as “Health Economics” or “Outcomes Research.” A total of 0 articles were found. I then repeated this same search using the “All Medline Review Article References,” which contains journal publications pre-1975 to the present. A grand total of one article appeared entitled “Psychological outcomes associated with anemia-related fatigue in cancer patients,” which relates to Amgen’s now declining sales drug Aranesp. Desperate to find some evidence of tangible published research by Amgen’s HEOR unit, I then searched the database called “Healthcare Archive News,” which contains publicity announcements and press releases about even minor scientific and medical research findings. The database contained zero articles about any Amgen HEOR medical findings but did list a few press releases concerning the appointments of David Beier and Joshua Ofman to lead Amgen’s HEOR group.
In the fall of 2005, I was invited to visit Amgen’s headquarters in Thousand Oaks, California, and delivered a talk on the latest treatments for osteoporosis. The upshot of my talk was that Novartis’s bisphosphonate drug, Zometa (known generically as Zoledronic Acid) represented the best and strongest possible treatment to prevent bone fractures in post-menopausal women suffering from osteoporosis. Zometa is a drug used by oncologists to strengthen the bone structure caused by calcium leaching from patients subjected to certain forms of chemotherapy. In my talk to compare the efficacy of Zometa to other bisphosphonates, I indicated that the oral bisphosphonates (pills), such as Fosamax and Actonel, were like hand guns, while Zometa (given intravenously) was like a howitzer. I noted that in November 2005, the FDA only approved Zometa as a treatment for the consequences of chemotherapy; however, my contacts within Novartis advised me the company would soon launch a clinical trial to expand the use of this drug for treatment of osteoporosis and low bone mineral density.
I personally observed an elderly patient in her 80s trip and and sustain a traumatic fall face down on a concrete driveway, yet she sustained no fracture anywhere on her body thanks to prior treatments with Zometa. The patient struck the concrete with such force that her glasses were knocked off her head and landed 6 feet away at the base of some bushes. This same patient had sustained a compound hip fracture a few years earlier while taking weekly Fosamax pills. In another episode, an octogenarian frail patient fell backwards and struck her head so hard as to cause her to be dazed, yet she suffered no fracture of her skeletal structure anywhere — all thanks to the efficacy of Zometa to strengthen the fragile bones of osteoporotic patients.
Before I could even finish my talk, the illuminaries from Amgen’s Outcomes Research unit began carping at my conclusions. First, a 50-year old Senior Analyst, with gray, curly, shoulder-length hair, who dressed for work each day in blue jeans as a rebel against the suit-and-tie culture, said none of my conclusions were supported by clinical trials. I responded that treatment of osteoporosis with Zometa was then state-of-the-art medicine still years ahead of clinical trials, and that anecdotal case studies such as this were often the source of ideas to be tested with clinical trials.
The Amgen Senior Analyst said he would not accept any of my conclusions, nor allegedly would any competent professional, without a double-blind placebo clinical trial. This same analyst told me after my talk that he had been invited to head the Health Economics and Outcomes Research units at two other pharmaceutical companies, although based on his myopic comments, I seriously doubted it. Again, I responded to the Senior Analyst by asking if his own elderly mother or aunt or uncle had previously suffered a bone fracture and was in danger of having a significantly reduced quality of life with any further fracture, would he rely on the weak FDA-approved oral bisphosphonates or try to get Zometa therapy for his own relatives? He answered he would stick with the FDA-approved drugs, even if it meant his elderly parent would be debilitated with another hip fracture from which he or she might not recover and would quickly deteriorate in bed and die.
Next, a 6’3″ board certified radiologist, who for some unexplained reason gave up an annual salary of $350,000+ as a radiologist in private practice to become an industry hack working for Amgen, carped that bisphosphonates, such as Zometa, do not actually inhibit the leaching of calcium from bones but instead strengthen the lattice structure of the bone. Furthermore, my talk included no head-to-head comparisons of Zometa with Fosamax or Actonel or any other oral bisphosphonate, so he would not accept the conclusion. I responded by asking the radiologist how many patients he had treated for osteoporosis while in private practice. He responded “none.”
I asked the radiologist if he knew the state-of-the-art treatments for osteoporosis as of 2005, and he responded that the oral bisphosphonates were the state-of-the-art. I then pointed out that no board certified oncologist would consider the oral bisphonates for treating cancer victims with weakened bone structures from chemotherapy. Oncologists need the medical equivalent of a “howitzer” not a pop gun to strengthen their cancer patients’ bones, and oncologists’ preferred drug for this treatment was Zometa. Osteoporosis has many of the same characteristics of weakened bone structure and low bone mineral density as occurs with cancer patients who have undergone certain types of chemotherapy. Despite his objections, I stood by my conclusions that Zometa was the best available treatment for osteoporosis, and I would recommend it as a life-saving treatment for elderly patients (male or female) susceptible to immobilizing fractures.
I expected Amgen’s Health Economics staff to be cautious in describing non-FDA approved use of drugs, but I did not anticipate finding an entire department filled with narrow-minded, rigid, demagogues incapable of thinking outside the box. To them, it was either the Amgen way (methodology) or no way at all. The Amgen HEOR junior analysts had caustic expressions on their faces during my talk, and when I asked them if they would let their own parents or grandparents die from the debilitating consequences of a hip fracture or get them Zometa therapy if needed, they took their cue from the 6’3″ oncologist and said uniformly they would “let granny die.” Do we really want heartless people like this involved in testing the nation’s drug pipeline?
After my talk, I met additional staff in the Amgen HEOR unit, and each one turned out to be less impressive than the last one. One of the last people I met was a pharmacist with health economics responsibility for cardiology drugs being developed by Amgen. He told me he had little background in economics and consequently could not write any articles suitable for publication in economics journals. Yet, he claimed he knew how to develop the initial price that any pharmaceutical firm should charge for any new drug being brought to the market. In economics, the price for a normal good is determined as an equilibrium point by the intersection of demand and supply. But this pharmacist had no use for demand and supply concepts and seemed to construct prices for drugs with his own ad hoc methods.
Amgen’s HEOR unit is filled with people who are out of touch with the health care system in America. The gray, shoulder-length haired Senior Analyst at Amgen, for example, suggested the primary reason people choose to go without health insurance is that they believe they are invincible and are willing to gamble on their health. Given the overwhelming evidence on lack of affordable health insurance for the working poor, if a student in either my undergraduate or graduate Health Care Economics turned in an assignment with an asinine comment like that, I would make the student repeat that assignment.
Approximately two years after my talk at Amgen, the Associated Press circulated a nationwide story on Sept. 18, 2007, with the lead paragraph, “For the first time, an osteoporosis drug has reduced deaths and prevented new fractures in elderly patients with broken hips . . . .No other osteoporosis drug study published in the last 15 years has shown such a pronounced reduction in deaths.” What is the drug mentioned in this study? ZOMETA (marketed by Novartis for osteoporosis patients under the brand name Reclast). Two years before the Associated Press article, I predicted this drug would become the most potent treatment for osteoporotic patients in danger of hip and other bone fractures. Amgen’s brilliant HEOR staff rejected that forecast.
In my opinion, the Amgen HEOR staff needs to be terminated or reassigned to other areas where it can contribute to the company’s bottom line. Its pharmaceutical economics modeling and data manipulations seem dubious, and it appears ethically questionable to analyze data with the intended goal of proving an Amgen drug rejected in clinical trials has some medical benefit that doctors in the field overlooked. If Amgen’s CEO and top management are serious about cutting costs and eliminating unnecessary expenses, then they need to start by eliminating the Global Health Economics and Outcomes Research unit. Until the HEOR unit is eliminated, I will continue to view Amgen as a poorly managed company with a bloated, unproductive staff.
QUESTIONS FOR MANAGERIAL ECONOMICS STUDENTS
1. Describe the dimensions of job design in creating the positions within Amgen’s HEOR unit.
2. Do you believe the job design is appropriate for this firm? How would you measure the productive output of staff in Amgen’s HEOR unit?
3. What suggestions do you have for improving the job design of Amgen’s HEOR staff? Should pharmaceutical companies employ staff in this area?
4. Assume you are a manager of Amgen tasked with eliminating the HEOR unit. What is the best way to implement your task?