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Phase out the 401K

401k-624x416There is a post in the NY Times today about the way companies that layoff their workers and replace them with H1B visa holders also require those workers to keep their mouths shut about what is going on.

The non-disparagement clauses might be partially responsible for the conventional wisdom that we need more STEM graduates when clearly we don’t. Long time readers of this blog know that I and my colleagues were laid off in NJ when our site closed. In fact, New Jersey, Connecticut, New York, Maryland, Delaware and Pennsylvania, the Northeast Corridor, laid off hundreds of thousands of invaluable researchers and replaced them with… nothing. In some cases, brand new research facilities, some built for very specific studies that cost millions of dollars to build, were mothballed or even destroyed.

That’s right, it made more sense to the bottom line to destroy valuable lab space than keep the facilities with the upkeep, maintenance and taxes on the books. The people? What about them? It’s interesting to me that the braintrusts who decided to lay off all those scientists and planned to rent out the buildings to new start ups had a hard time finding renters. Who did they think they were going to rent to? The same scientists who were laid off didn’t have the funds for the start ups that were meant to replace the large corporate labs. They were too stressed trying to find any work in any state while keeping their families in the expensive northeast and mortgaged houses out of foreclosure. So, the “rent the labspace to the old labrats” scheme turned out to be a bust and now the buildings have to come down.

There are a couple of states that benefitted from the destruction of the research industry. Those would be Massachusetts and California. The business models were changed from small molecule research to biologicals. But number of jobs created is small. Only a tiny fraction of those laid off were invited to go to Cambridge. Medicinal chemistry in this country is decimated. Compounds can be made very cheaply in India. There’s still research in graduate school labs but it does not begin to make up for what has been lost.

It’s not like there’s not enough biology to research and anyone in the research industry knows that training is not the problem. These are some of the most highly trained people in the world who have to continue reading the latest papers to keep up. Soooo, that’s not it.

What could be driving the frenzy to dismantle the country’s research industry? Hmmm, what could it be, what could it be.

Well, in some companies, the decision to close the site was followed a few days later by an email to all employees from the finance department that congratulated itself on reducing costs and creating a nice quarterly profit. Sort of a “You who are about to die, we salute you!” email.

When they say it’s not about money, it’s about money.

Working Americans have been forced to participate in their own destruction through the 401K. We invest in funds that are rewarded when companies merge, consolidate and layoff. Companies are sold like baseball cards, drained of their assets and left as hollow shells of what they used to be. Research is expensive. Paying for experience is expensive. Better to ship that out if you can, hire only short term contractors, buy up companies with a promising drug lead and lay off their early research staff.

In the meantime, the portfolios will grow and now the masters of the financial universe have brought us into the game, some of us unwillingly. We are now complicit, watching the quarterly earnings reports and demanding more shareholder value. Because there are no pensions in our old age. This is how we make our money- on the backs of our fellow Americans.

And let us now turn our attention to the H1B visa holders who unfortunately have no rights here. If they lose their jobs, they can be sent back to their home countries. It doesn’t matter if they have lives, relationships or property here. Those are risky luxuries. And it doesn’t help that these people may eventually get green cards. Some green cards are so narrowly tailored so as to make getting a new job after a layoff very difficult for the bearer.

It’s all because of the vast amounts of money that used to be tied up in safe, boring but reliable pensions that are now splashing around the world like colored scrip in a global game of Life. The greed of the financiers and titans of industry is gargantuan. The analysts who work for them on Wall Street are incentivized to accumulate as much wealth as possible, with as much risk as possible in as short a time as possible. If they lose money, the government will cover it or some stupid firefighter will take the hit. It’s their fault if they didn’t go to Harvard and make the right connections.

The 401K is at the heart of everything that is wrong with the current economic system. It encourages risk taking, it incentivizes avarice, it propels the short term investment cycle, it causes the outsourcing, it destroys industries and it is now starting to affect productivity. Because when you sacrifice your talent for youth and low wages, and then force everyone to account for every billable minute, you force the workforce to reinvent the wheel and cause anxiety and distraction in the offices with endless paperwork and minute swapping.

Phase it out. Get rid of the pyramid scheme. Disincentivize short term investment and greed. If we don’t tackle the 401K, all the unions in the world won’t make a dent. There will be no need for them when we are all independent contractors in the gig economy looking over our shoulders for the next layoff and becoming more angry by the minute.

This is the legacy of the last eight years when no bankers were held responsible and no hearings were conducted to ferret out the root causes of so much risk and destruction while the companies held revolvers to the heads of their laid off staff and told them to not say a word about what was happening to them. Funny, the CEOs don’t have any problem telling the researchers what they think of them and how expendable and exploitable they are.

It’s about the money. The 401K fuels the Gig Economy. It’s the Gig Economy, Stupid that’s undermining the middle class, causing income instability, family instability and a drag on spending. Get rid of it.

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Re: Vaccine and Silicon Valley

Digby has a post up about lack of herd immunity in Silicon Valley schools. Note from the graph that the biotechs (Gilead, Genentech) are pretty much up-to-date with their vaccines. They’re over 90% vaccinated. It’s the Googles, Ciscos and Pixars that are slacking.

Ahem, I would just like to say that those IT people are probably the same people who think that drug discovery would be so much more efficient if we all just worked for little start up companies and removed all the complexity from the process.

{{rolling eyes}}

They really haven’t got a clue. Of course, my ability to code is minimal, though I can hold my own in the hardware area.

In the IT world, Moore’s Law is pretty easy to understand. The physics of electricity, magnetism, doping, transistors and the like is fairly well understood. It’s all perfectly straightforward, mostly. There’s very little ambiguity. That’s what science is like for the Silicon Valley entrepreneur. Knowing that the physics is understood and no longer very complex makes it sooooo much easier to “innovate”. So, what’s the problem with pharmaceuticals?

It’s little surprise to me that they don’t get their kids vaccinated. For all their bravado about how to innovate in the realm of science, to them the cell is still a “sufficiently advanced technology that is indistinguishable from magic”. You put vaccines in your body. You don’t inject chips. (It’s coming) They want to give the illusion that they’re geeky types but just like every other animal on earth, they fear what they don’t completely understand and many of them didn’t study quite enough biology.

I never liked the IT department at work. I had to interact with those guys but it was my group that found it necessary to learn their trade, mostly in order to figure out how to circumvent it. They seemed to be completely clueless when it came to the core science that actually paid their bills. Unfortunately, there’s a lot of power in IT. We all use it and we’re all at their mercy. Resistance is, to some extent, useless. We will be subject to their obtuseness during epidemics as well.

Beautiful theories destroyed by ugly facts- part 129845

Chopper and his gang, A Bank’s, er, Bug’s Life.

David Leonhardt wrote about why the economy seems to suck for the vast majority of us in his post The Great Wage Slowdown of the 21st Century.  Once again, he drags out that idea that will not die that if we just graduated more people from college with the right technical skills, our wages would rise.  Zombie conventional wisdom like this is what turns perfectly nice days into weeks of frustration, anger and despair for hundreds of thousands of unemployed, underemployed and “terrified of the next layoff” STEM workers.

Look, Dave, may I call you Dave?  This simply isn’t true.  I have been there and I have seen PhD after PhD after PhD in the hard sciences laid off for no other reason than because they cost too much money to employ according to some seed corn eating grasshopper with an MBA and a big bonus in his future.  The laid off are people who were uber educated.  They went to Yale and Stanford and had multiple patents to their names.  Yes, they even knew how to use Microsoft Office.  I don’t know how many times I have had to tell people lately that I know Microsoft Office like it is my native tongue.  This notion that we are all technological dinosaurs and need even more education after decades in the lab, and reading and writing papers that would make the average American’s eyes bleed, is just beyond maddening.

If you don’t believe what I’m saying, Dave, check out what Pfizer did to Wyeth five years ago.  Pfizer bought Wyeth and then proceeded to lay off all 19,000 employees including all but a handful of research staff.  That’s all of my former colleagues but about two people who Pfizer retained.  Gone.  All their years of education, years of experience and technical expertise, all their livelihoods, and in some cases houses and college funds, eliminated.  There’s a reason why Nutley, NJ, the home of Roche, is becoming a ghost town.  There’s a reason why I fled NJ and moved to Pittsburgh.  I got out just in time.  Housing prices are crashing through the basement as all of the stunned STEM workers scramble to grab whatever work they can find before the next layoff or the soft money runs out or there’s another sequester.  Or they get the hell out.  I got the hell out.  I’m not crazy.

You know what else is crazy making, Dave?  That someone with your talent and access can’t look s&*% up on The Google to back up what you are writing. (Type “pharmaceutical layoffs 2010” for some really scary numbers)  It’s like all those mysterious congresspersons who parrot all this nonsense about STEM jobs not being filled- because they read people like you.  You have a responsibility to report the truth.  If you don’t, there really will be a shortage, just like there is with some programming jobs.  Back in the naughties, American programmers got laid off in droves and companies outsourced much of their development to Asia.  Now, I see a lot of positions on job boards for people with computer science degrees and those jobs go begging.  Well, what do you expect when the wages and jobs weren’t around for a decade and the programmers gave up and told their children to avoid programming like the plague?  Why should anyone dedicate themselves to difficult degrees if there’s no payoff or way to make a living in the end?

So, stop doing it, Dave.  Better yet, get out of the office and take NJT down to Princeton and pass all of the sites on your way that are now shuttered in the name of shareholder value.  Not to sound all Marxist or anything but the problem is not that we have too few educated people, it’s that the shareholders own the means of production and they aren’t investing their capital in research anymore, at least not here.

Nothing is going to make wages rise until the shareholders see that it is in their best interests.  And right now, they’re partying like it’s 2008.

************************************

There’s a great post on Naked Capitalism by Roy Poses, MD, titled Can Our Commericalized Health Care System Contain Ebola?  The answer is of course it can but it has to be more proactive and that’s difficult these days when health care and drug development decisions are not being made by people with the expertise to make them but by “generic managers”.

Poses has another post on his own blog about how the “generic manager” is extracting value from various industries that is a must read.  In short, there is a growing awareness that the grasshoppers have almost finished the seed corn and there must be policy imposed on them to stop the process.  Time is short.  Our policymakers can still save the day.  Given the way the 2014 Senate races are going, it looks like this will fail.

Oh well.  Prepare for a new Dark Ages.

************************************

Moving on to Princeton, Krugman has a blog about disinvestment at the public infrastructure level.  When I think of infrastructure, I am reminded that this is what I asked Hillary Clinton about at YearlyKos 2007.  She had a lengthy answer based on some well thought out policy, the highlight of which was a plan to expand our sorry excuse for broadband.  What a missed opportunity that was. But I digress.

Wait, aren’t we trying to privatize absolutely everything anyway?  Is it any surprise that investment in public infrastructure is going down?

Paul should realize by now that the 2008 election was all about saving the banks.  They set it up that way.  There wasn’t a plan for what came next.  Ta-da!

************************************

One more thing: Thomas Duncan, the Liberian ebola patient in Dallas, is getting an antiviral experimental treatment called brincidofovir.  Who names these things??  Anyway, he’s in critical condition but his liver function seems to be improving.  That’s great.  Unfortunately, brincidofovir messes up your kidneys so he’s now on dialysis.

Here’s a little bit of drug design/medicinal chemistry geekery.  The structure of brincidofovir is shown below:

 

When I was doing high throughput screening data analysis, I might have chucked this structure into the delete bin because of that long tail.  It’s big, it’s bulky, it’s greasy as bacon drippings.  No one is going to get a decent drug out of that.

And that’s kinda true.  Brincidofovir is a prodrug.  That big, long greasy tail improves its bioavailability (you have got to be kidding).  Once it gets into the body, that tail piece gets cleaved off to leave cidofovir, a viral DNA polymerase inhibitor:

I thought I’d mention that for No. 1 child who is taking a related class in the subject and now understands that when chemists say “cleavage”, they’re not always talking about your boobs.

 

 

I’m voting for “they don’t know what they’re doing”

In case I wasn’t clear yesterday on why Obama is not a people person, allow me to explain by giving an example of how things have worked in the pharmaceutical industry when it comes to picking corporate CEOs.

Jeffrey Kindler was a Harvard educated lawyer who ran McDonald’s partner brands (Boston Market? Chipotle Grill?) before someone recruited him to be a chief council at Pfizer.  He worked his way up to CEO and continued the rampage of buying and merging that his predecessor started.  By 2010, the bloated behemoth that was Pfizer, and all that it had swallowed, had lost 35% of its stock value.  All of my former colleagues at Wyeth were laid off in one fell swoop in 2009 and only a handful were hired back.  That was 19,000 people at Wyeth alone.  It was brutal and indiscriminate.  There were dedicated and excellent scientists who lost their careers in the middle of the Great Recession.  They did nothing wrong.  They were simply in the wrong place when a former McDonald’s executive decided to perform a little exploitative profit mining by absorbing the Wyeth pipeline, but, ehhhh, not all the research people who, you know, did all the work.

The pharmaceutical industry is full of stories like that.  There are many executives who know next to nothing about the industry they are managing. Their minions have the idea that the research staff are like day laborers whose jobs can be broken down into a series of burger flipping tasks, taking all of the curiosity and spontaneity out of the experimental process in order to save money.  It’s short sighted, destructive and shows a profound lack of understanding of the scientific method. But that’s not why the big executives were recruited.  They were recruited to make the shareholders money and right now, monetary incentives are not in the area of investing in science and research, which can be expensive and unpredictable.  Incentives run towards “get rich quick” schemes and extraction of value.

The damage has been done to many pharmas but the extraction will continue to the point of no return because the executives who are running these businesses don’t really understand the nature of the companies they run.  But that’s not why they were hired.  If they were hired to run research organizations, it wouldn’t be done this way. And the people that are hired to be executives are really not that much different than the people who run Wall Street.  They have an academic pedigree. These people are snobs.  It’s like an aristocracy.  There’s a level of ass-kissing but probably not as much as you think.  It’s more cutthroat than that.  More dog-eat-dog.  It’s a lot less glad handing than back room deals and “strike first” maneuvers.  What’s missing in all of the power grabbing is good management.

This is the world that Barack Obama comes from or could fit into easily.  He’s got the right pedigree, the right degree of ruthlessness and he’s more interested in “winning” by striking the right deal than driven by well-crafted policy.  The fact that he was African American was just icing on the cake to his recruiter.  It made for good theater and it gave them a hefty cudgel of racism to bash anyone who dared to criticize him.

This is not a world that values good management.  Day to day management and good stewardship gets in the way of the power game and winning.  Just look at the way Obama’s administration is planning to roll out the PR offensive for 2014.  It’s going to be about issues the administration’s brain trusts think will distract the Republicans.  It’s not about jobs or the economy.  It’s going to be about gun control.  Granted, gun control is important but it’s not going to put food on the table or fix what ails the economy.  And it could be a giant miscalculation.  But mostly, it’s game playing that is disconnected from the boring tasks associated with serving the people and governing well.

This is what the MBA/bonus/corporate lawyer class has been up to.  Given the disaster that the pharmaceutical industry is in, with layoffs a constant feature, a permanently underemployed research sector, perpetual restructuring and concentration of projects in cancer and orphan drugs to the exclusion of almost everything else, I’d have to say that they don’t know what they are doing.    These are not very imaginative people.  They’re not creative.  They follow trends and do what all their friends do just like brainless lemmings and I don’t mean to offend lemmings. Once they get it into their heads to extract a wealth, they have to come up with an excuse for doing it.  Then they decorate that excuse with biz speak and hypnotic memes so that before long, everyone is repeating the same damn things without any clue what it all means.

They can’t be trusted with their own checkbooks much less running big organizations or branches of government.  And in this environment, where crafting deals behind closed doors is where the real work takes place, glad handling and cultivating political relationships is a tedious, boring process done for show.  Pretty soon, we won’t need politicians at all.

************************************************

I found this while I was searching for more Tony Robinson’s documentaries on youtube.  This sums up 5 years of anger and frustration.  I couldn’t have said it better myself:

The Strategy of No Strategy: Shareholder Value

This is a continuation of my take on Karen Ho’s book, Liquidated- An Ethnography of Wall Street. I can’t do the book justice in a single blog post (it’s going to take at least four), I’m going to try to summarize some of what she is describing as the culture of Wall Street and how it is infiltrating our lives. I’m going to touch on four major themes in her book: “smartness”, “flexibility”, “shareholder value” and “the strategy of no strategy”.  Check here Part1 on Smartness and Part2 on Flexibility.  I am going to try to tie Karen’s analysis of the culture of Wall Street to the pharmaceutical industry because having had a first person perspective, it is my belief that Big Pharma has felt the worst effects of Wall Street on its core business- discovering drugs.

This post is about Shareholders vs Stakeholders.  In Wall Street culture, nothing is more important that enhancing “shareholder value”.  But why is it that shareholder value is more important than anything else, including the health of our modern economy and the companies that drive that economy?  Let’s talk about what it’s like to be a corporate stakeholder.

I used to work on a beautiful tree lined campus.  It looked like the science section of a university. Right about now, when it’s Take Your Children to Work month, the trees that were planted by the staff in honor of previous Earth Days would be in full bloom.  Pretty soon, the sidewalks would be edged in fragrant purple lavender.  I have pictures of myself and Brooke under a tree on a Take Your Children to Work Day, the tree abundant with clusters of white flowers and in the background, lots of kids working off energy with hula hoops and jump ropes before another tour of the labs after lunch.  My site also had a gym and after a hard session of spin or pilates in the evening, I would walk back to my office to finish a few things before heading home.  While I strolled back, I thought about how lucky I was to have the job I’d always wanted.  My life at work was like being a perpetual student, learning new things about biology and nature and never having to dress up.

As scientists, we make an unspoken deal with the corporation we work for: it provides the labs and resources we need to make discoveries and we sign those discoveries over to the company for a token amount.  They paid me well.  I have no complaints.  I would have never made the big bucks that I might have if I’d worked on Wall Street, but I was able to pay my bills, put some money aside for my retirement and college funds, and occasionally, I had money to splurge on a Royal Caribbean Cruise or to feed my gadget addiction.  Believe it or not, that was enough for me.  I was just delighted to be there.  No, seriously.

When I tell people that we sign our patents over to our companies for a buck, they can’t believe that we don’t feel cheated.  But you know, discovering drugs is an expensive proposition.  I could never do it by myself, and neither can most scientists, as we are finding out.  But it’s not the money that’s important.  For example, I used to work with the guy who invented Effexor, Morris Husbands.  His invention made the company, Wyeth, billions of dollars, though he never saw more than his own salary and a generous bonus/prize.  It was still a teeny fraction of the profits but that was Ok.  What Morris got that the rest of us envied was letters.  He got letters from patients who thanked him for helping them turn their lives around.  Yes, I know that Effexor isn’t the right drug for everyone but some people genuinely couldn’t pull out of depression without it.  And these patients were so relieved that they went out of their way to track down who this guy was and they wrote to him.  Morris was a lucky man but there’s a cautionary tale about the discovery of Effexor that I’ll get to at the end.

So, what does this have to do with shareholder value?  Bear with me on this because I only took two economics/business courses in college and my knowledge of this is a little rusty.  This was the most difficult part of the book for me to get through because it has to do with the history and philosophy of capitalism.

Here’s the part that I get: In modern capitalism, a corporation consists of many stakeholders.  Shareholders are stakeholders.  But so are managers, employees, vendors, government and the community, among others.  Stakeholders are dependent on the success of the corporation so it is in their interest that the corporation succeeds.  Ho describes a sort of golden age of the corporation post World War II where corporations took their responsibilities to the community and employees seriously.  Maybe it was just a temporal thing that had to do with the proximity to the Great Depression and all that that entailed to the society and economy at large.  This is not to say that corporations always had a rosy relationship with their employees.   But there was an understanding that managers and employees worked together in what was naturally an adversarial relationship to find solutions that would work for everyone.

Then, right around the early sixties, the shareholder contingent got the notion that they were being ripped off.  This was also a time of conglomeration, or what we called mergers and acquisitions before they got to be sexy.  In some cases, the conglomerate was created by the accretion of corporations that were not related to each other.  The conglomerate was sometimes big and unwieldy and not terribly profitable.  In other cases, CEOs were just not eeking out every dollar of profit from the corporation to the satisfaction of the shareholders.  Or they were sharing the profits with employees without a lot of shareholder input.  You know, pensions, health care, union contracts.  Shareholders began to feel like an aggrieved party.  They didn’t feel that lifting all boats on a rising tide was their responsibility.  They wanted a bigger share of the profits.  But how to do it without looking like greedy assholes and how would Wall Street arrange it so it would get a substantial cut?

Enter Adam Smith.  Here’s where Karen Ho describes the neoclassical capitalism as laid out by Smith and how it didn’t evolve to take the modern corporation into consideration and how shareholders took advantage of that lapse.  Ho writes:

The dominant theoretical perspective on the goals and values of corporations has arisen out of the discipline of economics, which in turn has been dominated by the neoclassical tradition (Schrader 1993).

To understand the history and persuasiveness of shareholder value, it is crucial to understand the ideological assumptions which render it natural and legitimate. The most obvious problem with neoclassical economic theory is simply that its core premises are significantly different from, and clash with, any understanding of the firm as a social organization. Neoclassical theories are derived from the “classical” worldviews of Adam Smith in the eighteenth century, built upon and reconfigured by the “neoclassicists” of the nineteenth and early twentieth centuries-all before the modern corporation was established as the major organizational form through which business in the United States is conducted. Even contemporary iterations of neoclassical theory bear the marks of their precorporate origins, having never attempted to take into account the corporation as a social institution and refusing to acknowledge how its multiplicity could change the very foundations of economic theory and business norms. David Schrader (1993, 2) has characterized neoclassical theory as “woefully inadequate to the task of providing a sound understanding of the managerial corporation.” Instead, corporations have been continually made to operate according to neoclassical values, however ill the fit.

At the center of Adam Smith’s The Wealth of Nations, the founding text of classical economics, is the notion that individual acts of economic self-interest combine, through the “invisible hand” of market forces, to further the best interests of society at large. Smith, like many classical economists who followed, centered his theories on the single individual, the notion of an entrepreneur who both owned a small, private enterprise and managed it. The dominant neoclassical assumptions in economics and mainstream business today are certainly grounded in these worldviews, though many pivotal additions and reworkings were necessary. Even after the modern corporation came to be the dominant form of economic organization in the early twentieth century and the “visible hands” of multiple constituents and managers became apparent, neoclassical theories maintained the centrality of the individual entrepreneur.

In fact, throughout the twentieth century, in the face of a completely new socioeconomic phenomenon, entire schools of economists, notably from the University of Chicago, “steadfastly maintained that all important work in economic theory could be carried on from the perspective of an individualistic analysis with an assumption of perfectly competitive markets” (Schrader 1993, 67). The resurgence of shareholder value in the 198os, then, can be read as part of a long line of neoclassically inspired worldviews attempting to collapse and treat the corporation as a single profit-maximizing individual in the market. Championed by Wall Street financial institutions and brought to prominence during the leveraged buyout movement, the shareholder value movement became, arguably, the culmination and most effective demonstration of neoclassical values in the history of American business. Specifically, neoclassical capitalist worldviews recognize the presence of two entities: the individual owner and private property, understood as an exclusive unit. The individual and his private property are the only two inputs into the equation;3 other actors or claimants cannot wedge themselves into this limited space.

Moreover, Adam Smith imagined that the individual owner-entrepreneur would necessarily manage his own enterprise, and as such, he would be solely entitled to all the fruits of his property, the profits. It is precisely because the owner controls the enterprise and gets to “own” the profit that he, driven by self-interest, is compelled to use his industrial property and labor “efficiently” and grow for the strict purpose of accumulating more profit. This pivotal sequence-ownership, control, full access to profits, efficiency-constitutes the neoclassical, logical order of the relationship between individuals and private property. The glue stringing this causal chain together is the concept of self-interest as motive and the invisible hand as automatic market mechanism. For the capitalist world to be aligned properly, capitalist owners must have full access to the profits through complete control over their private property (Berle and Means iggi).

So, shareholders consider themselves the primary owners and stakeholders of the corporation and all other stakeholders get relegated to interloper status.  Nevermind that modern corporations do not operate strictly by neoclassical principles.  The rights of ownership trump any other claims on profits.  And the shareholders found further justification for their views from Smith himself:

Adam Smith himself, who believed that the managerial corporation would inevitably fail because its very structure negated his assumptions about the interests and motivations of owners and managers:

“The directors of [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail … in the management of the affairs of such a company. It is upon this account that joint stock companies … have seldom been able to maintain the competition against private adventurers. They have, accordingly, very seldom succeeded without an exclusive privilege; and frequently have not succeeded with one. (A. Smith zooo, 800)”

To fit into this theoretical legacy, large, public companies had to be understood as if they were merely the creations and appendages of individual entrepreneurs.

(Karen Ho. Liquidated: An Ethnography of Wall Street Kindle Edition.)

I think we can see the problems with this view and the solutions that shareholders would impose.  For one thing, a corporation with many shareholders whose interest in a company can be reduced to trading those shares for greater value than they bought them is hardly the kind of owner that Adam Smith envisioned when he wrote the quote above.  Smith lived in a pre-industrial culture where owners were more closely associated with their businesses and where the rule of law was still in its infancy.  It made sense in the 18th century for an owner of a company to keep a close eye on his managers.  Those managers were his stewards but without a proprietary stake in the company itself, were not going to go bankrupt if the company failed.  In the 18th century, the owners bore the primary responsibility for the fate of the corporation so they were most likely to also profit by it.  Their hands were more in the pie so they were more justified in calling the shots and taking their share.  In the 20th century,  ownership is distributed among many thousands of individuals.  This should limit their ability to interfere with the way the corporation is run.  But if they feel they’re not getting their cut, they might start exercising control in different ways.

For example, if the manager CEO did not have the proper attitude of responsibility towards the owners and continued distributing the profits to stakeholders instead of shareholders, then the shareholders would instill that sense of obligation by making the CEO an owner.  Mid-century salaries for corporate managers were generous but modest by today’s standards.  Now, with much of the CEOs compensation in stock, the manager now sees the value of the stock as important to his own wealth so he’s motivated to maximize the value of the stock.  Note that I did not say he is motivated to maximize the value of the corporation.  With ownership as the incentive, money becomes the object.  Other shareholders, such as institutional investors, demand more of the profits as well and eventually, more of the corporations resources are used to pay the shareholders at the expense of the other stakeholders.

I don’t think any of this is new to anyone who has been paying attention in the past couple of decades.  But it’s interesting to know what shareholders have been using as a rationale for their rapacious behavior.  Owners are entitled to their private property.  As far as they’re concerned, everything that is produced by the corporation is theirs and does not need to be distributed to anyone else.  If you were employed by the corporation and stupid enough to buy into the idea that it owed you a pension after 30 years of service, that’s your problem.  The shareholders didn’t authorize that pension plan.  The corporate managers did, probably without consulting the shareholders as to whether they were in favor of such a long term commitment.  Not only that but since shareholders are changing all of the time, how is it possible to entail one’s private property to stakeholders who are not actually owners?  You can see how this logic as slowly infiltrated our culture and our politics.  Remember George W. Bush’s “Ownership Society”?  Not just a slogan, it was a philosophy that really didn’t include the vast majority of us.

In big pharma, we have seen an accelerating dismantling of the corporation and shedding of stakeholders.  It first started during the merger and acquisition frenzy of the late 80s and through the 90s.  With every merger and acquisition, the Wall Street firms that set up the deal would profit greatly, as would the CEOs with a lot of outstanding compensation in stock.  With those early mergers, it was the sales force and other executives that were laid off.  They generally didn’t have a problem landing jobs elsewhere.  There were also some therapeutic areas that were shuttered and the staff either reabsorbed elsewhere or laid off.  But since this was a relatively small number of scientists, it wasn’t alarming at first.  But then there were a couple of high profile deals in the 90s where a whole company’s research division was laid off.  A number of pharmaceutical companies  located in the midwest were shuttered after deals and some staff relocated to the east coast.  Sometimes, this was just the personal preference of the CEOs who didn’t want to live in the midwest.  Brand new labs were mothballed and families displaced.  But still, there was no panic.

It wasn’t until the last decade that the strategy of going “weightless” became clear.  Little by little, therapeutic areas were closed and certain scientific fields relocated to China and India.  Chemists, in particular, have been especially hard hit.  And since 2007, the bottom has completely fallen out of the research industry.  Research is very expensive so corporations aren’t doing it anymore.  They are contracting out everything, leaving former stakeholders on our own.  Without the support of the corporate lab, we can’t afford to do research.  Now, we are hobbling along, hoping we get far enough in a project to sell our patents to a corporation that is waiting, like vultures, for a small company to get out from under it’s R&D debts.  (Those of you who are concerned with the provisions of the JOBS bill that have to do with transparency with investors should take note.  I think there is an important connection here where Wall Street acts as a middle man.) Those companies will end up selling the patents for more than a buck but not anywhere near as much to keep their operations stable.  And in the meantime, the corporate owners, incentivized by ability to shed any obligations to share their wealth with stakeholders, continue to dismantle their infrastructure.  Before long, a corporation will consist of a pool of investors who own patents from which they will derive their wealth and have very light operational costs that are associated with the “smartest” scientists and engineers who will direct the outsourcing and CRO contracts.  R&D will become a commodity and the people who engage in it completely exposed to the free market.

There’s a big problem with this scenario.  Well, there are several, actually.  It turns out that the barrier to conducting research in this environment is too much for many scientists.  It’s not that they’re not business people.  There’s nothing we can’t learn if we put our minds to it.  It’s that startup costs are so astronomical and the amount of work to be done on a project indefinite and not easily quantified, that the probability of losing all your money greatly outweighs the likelihood of striking it rich.  So, scientists are getting out – of science.  In this environment, it’s strictly for the young and unencumbered.  Science will do better in Europe than here in America because European governments typically protect their scientific industries better and labor unions are stronger there.  The stakeholders are more thoroughly grounded.  And corporations will look to Asia for their non-proprietary science.  PhD chemists in China and India are cheap and plentiful.  They’ll do the knock offs and the synthetic work.

Effexor: The one that almost got away

But the other thing that is problematic with this scenario is that serendipity is much less likely to occur.  The corporation is only going to get exactly what it contracted for and nothing more.  Which brings me back to Morris and Effexor.  Morris was the junior PhD on the project and legend has it that the senior chemist called the shots.  Morris was synthesizing a bunch of compounds for testing and wanted to make one that the senior chemist discouraged him from making.  The senior chemist thought they had synthesized enough at that point.  But Morris had the lab and the resources and the time so he synthesized it anyway and that was the one that made Wyeth billions of dollars of shareholder value.

Under the new system, Morris would be working for a CRO and he wouldn’t be paid to make any extra compounds.  He wouldn’t be getting letters and people wouldn’t be getting better and no one would be getting rich.

Oh well.

Ya’ Think?

Hi all, I’m busy today hand delivering some documents for Brooke for her trip to Germany and then I’m headed to Philly to Check on some jobs I left running.

In the meantime, it seems to have suddenly hit some of the financial analysts that, hey, maybe it wasn’t such a good idea to fire all of the drug discovery scientists in America and expect them to sink or swim in one small underfunded company after another. We could have told them that a few years ago but no one has been listening to the labrats for at least a decade, so, you know, there’s that. Matthew Herper at Forbes gets a clue:

I write a lot about an industry (pharmaceuticals) where there have been huge and crashing drug cuts. From 2000 through the beginning of 2011, the drug industry cut almost 300,000 jobs. That is as many people as are employed at Merck, Pfizer, and GlaxoSmithKline, and as many people as the entire drug business employs in the U.S. Part of the reason is that companies are facing dramatically rising research costs and declining peak sales of new drugs. Price increases can only go so far in counteracting these forces. That’s why there’s lots of talk about moving to smaller, more outsourced companies.

But the Uniqlo article got me thinking that perhaps part of the problem is a lack of appreciation for the human capital that goes into inventing drugs — or, to avoid management speak, all those scientists. Two big problems in the drug business are that most costs occur at the end of developing a new medicine, in the form of new clinical trials, but that the prospect of these huge costs also crimps on what comes from basic research.

An ideal drug company would follow all sorts of crazy ideas in early research, with the goal of selecting those where there was a high probability of believing they would actually prove effective in clinical development. It would bulk up on scientists, and try to limit the number of large clinical trials it conducted to those where some kind of test — blood levels of some protein, perhaps — led researchers to think they had a high probability of success. (Novartis, the most successful company in terms of getting new drugs to market, has moved in this direction.) But the tendency of the shutdowns has been to shut laboratories, too. Look at Merck’s stance toward the old Organon labs or Pfizer’s decision to shut the Michigan labs where Lipitor was invented. Taking the ax to the scientists is probably a mistake.

Let that sink in. In the past decade, we have essentially fired all of the research staff of the US. Oh sure, some of them are lucky enough to score jobs in Massachusetts but these are at small companies where the pay includes equity and where the company failure rate is 80%. Scientists have to uproot their families, sometimes several times, and layoffs are the rule now, not the exception. You can never plan on having a job for very long.

And remember, this is how we treat the best and brightest in American universities and colleges. It’s not much better in academia where the shrinking pool of grant money means that it’s frequently who you know, not what you know, that gets your grant funded. In the meantime, everyone is living on soft money in the most expensive areas of the country.

300,000 people is a lot of people and not all of them have been salespeople. When you go to a networking meeting and meet nothing but other unemployed people trying to find a job, the situation isn’t funny any more. It’s criminal.

I consider myself lucky because I’m not destitute yet. But I know other scientists who are leaving the profession. Not just their fields of study. They’re leaving science altogether. They’re turning their backs on the whole idea of research. And this trend reminds me of something Rachel Maddow wrote about in her book when she was relating our troubles in maintaining nuclear weapons built in the 60s and 70s. The military has lost generational knowledge. It can no longer maintain these systems because the scientists and engineers who used to do it have retired or died and no one replaced them. That’s what’s going to happen to medicine. And that is a shame for scientists and patients alike. Patients will be stuck using older generation medicines and generics. The pace of new dug discovery is going to slow to a snail’s pace and when we are gone, it will be up to a new generation of scientists, if you can get anyone to go into it, to figure out how the “ancient ones” did it.

I’m bitterly disappointed in the way the left has turned their backs on this problem. Based on recent emails I have gotten on the subject, it seems that the left is more concerned with finding fault in research without looking closely at why it is that so many scientists lack the resources and time to check their work. That’s because there’s no money for multiple experiments and no time before your lack of publications land you on the unemployment line. Even if you can publish and make the next big blockbuster, your employment is not assured. To the suits, it’s always, “what have you done for me lately?”

Instead of looking to the scientists to blame, and we tend to be very critical of ourselves or we would have gone into finance which requires a lot less self-reflection, both sides of the aisle should spend some time asking themselves what they might have done differently to keep the scientific infrastructure robust and vibrant. Because right now, there is a lot of blame to go around and we’re pretty disgusted by the reaction of all sides.

I’d like to say I helped cure cancer in my lifetime and for all I know, I may have already done that. But it’s only one of many cancers and the list of diseases is very, very long. For those of you who may be worried that the next antibiotic isn’t there or that your cancer won’t be curable, all I can suggest is that you try very hard to not get sick.

OccupyPharma and other cures

We are also the 99% Meeeeneeeemeeep!

Reader bemused_leftist pointed me to a defense of the control network that I posted about yesterday from a guy who works in one of those companies on the network.  Here are the money quotes from the defense from Andrew Drucker at Made from Truth and Lies: I’m annoyed at the sensationalist financial reporting:

I happen to work for one of those 50 companies, which gives me a little bit of perspective (even if I am very far down its hierarchy). And I can tell you that most of those companies aren’t in that position because of a conspiracy of control – but because you have a pension. AXA, Legal and General, Aviva, Sun Life, and many many more of the companies on there are there because ordinary people put their cash into life insurance or pensions, and that cash is then invested in the stock market so that it can make payouts in the event of either problems (for the insurance) or retirement (for the pensions). And because many of these companies provide pensions either for millions of people, thousands of large companies, or both, they are managing massive piles of cash.

Which doesn’t mean that they’re actually running the companies they own lots of shares in. Most pensions/insurance/life companies are terrified of telling the companies they own shares in how to behave – they want to own shares in something successful so that they make profits, but they don’t have the time to micro-manage them, and they really don’t want to get involved in anything that smells even slightly political.

This actually leads, sometimes, to insufficient control over the directors of large corporations – because if you’re in the FTSE 100, you’re going to find your shares are owned by a lot of investment companies, who just want you to churn out profits, without paying too much attention to, say, board-level renumeration. So you can get away with paying your high level people a lot without a share-holder rebellion. If they were owned by a few ordinary people then they’d find themselves subjected to a lot more scrutiny, and a lot more control.

Well, Andrew, speaking as a former employee of one of those companies that the network node companies are terrified to micro manage, I call bullshit.  The pharma industry has been micromanaged to death by the node network guys.  When they’re not totally onboard some gutwrenching merger or acquisition, they’re telling the CEO to cut more from research.  Yeah, that’s the ticket to a successful, money making pharmaceutical company!  Dismantle the research apparatus.  Do it quickly, like before the next quarter.  Andrew, please do not tell anyone in the pharma industry who has either lost their job or about to lose their job (those are the only two categories at the present time), that the pension fund managers and big banks and other financial sector players have not had a profound effect on the way pharmaceuticals run their businesses.  We have been at the Town Hall meetings when the head honchos have told us directly and to our faces that you guys have been leaning on them- heavily.  It’s not bad enough that pharma has been shooting it’s own image in the foot with lobbyists and high drug prices, that you financial types skim from, or that it is constantly under attack from the left for being less than perfect (as if there is such a thing as a perfect drug, there isn’t).  No, what really pisses the labrats off is yet another boneheaded restructuring plan brought on by some nitwit Wharton School graduate who just has to take the latest management trend out for a spin to teach those damn researchers that research costs money, by golly!  How dare they consume so many pipettes, order so many tests and break so many instruments.  Don’t they know that those costs go into the debit column??  Well, they’re going to have to learn a thing or two or we’re not going to make our quarterly estimate.

It’s been done to every one of the companies I’ve ever heard of.  If the companies aren’t shedding research jobs to hire cheap contractors, they’re shedding research jobs to just get out of unprofitable therapeutic areas.  Well, who needs antibiotics anyway?  The latest news is that Abbott is spinning off the pharma unit altogether.  Oh sure, they’ve got a blockbuster that will keep them afloat for awhile but most likely, they’ll get swallowed up by a bigger shark and where will the cost savings come from?  That’s right, the research unit.  These days, companies buy products, not the group that actually discovered the product.

More joy is on the horizon for 380 Amgen employees who learned just last week that they are going to lose their jobs.  (pharmas are either tricklers or gushers when it comes to cutting jobs.  Amgen is a trickler; Pfizer is a gusher.  But it’s all the same in the end)  Really, guys, do the rest of us unemployed labrats need more competition?  And Merck, the beacon of stability, that has been holding off the financial analysts bravely for the past couple of years while the rest of the pharmas have done what their masters ordered, seems to have finally thrown in the towel.  They are going to be making an announcement next week about reorganizing. Derek Lowe’s blog, In the Pipeline, has some of the details and this complaint from Derek:

And on a similar topic, here’s a post from John LaMattina asking what many people have at one point or another: how come Wall Street analysts get so much influence over how much a drug organization spends on R&D? His examples are Merck, Lilly, and Amgen, and his take is:

“Now, I am all for monitoring R&D budgets to maximize the returns from these investments. And I am all for accountability – asking the R&D organization to deliver new candidates to the pipeline, having formal goals with rigorous deadlines, and for running clinical trials as expeditiously as possible while keeping a close eye on costs. But for Wall Street to reward a company for lowering R&D spending and attack those that want to commit to R&D is absurd. Like it or not, R&D IS the engine that powers a pharmaceutical company. It is also a high-risk endeavor. Furthermore, given all of the hurdles that now exist especially with regard to ensuring safety and having sufficient novelty to justify pricing, R&D is more expensive than ever. But, if you want to succeed, you have to invest – substantially. There are no short cuts.”

Wall Street’s answer, which may be hard to refute, is that if you want the access to capital that the stock market provides, then you have to accept the backseat driving as part of the deal. But do we get the same degree of it as other industries, or more?

That is the rule, Andrew, not the exception.

Now, I know that a lot of people at OccupyWallStreet don’t much care for pharma.   I know it takes a lot of milk of human kindness to love us but try, people, try.  It’s really important that you try to understand this problem.  Because if there was ever an industry that needed to be liberated from Wall Street it would have to be pharmaceutical research.  Wall Street and pharmaceutical research are about as incompatible as two entities can get.  Wall Street is all about short term profits and paying the shareholder.  Pharma research “used” to be about developing cures through science and long term committments.  The Wall Street crew does not care if there is a research industry left in this country.  It is not interested in your excuses that research takes time and human organisms and their cells are very complex.  They are deaf to the pleas that we are being squeezed by the FDA to make our imperfect drugs perfect and need to carry out more and more expensive clinical trials that will cause some drugs to fail to advance.  All Wall Street cares about is whether the quarterly estimate will be hit or not.  And the MBAs who populate pharma’s corporate office suites are there to see that it is done.  That’s why they make the big bucks.

This is an opportunity, occupywallst, to take pharma back and make it work for the public.  Don’t pass this one up.

Moving on to cures of a different kind:

The people at ApartmentTherapy are starting the 20/20 Home Cure on Monday.  It’s 20 minutes a day for 20 days.  Each day features a different project to get your house back in shape.  You can sign up at ApartmentTherapy on Monday.  Here’s Maxwell’s introduction video to explain what it’s about.  If you are a bit more ambitious and need more structure in your home clean up routine, check out the 20 minutes for 30 days plan.  You can add these tasks to your favorite productivity tool (I’m testing out Home Routines for the iPad) and they can come up on a regular basis.  I have heard that if you do something for 21 days, you’re more likely to make it a lasting habit.  So, if you’re like me and you spend  a bit too much time hunched behind your computer, join ApartmentTherapy on Monday for the Home Cure.

Apartmenttherapy is just a great site to add to your daily routine anyway.  If you’re looking for a way to change your home environment in some way, they have the answers, ideas, DIY projects and plenty of design inspirations from people on budgets, updated frequently throughout the day.  They have several sibling sites too that cover everything from renesting, food, and parenting to planning your next high tech gadgets.  Another blog of visual relief for the home is Design*Sponge by Grace Bonney and her crew.  Highly recommended.

On the menu for a cool fall evening, Roast Pumpkin with Cheese Fondue.  I made this last year.  Dead simple to assemble, delicious.  Should be served in front of a toasty fire with salad and a crisp white wine.  Yummm.