Sunday, February 3, 2008

Industry: Will there be winners and losers in the pharmaceutical sector? (Part I)

Last week, I blogged about what might happen next with Big Pharma. I wrote about the industry’s problems in general terms and I asked you to submit your thoughts about what companies might make the cut or not. Larry Rothman forwarded to me several articles about companies that might be interesting to blog about. I’ll start with this entry and continue for the next several weeks while I blog on several other subjects that are interesting me. (The Presidential election being just one of them.)
Larry’s first article concerned Wyeth and its recent announcement of up to a ten per cent reduction in its global workforce by 2011. The usual culprits were there. Failing pipeline, threat of generics, and its own unique problems with the FDA. As I read the article I was struck by its banality. No, I’m not criticizing the author. She was just writing about what she had heard and observed. What I’m talking about is here is another pharmaceutical company heading for trouble and other than cutting staff and reducing costs there doesn’t seem to be a lot going on. Recently, Wyeth’s stock has hit a fifty-two week low. Three years previously, their sales force had been reduced. I guess if you don’t think that you’re going to have any new products anytime soon you probably won’t need an expensive sales force.
Honestly, Big Pharma is starting to sound more and more like the U.S. auto industry. Although, at least the auto industry knows what it has to do to survive. Fuel efficient, eco-friendly, smaller vehicles, lower costs, and improving product quality should do it. OK, I know what you’re thinking, easier said than done. But, at least it’s a plan. I don’t hear anything comparable coming from Big Pharma. If anything, Big Pharma is hiding its head in the sand and missing the point.
I go back to my earlier blog entry in January where I wrote about excess capacity in the pharmaceutical industry. This is an example of what I’ve been talking about – a company that seems to have lost its way. The easy gravy train days are going away and managements don’t seem to know how to respond. The question is how does Wyeth respond? The defensive tactics of cost reductions will buy time. However, I’ve always found it curious that analysts and shareholders never ask why managements always wait until revenues start to collapse before they attack their cost structures. What comes next after the costs are taken out and the jobs eliminated? If the pipeline is thin and Big Pharma is losing its ability to raise prices then where will the future growth come from?
Again, in closing, Larry and I would like to hear your thoughts on this matter. Am I missing something here?
Please contact us at We look forward to hearing from you.

Contributed by Guy de Lastin

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