Sunday, November 16, 2008

After Big Auto, Is Big Pharma Next?

The election’s over and I have to admit I feel a certain sense of vindication. I called it. OK, so did just about every political pundit worth their salt. I’ve waited a few days before I wrote this blog because I wanted to see what would happen in the markets and in the nation after Obama’s election. I also had an opportunity to read some of the other blogs and media to see what was going on.
In this blog, I’m going to write about what could happen to Big Pharma in the future. Everyone is focused on Big Auto and what little time they have left goes to the financial services industry. Well, I write about the healthcare industry, drug companies in particular, and their fellow travelers, outsourcing and consulting firms and I’m sticking with it. The reason for my stubbornness is that what certain sectors are experiencing right now will inevitably overtake Big Pharma.
Gene Epstein, the Barron’s columnist, asked in his November 10th column, Economic Beat, how long the slump would last. He focuses on real consumer spending and suggests that a recession could be more serious and last longer if it deteriorates. This would not be good for retailers or auto makers. Layoffs are continuing to rise. People are losing their medical benefits. Anecdotal evidence in the media suggests that people are deferring or going without their drugs because of hard times. Not a good sign. Let’s move over to one of my favorite topics, the pharmaceutical industry’s lagging drug pipeline. Lagging revenues, and no new products to help out, sooner or later, cash flows are going to be affected. Isn’t this what happened to the auto industry? Selling products nobody wants (toenail fungus doesn’t seem like a priority when the sheriff is repossessing your home) and having none of the products that people want or really need hasn’t been a winning strategy for the auto industry and it’s not going to work for Big Pharma.
One of my favorite industry bloggers, Mike Huckman over at CNBC posted a blog last Thursday ( concerning the impact of the global financial crisis on the drug industry. He summarizes the results of study on the health of the industry conducted by Ernst & Young. The end of the blockbuster era and the struggle to figure out what happens next are put forward. Mike does his usual superb job in outlining the issues. (If you follow the drug industry, you have to check in with Mike regularly. Right after you’re finished here.)
Now, don’t get me wrong. I’m not predicting the next Great Depression. Unless people really lose their heads down in Washington, D.C. and elsewhere, we’ll come out of this on the other side. But, I’m not saying that we’re not going to have a recession like we haven’t seen for a long time.
In my next blog, I’m going to write about the outsourcing companies and what’s going on over there. That’s going to be an interesting story in 2009.
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Contributed by Guy de Lastin

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