Friday, July 31, 2009

Pharmaceutical Industry Shows Signs of Turning Around—Look at the Good News and Strategies Taking Place in July-PART 1

In my opinion, this past month or so marks somewhat of a turning point for the Pharmaceutical and Biotechnology Industries. Both macroeconomic and market conditions contributed to the optimism. Since there is much to say, I'll initially focus on some of the move by Big Pharma in Europe. In the next few days, we'll discuss the US based companies and then Biotechnology.

A headline grabbing contributor to the optimism from the Big Pharmaceutical players in Europe are the numerous reports about revenue enhancement resulting from Swine Flu Medicines (mostly Vaccines) resulting in billions of incremental revenue.

This trend was especially helpful to GlaxoSmithKline who are quoted in (July 23 by Andrew Jack) as “GlaxoSmithKline moved yesterday to become the pharmaceuticals company with the broadest range of products to tackle swine flu. The group unveiled plans to add masks and diagnostics to its vaccines and antiviral medicines business.” Interestingly enough, Andrew Witty, CEO of GSK had to make a public pronouncement about the company's ability to meet demand-certainly a different issue than the company had to deal with in the past. The UK company signaled a strong upsurge in demand from governments for its swine flu vaccine and Relenza, its antiviral drug, as the infection spreads, with plans to expand manufacturing capacity sharply.

Roche of Switzerland was also quite positive with JP Morgan indicating that additional sales of $4.3 billion for 600 million doses are being booked for its antiviral, Tamiflu and its pandemic vaccine. Reportedly, a further 340 million+ doses worth $2.6 billion are anticipated-quite a windfall. Roche threw the US Pharmaceutical Trade Group, The Pharmaceutical Research and Manufactures Association (PhRMA) into quite a tizzy as well by announcing it will drop out of that organization and aligning itself to another trade group, the Biotech Industry Organization (BIO). This was attributed to Roche's acquisition of Genentech and the acknowledgment that most of Roche's Pipeline was coming out of Genentech.

Sanofi-Aventis (SNY) was making good on CEO Chris Viehbacher's announced strategies. In rapid succession, he announced that preclinical research may be dropped in half and use the money to partner with smaller companies in early stage development. He was quoted earlier in the Health Blog as saying: “Part of the reason the Pharma model didn’t work is we just kept throwing money at things and hoping the next blockbuster would come along.” SNY also announced a major restructuring (closing down and consolidation) of its R&D operations. Sanofi continues to be the leader in Flu Vaccine accounting for between 25-33% of worldwide supply and certainly stands to have significant revenue and profit increases from Swine Flu Pandemic Vaccine sales. Additionally, this week Sanofi made a major acquisition to buy out the other 50% of Merial the animal health business that it jointly owns with Merck. It also acquired a $9.25 billion call option to combine Merck's new animal health business when it acquires Schering Plough in the 4th quarter. But wait, it doesn't stop there, as previously stated by Viehbacher, Sanofi wants to go further into vaccines and emerging markets, well the company started that in a big way by buying a 78% share of Indian Vaccine maker Shantha Biotechics for $615 million. What is particularly noteworthy is that unlike other big pharmaceutical companies, Sanofi chose to buy rather than partner- a strategy we believe that will pay large dividends.


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