Saturday, July 31, 2010

Big Pharma – When Will the Music Stop?

My recent blog series on Barron’s article on Big Pharma (The article is available online only for subscribers, a short preview is available at .) got me thinking about what’s going on with Big Pharma. Looking at the company level gives one picture, the day to day struggles of individual companies. Sometimes looking at that level misses the bigger picture.

Stepping back from the company, we arrive at a level where the seismic forces at play with Big Pharma can be observed. Geologists are fond of saying that North America and Europe are slowly moving towards each other again. And, if we all live long enough, say a couple of hundred million years give or take, then we can see it. (Larry won’t be able to get all those frequent flyer miles anymore.) Fortunately, or unfortunately if you’re either Big Pharma management or its shareholders, we’re not going to have wait nearly as long to see the end results in the pharmaceutical industry.

Whatever comes out of this process on the other end will be very different from what came in at the beginning. I’m predicting the end of Big Pharma. Yep, you heard it here first folks. Big Pharma is going away. No, pharmaceutical companies will still be around. But, the corporate behemoths that strode the Earth invoking hope and fear among all who laid eyes on them will be gone like the Olympic gods of yesterday.

I have two observations about this.

First, many are still in denial about what’s going on. Like Andrew Bary in his Barron’s article, they’re not seeing the big picture. Moody’s recent downgrading of its earnings expectations to negative for Eli Lilly ( ) recognizes the current problem but still misses the future ones. The myth of long term earnings improvements is based on the myth of the future drug pipeline. It never ends! Whatever happened to provocative business journalism and rigorous financial analysis?

Next, what replaces Big Pharma? I still believe that fragmentation and geographic dispersal will result from the changes that are underway. There is historical precedent for this. Remember IBM and DEC? Once upon a time they dominated the computer industry. In fact for one brief, shining moment, IBM had it all. Then the personal computer and local area networks came along and, poof, the magic was gone. Not only that, but many of the personal computer players came and went even more quickly. And, now? Now, Lenovo sits in China with the remnants of IBM’s personal computer division. All that in about a generation.
Take a look at a blog ( ) about contract research organizations (CRO’s) that I’ve come across recently and you may see some of the same trends unfolding with pharmaceuticals.

So, how long do you think it will be before some of those big, corporate campuses owned by Big Pharma in New Jersey are going to be subdivided and leased out to the start-ups of their now unemployed corporate occupants?

As always, we welcome your feedback. Please contact us at We look forward to hearing from you.

Contributed by Guy de Lastin

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