Europe – Big Pharma’s Next Big One?

Lately, Big Phama hasn’t had much in the way of good news. And, I’m afraid that this week’s blog won’t do anything to improve that impression.

The European Union’s (EU) recent problems with its Euro currency and fiscal problems in Greece and other smaller countries will only continue to put pressure on the profits of drug companies.

A recent article by Stephen G. Brozak and Lawrence F. Jindra, MD, How the Euro’s Woes Could Impact Health of Biotechnology, the Pharmaceutical Industry and the Average American, (http://wbbsec.com/index.php?option=com_content&view=article&id=140:how-the-euros-woes-could-impact-health-of-biotechnology-the-pharmaceutical-industry-and-the-average-american&catid=58:news-articles&Itemid=80 ) highlights the impact of foreign exchange losses on overseas revenues in addition to lower sales because of straining national healthcare systems. One point that I disagree with them about is when they say that life sciences companies will have to raise prices in the U.S. to offset foreign losses. I don’t think it will be that easy. First, American insurance companies and government providers won’t roll over and take price increases without a fight. Next, the U.S. consumer is still having a rough time. Household and disposable incomes are recovering (some economists would argue that they are in a cyclical downward trend with no end in sight) so those price increases may only drive more customers away.

I suspect that the various EU national healthcare systems will probably take advantage of their control over drug and other medical products to not only reject price increases but to roll prices back. At a minimum, they may just decide to restrict the quantities purchased. Even the Indian Ministry of Commerce is forecasting difficult times ahead for its country’s drug industry (http://pharmexcil.org/data/media_files/Indianpharmaexp_media_file_266.pdf ). Not a good outlook for the global healthcare industry.

Another interesting point from Brozak’s and Jindra’s article is that the number of small biotechnology companies, the engines of new drug development, have decreased from 400 in 2009 to 300 in 2010. They hint at the impact on future revenues when the pipeline is drying up.

Unfortunately, for a while now, I’ve been somewhat negative about prospects for the life science’s industry. We are continuing to see fundamental changes in this industry as it downsizes after at least a generation of outsized growth which wasn’t sustainable. I’ll continue to blog about what’s happening and where this all may be going.

Flashback: I just want to reference back to a prior week’s blog on Offshoring – Gone Too Far? Recently, MSNBC carried a story by Christopher Bodeen of the Associated Press (http://www.msnbc.msn.com/id/37624923/ns/business-world_business/ ) about ongoing labor unrest in China by workers seeking higher wages. Apparently, some are seeking pay increases up to 20%. Let’s see what that does to the offshoring trend! I’ll keep an eye on this developing story.

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

Contributed by Guy de Lastin