Big Pharma – Will It Get Any Better?

I’m still on this kick that life sciences and Big Pharma, in particular, are stuck and aren’t getting better anytime soon. I’ve been out trolling the Net looking for any hints of anything that might indicate either I’m wrong or there’s a turnaround coming soon. And, guess where this is going, I’m not finding much. In fact, I’m not finding anything. (I’m not counting spin doctoring materials churned out by Big Pharma. If you read those you’d run out and load up on their stocks.)

What I am finding tends to support what this blog has been saying for a while, Big Pharma’s not going anywhere anytime soon but down. I’d like to call out a blog which I recently came across whose author, Pharmboy a member at Phil’s Stock World, has recently posted a blog entitled “The Calm Before the Storm – Big Pharma Is Gonna Have Big Problems and Pfizer is the Biggest” (http://seekingalpha.com/instablog/6284-philip-davis/60352-the-calm-before-the-storm-big-pharma-is-gonna-have-big-problems-and-pfizer-is-the-biggest ) that gives a detailed analysis of the trends affecting the industry.

Pharmboy (that’s a great name for a blogger isn’t it?) predicts that Big Pharma revenues will stop growing by 2014. He notes as this blog has that growth will have to come from acquisitions and explains how picking the right science will be essential for making the right investments. This is an important point, because some of the larger pharmaceutical companies are run by what I call professional managers, MBA types with a good handle on numbers, marketing, branding, and the like but who really don’t have a clue about the basic sciences let alone the complex, advanced theories that are behind modern drugs. The recent financial meltdown on Wall Street shows what happens when senior management loses touch with their products.

The blog also lists the major drugs coming off patent in the next several years and estimates that these represented $49.9 billion in 2009 revenues. One point where Pharmboy differs from this blog is that he believes some of the pharmaceutical companies, Novartis (NVS) and Merck (MRK) actually have good drug pipelines while Abbott’s (ABT) is weak but could be augmented by acquisitions.

Pfizer (PFE) is singled out for criticism for paying too much for Wyeth (WYE) and not keeping an eye on the science. He also writes about the inefficiencies and lack of innovation in a larger organization like Pfizer.

I’ve called out Pharmboy’s blog because it’s a very good summary of the issues facing Big Pharma today. What I want to know is when will the main stream media begin to take a closer look here as well? Finally, how about the financial community? When will they begin to challenge the valuations of Big Pharma?

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

Another Sign of Big Pharma’s Demise?

I couldn’t let this one go by. Andrew Jack wrote an article in the February 6, 2009 edition of the Financial Times about how scientists don’t lead pharmaceutical companies anymore. Andrew pointed out that only Lilly’s (NYSE: LLY) CEO, John Lechleiter, had trained as a scientist. He did note that Daniel Vasella, Novartis’ (NYSE: NVS) CEO had been a doctor.

Now, am I the only one who’s drawing a connection between the dwindling pipelines of large pharmaceutical companies? After all, what are professional managers all about? Optimal solutions. Squeeze every cent out of everything that you’ve got and don’t a cent anywhere else unless you have to. Doesn’t lend itself to developing many new drugs does it?

Remember Jack Welch? Hopefully, it hasn’t been that long. And, while I’m not a complete fan of the man, give the devil his due, he knew how to get results. Anyone care to remember Jack’s academic background? A doctorate in chemical engineering from the University of Illinois. Doesn’t sound very sexy does it? But, Jack sure got his money’s worth when he rose to head GE Plastics and made his career there. The rest is history as they say.

I believe that there are two things at work here. First, only scientists can truly appreciate pure research and development and understand what can be done. Next, only scientists can understand the values that pure science can bring to society. This is my opinion, I have no empirical data to back this up. If anyone from the Harvard Business School is reading this, they’re cringing. Now, I know what everyone is saying, Guy’s a Marxist. He’s going soft on capitalism. But, wait, just hear me out.

Anyone remember Bell Labs? When it was a true scientific establishment and developed things like lasers and transistors? Or, how about when Big Auto was run by engineers and designers and hung around with manufacturing types? Bill Gates was a college drop out. (OK, it was from Harvard, but, you get my point.)

The Industrial Revolution wasn’t started by a bunch of quant’s from business schools. They didn’t even graduate from high school! Some were even home schooled! It was all about a bunch of guys, sorry ladies, this was a long time ago, who saw that things could be done better and did something about it.

OK, the baton had to be passed. Even Edison could only go so far without calculus. Pure science and research was made possible funded by the early successes. Somewhere along the way, we lost our way. No one solves problems anymore, no one stretches, and, that’s why Big Pharma will follow Big Auto onto the dustbin of history. (With apologies to Trotsky.)

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