I think that I’ve finally managed to break away from Pharmaceutical Research and Manufacturers of America (PhRMA) (http://www.phrma.org/ ) and its world view. Now, I’m continuing my journey across the Internet looking for Big Pharma’s story.
This week I wanted to move away from Big Pharma’s lobbyists and other front organizations. I went to the websites of two large pharmaceutical companies, Merck and Pfizer. These are two major players in the industry and seemed like a good place to start.
I’ll start with Merck (http://www.merck.com/ ). The usual trappings of a Fortune 500 company were there along with what I’m coming to expect at a large pharmaceutical company. Looking at the site, one could get the impression that this is an altruistic organization worried about patients, the environment, and helping small businesses. (Alright, I admit it, I’m a little bit cynical.)
But, I found what I came looking for, Merck’s pipeline (http://www.merck.com/research/pipeline/home.html?WT.svl=content ). I have to admit from a purely technical perspective, this was done very nicely. Now, let’s talk about the content.
Phase II, Phase III, and Under Review drugs are listed in addition to research areas. Three categories of drugs can be highlighted, biologics, small molecule, and vaccines. Clinical trial results can be linked to for drugs in Phase III and Under Review.
I’m the last guy who can say what’s a good drug or a bad drug from a financial perspective. And, Merck’s site doesn’t include financial forecasts for these potential drugs probably for very good SEC and FDA reasons. Although, I’m probably not going too far out on a limb here by saying that internally Merck is forecasting the financial potential of these drugs.
But, except for a mention to now looking at biologics, there’s nothing about what their philosophy is or why they are doing what they do. Yes, they talk about doing good things and saving lives and that’s about it. I just don’t see an exciting story that tells me that these guys are going to be tomorrow’s breakout story.
Let’s take a quick look at Pfizer’s site (http://www.pfizer.com/home/ ). Here we have all the state of the art social media, Facebook, Twitter, YouTube, and LinkedIn. When I went looking for their pipeline I found a twenty-two page PDF document (http://media.pfizer.com/files/research/pipeline/2010_0127/pipeline_2010_0127.pdf ). (They really could learn something from Merck.)
Like at Merck’s site, I couldn’t find any reference to where Pfizer saw it’s future heading. From both sites I came away with a picture in my mind of countless lab techs all over the world mindlessly droning away at testing compounds for some vague end. I’m reminded of players at a roulette wheel in a casino. Play enough numbers long enough and sooner or later, you’ll win. Didn’t this get Wall Street in trouble a while back?
My journey so far hasn’t shown me any insights yet into why Big Pharma will turn around. If they have any, they should bring them to the fore better than they’ve done so far. Come back next week to see what I’ve found.
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
Showing posts with label Pfizer. Show all posts
Showing posts with label Pfizer. Show all posts
Saturday, September 4, 2010
Saturday, July 17, 2010
A Shot Across the Bow II
This week, I’ll be continuing my commentary on Andrew Bary’s recent cover story in Barron’s (The article is available online only for subscribers, a short preview is available at http://online.barrons.com/article/SB50001424052970203296004575320891909686872.html .) about the future prospects for drug stocks.
I have taken a somewhat contrarian position to Andrew’s. Here are the rest of my comments.
Andrew chides the bears’ position about drug stocks and then proceeds to review a number of pure drug play stocks. Along the way he nods toward the bulls by telling them to take Warren Buffet’s (whom I think is living on his reputation for a while now, be careful of financial advisors who raffle off lunch with themselves for charity). But, honestly, every racetrack in the country has touts giving the same advice on how to play the ponies.
Andrew’s comments about Merck don’t really provide any insight on why there should be hope for a change anytime soon there. He talks of “promising” drugs acquired in the Schering-Plough acquisition and Merck’s “historically…productive labs”. Again, no new insights. Every stock prospectus ever issued (at least since the SEC’s been around) says that past performance is no guarantee of future performance. So, why should any of this make Merck a better investment. Then there’s the projection of a potential stock price in the mid-40’s from today’s 36 per share “if the pipeline pans out”. That’s a nice, safe, long term projection that is so far out that it should be perfectly safe to make. Also, it doesn’t do too much for an investor today.
Next up, my man Andrew tackles Sanofi. He gets it right about this being “underappreciated” but it’s where he goes from there that I disagree with. His faith in their drug pipeline seems to be based primarily on the CEO’s blandishments. Again, Andrew gets it right about the immediate challenges that this company faces but looking past 2013, he thinks things could be wonderful. Why? Because of their “vaccines and insulin products”. What type of margins will these products have? They sound like the type of products that national healthcare programs would pay for. The same programs that are playing hardball on pricing. I don’t know where Andrew plans on being a few years from now, but, I’ll wager it won’t be at Barron’s.
Pfizer and Novartis are the next drug stocks reviewed by Bary. He’s not as optimistic about the former, reality has to set in sometime, and with the latter, he gives a rosy forecast for 2015.
I’ll have more to blog about this article in my next blog. I find it rather disappointing that a major publication like Barron’s can expend as much printer’s ink as they did for this article and it doesn’t really add anything new to the debate.
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
I have taken a somewhat contrarian position to Andrew’s. Here are the rest of my comments.
Andrew chides the bears’ position about drug stocks and then proceeds to review a number of pure drug play stocks. Along the way he nods toward the bulls by telling them to take Warren Buffet’s (whom I think is living on his reputation for a while now, be careful of financial advisors who raffle off lunch with themselves for charity). But, honestly, every racetrack in the country has touts giving the same advice on how to play the ponies.
Andrew’s comments about Merck don’t really provide any insight on why there should be hope for a change anytime soon there. He talks of “promising” drugs acquired in the Schering-Plough acquisition and Merck’s “historically…productive labs”. Again, no new insights. Every stock prospectus ever issued (at least since the SEC’s been around) says that past performance is no guarantee of future performance. So, why should any of this make Merck a better investment. Then there’s the projection of a potential stock price in the mid-40’s from today’s 36 per share “if the pipeline pans out”. That’s a nice, safe, long term projection that is so far out that it should be perfectly safe to make. Also, it doesn’t do too much for an investor today.
Next up, my man Andrew tackles Sanofi. He gets it right about this being “underappreciated” but it’s where he goes from there that I disagree with. His faith in their drug pipeline seems to be based primarily on the CEO’s blandishments. Again, Andrew gets it right about the immediate challenges that this company faces but looking past 2013, he thinks things could be wonderful. Why? Because of their “vaccines and insulin products”. What type of margins will these products have? They sound like the type of products that national healthcare programs would pay for. The same programs that are playing hardball on pricing. I don’t know where Andrew plans on being a few years from now, but, I’ll wager it won’t be at Barron’s.
Pfizer and Novartis are the next drug stocks reviewed by Bary. He’s not as optimistic about the former, reality has to set in sometime, and with the latter, he gives a rosy forecast for 2015.
I’ll have more to blog about this article in my next blog. I find it rather disappointing that a major publication like Barron’s can expend as much printer’s ink as they did for this article and it doesn’t really add anything new to the debate.
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
Saturday, June 26, 2010
A Cautionary Tale
I’m going to run off the reservation a little today. (OK, maybe more than a little, but, I think the point is important.) The media has been full of stories for most of this year about several, large corporations (e.g., Toyota, BP, Massey) that have gotten themselves into a lot of trouble. (Check out Matt Krantz’s USA Today June 4, 2010 article, http://www.usatoday.com/money/markets/2010-06-04-disasterstocks04_ST_N.htm .) Now, you’re probably wondering why I’m blogging about these companies and what’s the relationship with Big Pharma?
The connection is cost cutting. Relentless cost cutting to the exclusion of all else. I’m not implying that these companies are alone in this. The mantra of cost cutting to enhance shareholder value has been around for at least a generation. It sounds seductively simple, unnecessary costs should be eliminated. The good costs are those that enhance productivity and everyone goes home happy. Right?
Here’s where I’ve always had a problem with this rather simplistic view of things. What’s a good cost? The financial analysts and media tend to look at earnings per share (EPS) and year over year profits. The fact that routine maintenance costs, expert staff, and training costs for the remaining employees have been reduced, if not outright eliminated, seems to be glossed over. And, let’s not forget about research and development expenditures which might go a long way to explaining the drying up of the product pipelines at drug companies lately.
Corporations have been becoming increasingly complex for a long time. Managing complexity as many of our readers know from firsthand experience is no simple matter. So, how can a simple measure like how much less have we spent than last year be used while the business is not exactly simplifying?
Product recalls may prove to be leading indicators in the long run of underlying problems. Of course, that assumes the products are being recalled in the first place. Take a look over at the FDA’s website for drug recalls (http://www.fda.gov/safety/recalls/default.htm ) and ask yourself how can these things happen to companies like Pfizer?
Where I’m going with all this is what should we expect to see with Big Pharma and their smaller brethren? I’ve blogged before about how large life sciences companies are collections of products and services that are almost impossible for one executive to manage.
The argument of synergy is often trotted out, but, I have yet to see a consistent track record for that one. In fact, I can’t even think of a good stand alone example of one. (I invite the readership to post with any that they may be aware of.)
In closing, I believe that we are seeing the start of a new trend for business and especially in the life sciences sector and that is, large, complex businesses struggling to understand what expenditures are necessary and which aren’t. Since figuring this one out is tough, I expect that we’re going to see declining profits for some time.
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
The connection is cost cutting. Relentless cost cutting to the exclusion of all else. I’m not implying that these companies are alone in this. The mantra of cost cutting to enhance shareholder value has been around for at least a generation. It sounds seductively simple, unnecessary costs should be eliminated. The good costs are those that enhance productivity and everyone goes home happy. Right?
Here’s where I’ve always had a problem with this rather simplistic view of things. What’s a good cost? The financial analysts and media tend to look at earnings per share (EPS) and year over year profits. The fact that routine maintenance costs, expert staff, and training costs for the remaining employees have been reduced, if not outright eliminated, seems to be glossed over. And, let’s not forget about research and development expenditures which might go a long way to explaining the drying up of the product pipelines at drug companies lately.
Corporations have been becoming increasingly complex for a long time. Managing complexity as many of our readers know from firsthand experience is no simple matter. So, how can a simple measure like how much less have we spent than last year be used while the business is not exactly simplifying?
Product recalls may prove to be leading indicators in the long run of underlying problems. Of course, that assumes the products are being recalled in the first place. Take a look over at the FDA’s website for drug recalls (http://www.fda.gov/safety/recalls/default.htm ) and ask yourself how can these things happen to companies like Pfizer?
Where I’m going with all this is what should we expect to see with Big Pharma and their smaller brethren? I’ve blogged before about how large life sciences companies are collections of products and services that are almost impossible for one executive to manage.
The argument of synergy is often trotted out, but, I have yet to see a consistent track record for that one. In fact, I can’t even think of a good stand alone example of one. (I invite the readership to post with any that they may be aware of.)
In closing, I believe that we are seeing the start of a new trend for business and especially in the life sciences sector and that is, large, complex businesses struggling to understand what expenditures are necessary and which aren’t. Since figuring this one out is tough, I expect that we’re going to see declining profits for some time.
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
Saturday, May 29, 2010
Pharmaceuticals - How Much Excess Capacity Is Too Much?
Scanning news headlines earlier this week, I came across an article about Pfizer (PFE) laying off another 6,000 employees as part of its post-Wyeth acquisition cost cutting program. (See Melly Alazraki’s blog at http://www.dailyfinance.com/story/company-news/pfizer-plans-manufacturing-job-cuts/19481620/ .) Being a curious sort of guy, I went onto Google and searched for references to Pfizer layoffs. I found many other links to layoffs all over the world. Durham, NC; NYC; Plattsburgh, NY; Collegeville, PA; Ireland; and Puerto Rico were just a few of the locations that I found where layoffs were taking place.
Pfizer originally announced layoffs approximating 20,000 jobs from its Wyeth acquisition. (http://blogs.wsj.com/health/2009/10/15/pfizer-wyeth-deal-wraps-up-layoffs-to-follow/ ) This week’s announcement in addition to the layoffs announced eight plant closures and reduced operations in six others. (http://www.thestreet.com/story/10759832/1/pfizer-wyeth-combo-leads-to-more-layoffs.html?puc=tscmarketwatch&cm_ven=tscmarketwatch ) Obviously, a lot of extra capacity is being wrung out of the industry. Which could make one wonder what sort of career opportunities might exist in pharmaceuticals in the future?
Clifford S. Mintz, otherwise known as the BioJobBlogger (http://www.biojobblog.com/promo/about/ ) has written a very interesting and relevant blog (http://www.biojobblog.com/2009/11/articles/biojobbuzz/pfizerwyeth-layoff-update/ ) about what’s been happening in the pharmaceuticals industry. He maintains that the traditional vertically integrated industry model is coming to an end with new drug development coming from outside Big Pharma with only marketing and distribution functions remaining.
The points made are good ones. Previous blogs here have echoed similar feelings. What I can’t stop thinking about is where does this all lead? Recent history has taught us that the twin phenomena of the twenty-first century, globalization and the Internet, are driving out middlemen. I remember my old Economics 101 professor teaching that perfect markets require perfect knowledge resulting in zero profits. (Professor, apologies, it’s been more years than I care to remember. All errors in restating your lectures are my fault.) Aren’t the pharmaceutical companies transforming themselves into middlemen?
In my simplistic view of the world, there will be manufacturers and sellers. In order to survive middlemen will have to become large enough to take advantage of economies of scale. There probably won’t be a need for many players in this space. In fact, economic reality may dictate that will only be a small number of global players. (Oligopoly, anyone?)
Consolidation and closure of manufacturing plants with the consequential elimination of jobs is a sure sign of excess capacity in an industry. And, once those plants and jobs are gone, they won’t be coming back any time soon, particularly in the United States. Here’s why. Given local zoning and environmental ordinances in many American communities, building and running a modern manufacturing plant is an expensive and time consuming proposition.
I’ll continue to follow this theme going forward. I suspect that we’ll see more signs of an industry undergoing consolidation.
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
Pfizer originally announced layoffs approximating 20,000 jobs from its Wyeth acquisition. (http://blogs.wsj.com/health/2009/10/15/pfizer-wyeth-deal-wraps-up-layoffs-to-follow/ ) This week’s announcement in addition to the layoffs announced eight plant closures and reduced operations in six others. (http://www.thestreet.com/story/10759832/1/pfizer-wyeth-combo-leads-to-more-layoffs.html?puc=tscmarketwatch&cm_ven=tscmarketwatch ) Obviously, a lot of extra capacity is being wrung out of the industry. Which could make one wonder what sort of career opportunities might exist in pharmaceuticals in the future?
Clifford S. Mintz, otherwise known as the BioJobBlogger (http://www.biojobblog.com/promo/about/ ) has written a very interesting and relevant blog (http://www.biojobblog.com/2009/11/articles/biojobbuzz/pfizerwyeth-layoff-update/ ) about what’s been happening in the pharmaceuticals industry. He maintains that the traditional vertically integrated industry model is coming to an end with new drug development coming from outside Big Pharma with only marketing and distribution functions remaining.
The points made are good ones. Previous blogs here have echoed similar feelings. What I can’t stop thinking about is where does this all lead? Recent history has taught us that the twin phenomena of the twenty-first century, globalization and the Internet, are driving out middlemen. I remember my old Economics 101 professor teaching that perfect markets require perfect knowledge resulting in zero profits. (Professor, apologies, it’s been more years than I care to remember. All errors in restating your lectures are my fault.) Aren’t the pharmaceutical companies transforming themselves into middlemen?
In my simplistic view of the world, there will be manufacturers and sellers. In order to survive middlemen will have to become large enough to take advantage of economies of scale. There probably won’t be a need for many players in this space. In fact, economic reality may dictate that will only be a small number of global players. (Oligopoly, anyone?)
Consolidation and closure of manufacturing plants with the consequential elimination of jobs is a sure sign of excess capacity in an industry. And, once those plants and jobs are gone, they won’t be coming back any time soon, particularly in the United States. Here’s why. Given local zoning and environmental ordinances in many American communities, building and running a modern manufacturing plant is an expensive and time consuming proposition.
I’ll continue to follow this theme going forward. I suspect that we’ll see more signs of an industry undergoing consolidation.
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
Sunday, April 25, 2010
FDA Recalls Pfizer's Antipsychotic Drug Geodon due to Overdosing in Clinical Trial
Our colleague, Lee Howard of "The Day" newspaper in Connecticut wrote the following article that appeared in his newspaper this week (http://www.theday.com/article/20100421/BIZ02/304219875/-1/BIZ). He was kind enough to ask for our view and we in turn are publishing that article:
"Pfizer Inc. has received a warning letter from the U.S. Food and Drug Administration reproaching the company for failing to monitor properly studies of its antipsychotic drug Geodon that led to excessive doses being administered to 13 children and at least 20 adults.
The letter, addressed April 9 to Martin Mackay, president of Pfizer's PharmaTherapeutics Research & Development division and first reported Tuesday by the Reuters news service, said the FDA had found an internal company report dated Nov. 7, 2006, that indicated "dosing errors" had occurred.
The initial seven overdoses, for a medication trial in 2006 that the FDA redacted in its warning letter but which Pfizer confirmed was Geodon, were blamed on a lack of proper training. But six more children in another study more than a year later received excessive doses as well even after personnel were retrained, according to the FDA.
One patient received overdoses for 30 days, and others reported tremors and other side effects from the mistake, the agency said in its letter, available online at www.fda.gov/ICECI/EnforcementActions/WarningLetters/ucm208976.htm.
"We conclude that you did not adhere to the applicable statutory requirements and FDA regulations governing the conduct of clinical investigations," the agency added.
Among the FDA's findings:
• Pfizer failed to officially designate someone sufficiently trained in medical issues to answer questions that would lead to informed consent, as required by regulations.
• Pfizer monitors visited one of the studies nine times but never picked up on the overdoses; instead, a company data management unit made the discovery.
• Pfizer failed to keep study investigators informed about new observations regarding reactions to the drug, especially about adverse effects and safe uses.
Pfizer said in a statement through its director of worldwide communications, Kristen E. Neese, that it is "committed to fully addressing FDA's concerns."
Neese pointed out that many of the FDA's insights about the drug-trial problems were first uncovered and reported by Pfizer itself, as part of its monitoring and quality assurance processes.
"Since that time, Pfizer has instituted several new measures designed to improve monitoring and execution of clinical trials, including our oversight of clinical investigators," Neese said.
Neese said Pfizer will identify to the FDA in the next two weeks several clinical-trial enhancements that the company believes will present similar issues in the future.
Larry Rothman, a blogger on the drug industry and chief executive officer of Pharma Flex, a temporary staffing firm in Fort Lauderdale, Fla., said warning letters regarding clinical trials are rare. Generally speaking, he said, trials are very closely monitored both because of potential hazards to patients and because drug companies must show rigor in their administration of the experimental medications to get statistically meaningful results.
"This is a very unusual event," he said, "but it looks like Pfizer did their best to fix it."
The warning letter to Pfizer followed at one-month investigation last year by two FDA inspectors. Pfizer subsequently acknowledged problems with its clinical investigations, but a July 2009 response letter to the investigation "did not contain a detailed outline of procedures or processes that would be implemented to present future occurrences," according to the agency.
The FDA also noted that the failure to properly monitor its investigations was a repeat violation, since the agency had sent a similar letter to the company after a 2005 inspection that showed widespread overdosing of study subjects."
"Pfizer Inc. has received a warning letter from the U.S. Food and Drug Administration reproaching the company for failing to monitor properly studies of its antipsychotic drug Geodon that led to excessive doses being administered to 13 children and at least 20 adults.
The letter, addressed April 9 to Martin Mackay, president of Pfizer's PharmaTherapeutics Research & Development division and first reported Tuesday by the Reuters news service, said the FDA had found an internal company report dated Nov. 7, 2006, that indicated "dosing errors" had occurred.
The initial seven overdoses, for a medication trial in 2006 that the FDA redacted in its warning letter but which Pfizer confirmed was Geodon, were blamed on a lack of proper training. But six more children in another study more than a year later received excessive doses as well even after personnel were retrained, according to the FDA.
One patient received overdoses for 30 days, and others reported tremors and other side effects from the mistake, the agency said in its letter, available online at www.fda.gov/ICECI/EnforcementActions/WarningLetters/ucm208976.htm.
"We conclude that you did not adhere to the applicable statutory requirements and FDA regulations governing the conduct of clinical investigations," the agency added.
Among the FDA's findings:
• Pfizer failed to officially designate someone sufficiently trained in medical issues to answer questions that would lead to informed consent, as required by regulations.
• Pfizer monitors visited one of the studies nine times but never picked up on the overdoses; instead, a company data management unit made the discovery.
• Pfizer failed to keep study investigators informed about new observations regarding reactions to the drug, especially about adverse effects and safe uses.
Pfizer said in a statement through its director of worldwide communications, Kristen E. Neese, that it is "committed to fully addressing FDA's concerns."
Neese pointed out that many of the FDA's insights about the drug-trial problems were first uncovered and reported by Pfizer itself, as part of its monitoring and quality assurance processes.
"Since that time, Pfizer has instituted several new measures designed to improve monitoring and execution of clinical trials, including our oversight of clinical investigators," Neese said.
Neese said Pfizer will identify to the FDA in the next two weeks several clinical-trial enhancements that the company believes will present similar issues in the future.
Larry Rothman, a blogger on the drug industry and chief executive officer of Pharma Flex, a temporary staffing firm in Fort Lauderdale, Fla., said warning letters regarding clinical trials are rare. Generally speaking, he said, trials are very closely monitored both because of potential hazards to patients and because drug companies must show rigor in their administration of the experimental medications to get statistically meaningful results.
"This is a very unusual event," he said, "but it looks like Pfizer did their best to fix it."
The warning letter to Pfizer followed at one-month investigation last year by two FDA inspectors. Pfizer subsequently acknowledged problems with its clinical investigations, but a July 2009 response letter to the investigation "did not contain a detailed outline of procedures or processes that would be implemented to present future occurrences," according to the agency.
The FDA also noted that the failure to properly monitor its investigations was a repeat violation, since the agency had sent a similar letter to the company after a 2005 inspection that showed widespread overdosing of study subjects."
Thursday, April 22, 2010
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
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
Tuesday, June 23, 2009
Big Pharma – First Cracks Appearing?
Larry and I have been blogging for a while about the health (no pun intended) of Big Pharma. Earlier, we had even drawn comparisons to Big Auto. We’d left the theme for a while – there’s never a shortage of stories about this industry. But, a couple of weeks ago, I came across an interesting article in Barron’s and I felt that I was no longer a lonely voice crying in the desert. There may actually be fellow travelers!
In the June 1, 2009 issue of Barron’s, Vito J. Racanelli in his column, The Trader, questioned the supposedly solid financial results of the pharmaceutical industry. He cited analytical work done at First Global by Kavita Thomas which reported that the superior return on equity (ROE) recently at large pharmaceutical companies was not a result of improved operating results but of also of charges to equity and stock buybacks. The types of charges noted arose from foreign exchange losses and pensions. Vito cited examples of Pfizer (PFE), Eli Lilly (ELI), Johnson & Johnson (JNJ) and Merck (MRK) where these activities took place.
Vito cites Kavita’s work as a potential leading indicator for the health of the pharmaceutical industry. He’s right. While I’ve been blogging about product pipelines and government intervention, Kavita has supplied the financial analysis that can be used to see where the industry is going. Interestingly, Vito comments on pharmaceuticals’ debt levels implying that they are not excessive although debt ratios are rising, again, because of falling equity numbers.
Both Thomas and Racanelli ask how long will the pharmaceuticals use creative financing and expense reductions to support their earnings. As we’ve seen in other industries as of late, it won’t last.
So, what next? I expect that we’ll probably see more creative accounting and attempts to reduce costs. But, it’s a zero sum game. Many of the pharmaceutical companies are sitting on large cash reserves and probably have access to other sources of funding. There won’t be a dramatic deterioration overnight in the financial situation of Big Pharma overnight. Possibly, some of the vendors supplying outsourcing and similar services may have a temporary surge until the money lasts and all cost cutting avenues have been exhausted.
One final word, watch those cash reserves at Big Pharma. Ford (F) is still alive, barely, but alive, because it had the foresight to arrange for lines of credit before they needed them. General Motors (GM) and Chrysler didn’t and had to go cap in hand to Washington looking for money. If the Obama administration succeeds in reducing drug costs in this country then Big Pharma may be having to follow the same path. Hopefully, they’ll leave their corporate jets at home.
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
In the June 1, 2009 issue of Barron’s, Vito J. Racanelli in his column, The Trader, questioned the supposedly solid financial results of the pharmaceutical industry. He cited analytical work done at First Global by Kavita Thomas which reported that the superior return on equity (ROE) recently at large pharmaceutical companies was not a result of improved operating results but of also of charges to equity and stock buybacks. The types of charges noted arose from foreign exchange losses and pensions. Vito cited examples of Pfizer (PFE), Eli Lilly (ELI), Johnson & Johnson (JNJ) and Merck (MRK) where these activities took place.
Vito cites Kavita’s work as a potential leading indicator for the health of the pharmaceutical industry. He’s right. While I’ve been blogging about product pipelines and government intervention, Kavita has supplied the financial analysis that can be used to see where the industry is going. Interestingly, Vito comments on pharmaceuticals’ debt levels implying that they are not excessive although debt ratios are rising, again, because of falling equity numbers.
Both Thomas and Racanelli ask how long will the pharmaceuticals use creative financing and expense reductions to support their earnings. As we’ve seen in other industries as of late, it won’t last.
So, what next? I expect that we’ll probably see more creative accounting and attempts to reduce costs. But, it’s a zero sum game. Many of the pharmaceutical companies are sitting on large cash reserves and probably have access to other sources of funding. There won’t be a dramatic deterioration overnight in the financial situation of Big Pharma overnight. Possibly, some of the vendors supplying outsourcing and similar services may have a temporary surge until the money lasts and all cost cutting avenues have been exhausted.
One final word, watch those cash reserves at Big Pharma. Ford (F) is still alive, barely, but alive, because it had the foresight to arrange for lines of credit before they needed them. General Motors (GM) and Chrysler didn’t and had to go cap in hand to Washington looking for money. If the Obama administration succeeds in reducing drug costs in this country then Big Pharma may be having to follow the same path. Hopefully, they’ll leave their corporate jets at home.
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
Friday, May 29, 2009
Comparative Effectiveness Research--Blessing or Curse for Life Sciences Industry?
We welcome a new author to our blog, Dr. Joel Studebaker who discusses an issue that is certain to have an impact on the entire Life Sciences Industry assuming the Obama administration is able to get this legislation passed. Joel's biography is appended the end of this article.
Comparative Effectiveness Research:
The $1.1 billion in funding for comparative effectiveness research (CER) in the federal stimulus plan has considerable significance for the pharmaceutical and medical device industries. This funding will support studies of the effectiveness of alternative therapies – pharmaceutical, device, or medical procedure – for particular medical conditions. The studies will focus on outcomes like improvements in patient status or adverse effects but they will not currently consider the costs of treatment. Proponents of CER assert that it provides opportunities to control health care costs without sacrificing quality and to give physicians systematic, unbiased data about outcomes for competing therapies. Opponents believe the results will determine which therapies receive reimbursement from government and private insurance and thus effectively dictate medical decisions to physicians. In addition, there is concern that CER studies may lead to studies that do consider cost, with the result that treatments that are effective but relatively expensive will not qualify for reimbursement. In the United Kingdom, the effectiveness studies of the National Institute for Health (NIH) and Clinical Excellence (NICE) currently take cost into account.
Clinical trials represent the most rigorous approach to CER, and pharmaceutical companies sometimes publish the results of trials demonstrating that their products produce better outcomes than competing alternatives. The expense of clinical trials limits the number of patients they can include and the length of time they can cover, however. A second approach is to compare the reported results of clinical trials of products aimed at the same clinical condition. The major challenges in this approach are that different studies may use different methods and significantly different patient populations. A third approach is to analyze data available in medical and pharmacy claims. The data in medical claims submitted to insurers, managed care organizations, and government programs includes codes identifying the patient’s diagnoses, the procedures carried out, and the provider for each claim. Pharmacy claims submitted to pharmacy benefit managers provide data on drugs a patient is taking. Some private plans and government programs cover millions of members, and thus they have data on larger populations than a clinical trial can enroll. When membership in these programs is relatively stable over time, it’s possible to study long term effects. Large populations also make it possible to study sub-populations, preserving a measure of personalized medicine in CER.
Referring to studies based on claim records, a 2007 paper from the Congressional Budget Office noted that “A central difficulty in such studies, however, is accounting for the differences in patients’ health status that play a role in determining which treatment they get… Insurance claims typically do not include any information about health status.” To overcome this difficulty, one may use a software package that classifies individuals by health status on the basis of their claims. One should recognize, however, that there are limitations to using claims for CER. Unlike a clinical trial, a study of claim data lacks demographic data beyond age and gender, results from laboratory tests (though diagnoses may reflect laboratory results), or medical charts. Precedents for using claim data in comparative research include a Lilly study of cost effectiveness for the antipsychotic olanzapine and a Pfizer study comparing patients taking Lipitor® to patients taking Merck’s Zocor.
Currently, it’s not clear what new insights future CER activity will produce or what impact they will have on health care. It is possible that a body similar to NICE will come into existence in the US or that the FDA will begin to consider CER comparing products submitted for approval to products already on the market. One observer has suggested that CER results may eventually be the only way for a particular product to succeed in the marketplace in competition with less expensive alternatives.
Dr. Joel Studebaker's – Biography
After finishing graduate school, Joel Studebaker began his career at the IBM Watson Research Center in Yorktown Heights, NY. He then moved to IBM Biomedical Systems, a small division that made centrifuges for separating blood into components, where he established the laboratory for chemistry and hematology. After IBM sold that division, he worked on an IBM project at Princeton University for three years and then worked with Larry Rothman at the IBM Engineering/Scientific support center and the Pharmaceutical Industry Center.
Since leaving IBM in 1992, he has worked as a developer and project manager in databases and software development for several small systems integration firms. His pharmaceutical/biotech experience has included two tours of duty with the American Red Cross Blood Banks, an assignment managing the discovery software support group at J&J PRD in Raritan, NJ, and a position as Associate Director of Informatics at Orchid BioSciences. More recently, he has worked in medical and pharmacy claim analysis at CareAdvantage and Integr-eCare.
His current interests include comparative effectiveness research and single nucleotide polymorphisms in personalized medicine. He holds a BS in chemistry from Stanford and a PhD in chemical physics from Harvard.
Comparative Effectiveness Research:
The $1.1 billion in funding for comparative effectiveness research (CER) in the federal stimulus plan has considerable significance for the pharmaceutical and medical device industries. This funding will support studies of the effectiveness of alternative therapies – pharmaceutical, device, or medical procedure – for particular medical conditions. The studies will focus on outcomes like improvements in patient status or adverse effects but they will not currently consider the costs of treatment. Proponents of CER assert that it provides opportunities to control health care costs without sacrificing quality and to give physicians systematic, unbiased data about outcomes for competing therapies. Opponents believe the results will determine which therapies receive reimbursement from government and private insurance and thus effectively dictate medical decisions to physicians. In addition, there is concern that CER studies may lead to studies that do consider cost, with the result that treatments that are effective but relatively expensive will not qualify for reimbursement. In the United Kingdom, the effectiveness studies of the National Institute for Health (NIH) and Clinical Excellence (NICE) currently take cost into account.
Clinical trials represent the most rigorous approach to CER, and pharmaceutical companies sometimes publish the results of trials demonstrating that their products produce better outcomes than competing alternatives. The expense of clinical trials limits the number of patients they can include and the length of time they can cover, however. A second approach is to compare the reported results of clinical trials of products aimed at the same clinical condition. The major challenges in this approach are that different studies may use different methods and significantly different patient populations. A third approach is to analyze data available in medical and pharmacy claims. The data in medical claims submitted to insurers, managed care organizations, and government programs includes codes identifying the patient’s diagnoses, the procedures carried out, and the provider for each claim. Pharmacy claims submitted to pharmacy benefit managers provide data on drugs a patient is taking. Some private plans and government programs cover millions of members, and thus they have data on larger populations than a clinical trial can enroll. When membership in these programs is relatively stable over time, it’s possible to study long term effects. Large populations also make it possible to study sub-populations, preserving a measure of personalized medicine in CER.
Referring to studies based on claim records, a 2007 paper from the Congressional Budget Office noted that “A central difficulty in such studies, however, is accounting for the differences in patients’ health status that play a role in determining which treatment they get… Insurance claims typically do not include any information about health status.” To overcome this difficulty, one may use a software package that classifies individuals by health status on the basis of their claims. One should recognize, however, that there are limitations to using claims for CER. Unlike a clinical trial, a study of claim data lacks demographic data beyond age and gender, results from laboratory tests (though diagnoses may reflect laboratory results), or medical charts. Precedents for using claim data in comparative research include a Lilly study of cost effectiveness for the antipsychotic olanzapine and a Pfizer study comparing patients taking Lipitor® to patients taking Merck’s Zocor.
Currently, it’s not clear what new insights future CER activity will produce or what impact they will have on health care. It is possible that a body similar to NICE will come into existence in the US or that the FDA will begin to consider CER comparing products submitted for approval to products already on the market. One observer has suggested that CER results may eventually be the only way for a particular product to succeed in the marketplace in competition with less expensive alternatives.
Dr. Joel Studebaker's – Biography
After finishing graduate school, Joel Studebaker began his career at the IBM Watson Research Center in Yorktown Heights, NY. He then moved to IBM Biomedical Systems, a small division that made centrifuges for separating blood into components, where he established the laboratory for chemistry and hematology. After IBM sold that division, he worked on an IBM project at Princeton University for three years and then worked with Larry Rothman at the IBM Engineering/Scientific support center and the Pharmaceutical Industry Center.
Since leaving IBM in 1992, he has worked as a developer and project manager in databases and software development for several small systems integration firms. His pharmaceutical/biotech experience has included two tours of duty with the American Red Cross Blood Banks, an assignment managing the discovery software support group at J&J PRD in Raritan, NJ, and a position as Associate Director of Informatics at Orchid BioSciences. More recently, he has worked in medical and pharmacy claim analysis at CareAdvantage and Integr-eCare.
His current interests include comparative effectiveness research and single nucleotide polymorphisms in personalized medicine. He holds a BS in chemistry from Stanford and a PhD in chemical physics from Harvard.
Tuesday, March 17, 2009
Big Pharma’s Wanna-be’s
I’ve been blogging for awhile about the life sciences industry and things have started to get lively. Between the economy and its impact on the financial markets and the recent spate of mergers, Larry and I haven’t been lacking for blogging topics.
While following the industry and researching for my blogs, I’ve been noticing that the industry’s excess capacity is slowly merging itself away. A recent article in Barron’s described Bristol-Myers Squibb (NYSE: BMY) as a mid-sized pharmaceutical company. This got me thinking, who’s in Big Pharma now? Don’t worry, this blog won’t become a tedious list of company names designed to fill space. (BTW, I personally use CNBC’s Pharma Watch List at http://www.cnbc.com/id/15837675 for those of you who really enjoy lists of company names.) Pfizer (NYSE: PFE) and Wyeth (NYSE: WYE) are merging. So too, are Merck (NYSE: MRK) and Schering-Plough (NYSE: SGP), unless Johnson & Johnson (NYSE: JNJ) have something to say about it. Roche (SWX Europe: ROG) and Genentech (NYSE: DNA) are finally getting together. Jim Cramer of CNBC was speculating about Abbott Laboratories (NYSE: ABT) and
Celera (NYSE: CRA) getting together awhile back. (I wonder if I really need to say “Jim Cramer of CNBC”. Is there anybody on the planet who doesn’t know Jim especially after Jon Stewart got finished with him the other night? But, I digress.) Hey, wait a second, this is starting to turn into one of those tedious lists I was griping about several sentences ago.
Let’s pull out two of those names, Johnson & Johnson and Abbott Laboratories and talk about them for a few minutes. They get tossed in everybody’s list of Big Pharma companies but are they really pharmaceutical companies? Yes, they do research and development, market drugs, and go cap in hand to the FDA like the Merck’s, Pfizer’s, and Lilly’s. But, what about all those other things that they do?
First, both companies have significant businesses in the medical devices sector. Definitely healthcare related. Complicated products with healthy (no pun intended) gross margins, I’ll bet. But, don’t they have similarities to drugs? Insurance companies and Medicare pay for them. Hospitals and similar healthcare providers don’t want a lot of vendors’ similar products with just different enough procedures cluttering their storage rooms and confusing their staffs. Product risk? Remember heart defribulators? I’ll bet Boston Scientific does. That one made Vioxx look a sandlot stickball game.
Next, Johnson & Johnson has a consumer products business, mostly high end goods or their own highly respected brand name products. But, many businesses are finding that highly respected brands are not as recession proof as they once were. Then, there’s what I call the Wal-mart effect. Consumer products companies have been resigning themselves to having to deal with the likes of Wal-mart and the few other remaining retail distributors in this country. Also, consumer products have competitors, names like Proctor & Gamble (NYSE: PG) and Colgate-Palmolive (NYSE: CL) which don’t normally appear in blogs like ours.
Finally, let’s talk about management. Johnson & Johnson has Bill Weldon and Abbott has Miles White. How do they manage the complexity and challenges of such disparate businesses? How are their successors developed and chosen? Anyone of the three business lines described require long careers to master and are different enough to be fairly brutal with newcomers who dabble. Anyone who doubts this should check with Bob Nardelli, formerly of Home Depot, who now works for $1 a year at Chrysler. (I can even get a better rate than that.)
Some argue that buying shares in companies like Johnson & Johnson and Abbott Laboratories is liking buying shares in a mutual fund. I don’t buy it. Mutual funds have administration fees and not the corporate overheads that these companies have. Investors thinking of investing in the life sciences sector should be looking at either specific stocks or actual mutual funds.
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
While following the industry and researching for my blogs, I’ve been noticing that the industry’s excess capacity is slowly merging itself away. A recent article in Barron’s described Bristol-Myers Squibb (NYSE: BMY) as a mid-sized pharmaceutical company. This got me thinking, who’s in Big Pharma now? Don’t worry, this blog won’t become a tedious list of company names designed to fill space. (BTW, I personally use CNBC’s Pharma Watch List at http://www.cnbc.com/id/15837675 for those of you who really enjoy lists of company names.) Pfizer (NYSE: PFE) and Wyeth (NYSE: WYE) are merging. So too, are Merck (NYSE: MRK) and Schering-Plough (NYSE: SGP), unless Johnson & Johnson (NYSE: JNJ) have something to say about it. Roche (SWX Europe: ROG) and Genentech (NYSE: DNA) are finally getting together. Jim Cramer of CNBC was speculating about Abbott Laboratories (NYSE: ABT) and
Celera (NYSE: CRA) getting together awhile back. (I wonder if I really need to say “Jim Cramer of CNBC”. Is there anybody on the planet who doesn’t know Jim especially after Jon Stewart got finished with him the other night? But, I digress.) Hey, wait a second, this is starting to turn into one of those tedious lists I was griping about several sentences ago.
Let’s pull out two of those names, Johnson & Johnson and Abbott Laboratories and talk about them for a few minutes. They get tossed in everybody’s list of Big Pharma companies but are they really pharmaceutical companies? Yes, they do research and development, market drugs, and go cap in hand to the FDA like the Merck’s, Pfizer’s, and Lilly’s. But, what about all those other things that they do?
First, both companies have significant businesses in the medical devices sector. Definitely healthcare related. Complicated products with healthy (no pun intended) gross margins, I’ll bet. But, don’t they have similarities to drugs? Insurance companies and Medicare pay for them. Hospitals and similar healthcare providers don’t want a lot of vendors’ similar products with just different enough procedures cluttering their storage rooms and confusing their staffs. Product risk? Remember heart defribulators? I’ll bet Boston Scientific does. That one made Vioxx look a sandlot stickball game.
Next, Johnson & Johnson has a consumer products business, mostly high end goods or their own highly respected brand name products. But, many businesses are finding that highly respected brands are not as recession proof as they once were. Then, there’s what I call the Wal-mart effect. Consumer products companies have been resigning themselves to having to deal with the likes of Wal-mart and the few other remaining retail distributors in this country. Also, consumer products have competitors, names like Proctor & Gamble (NYSE: PG) and Colgate-Palmolive (NYSE: CL) which don’t normally appear in blogs like ours.
Finally, let’s talk about management. Johnson & Johnson has Bill Weldon and Abbott has Miles White. How do they manage the complexity and challenges of such disparate businesses? How are their successors developed and chosen? Anyone of the three business lines described require long careers to master and are different enough to be fairly brutal with newcomers who dabble. Anyone who doubts this should check with Bob Nardelli, formerly of Home Depot, who now works for $1 a year at Chrysler. (I can even get a better rate than that.)
Some argue that buying shares in companies like Johnson & Johnson and Abbott Laboratories is liking buying shares in a mutual fund. I don’t buy it. Mutual funds have administration fees and not the corporate overheads that these companies have. Investors thinking of investing in the life sciences sector should be looking at either specific stocks or actual mutual funds.
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
Monday, March 16, 2009
Pharmaceutical Industry Consolidation-And the Winner is Pfizer, Merck or Roche????
And the Winner is Pfizer, Merck or Roche????
We promised our view on the potential results of the 3 "super-mega-global-mergers" that have taken place in the last 60 days and we don't wish to disappoint. As we don't want to keep you in suspense, we think that Roche is getting the most “bang for the buck”, BUT it is highly dependent on the non-integration of Genentech.
Let's start with the contenders-first Pfizer-Wyeth. No surprise here, we think PFE vastly overpaid to get a potpourri of businesses with a dog's breakfast of vaccines, biotechs, consumers and some underwhelming pipeline potential. It seems to us that the major drive here is “synergy”, that is reducing workforce size by nearly 20,000 while plugging some of the $11-13 billion hole that Lipitor going off patent in 2011 creates. The stock market has not exactly been “irrationally exuberant” about Pfizer's 10 year $258 billion spending spree for Warner Lambert, Pharmacia and now Wyeth and has inversely rewarded share holders with a nearly 70% reduction in market capitalization from the day of the Warner Lambert deal close (Pfizer's market cap about $300 billion) to this week's $95 billion. Need we say more?
Merck strikes as a version of more of the same. Paying a 30%+ premium (about $41 billion) to combine 2 feeble pipelines and some redundancy (maybe another 20,000 people reduced), "diverse" and/or non-intersecting cultures doesn't strike us as “happy days are here again”. In fact while Pfizer-Wyeth pretends to be a “diversification” play as opposed to a "consolidation", Merck-ScheringPlough doesn't even try to excuse itself with such rhetoric. There is Dick Clark's (Merck's CEO) trying to convince us that Schering Plough is somewhat of an international powerhouse (try telling that to executives of any of Europe's Big 3 pharmaceutical houses), and that Remicade will drive sales of several billion more-can you spell J&J? The reverse acquisition route seems spurious at best-we're no lawyers but can't imagine the transparency of this shenanigan and how it may play with the legal eagles of J&J in New Brunswick. Can we forget about potential in fighting between Fred Hassan (Schering's CEO) and the aforementioned Mr. Clark?
So, back to Roche-Genentech. Sure $95 a share is rich and many a scientist in South San Francisco is going to feel more like a Microsoft Millionaire from the 1980's and therein may lie Roche's opportunity and challenge. Genentech's pipeline is deep and rich with well over two dozen promising candidates and more to come. Much of this has been attributed and rightly so to a combination of brilliant scientists and a laissez faire culture with heralded beer blasts, parties and freedom to explore favorite projects, some of which have become major drugs. The trick is whether Roche's CEO, Franz Humer and his merry band from Basel can convince Art Levinson and Genentech's San Francisco based minions that it's business as usual and that things can only get better from here. We're going to guess that while this is a classic consolidation play, the boys of Basel will do it right.
As always, we welcome your feedback. Please contact us at larryrothmansblog@gmail.com. We look forward to hearing from you.
Contributed by Larry Rothman
We promised our view on the potential results of the 3 "super-mega-global-mergers" that have taken place in the last 60 days and we don't wish to disappoint. As we don't want to keep you in suspense, we think that Roche is getting the most “bang for the buck”, BUT it is highly dependent on the non-integration of Genentech.
Let's start with the contenders-first Pfizer-Wyeth. No surprise here, we think PFE vastly overpaid to get a potpourri of businesses with a dog's breakfast of vaccines, biotechs, consumers and some underwhelming pipeline potential. It seems to us that the major drive here is “synergy”, that is reducing workforce size by nearly 20,000 while plugging some of the $11-13 billion hole that Lipitor going off patent in 2011 creates. The stock market has not exactly been “irrationally exuberant” about Pfizer's 10 year $258 billion spending spree for Warner Lambert, Pharmacia and now Wyeth and has inversely rewarded share holders with a nearly 70% reduction in market capitalization from the day of the Warner Lambert deal close (Pfizer's market cap about $300 billion) to this week's $95 billion. Need we say more?
Merck strikes as a version of more of the same. Paying a 30%+ premium (about $41 billion) to combine 2 feeble pipelines and some redundancy (maybe another 20,000 people reduced), "diverse" and/or non-intersecting cultures doesn't strike us as “happy days are here again”. In fact while Pfizer-Wyeth pretends to be a “diversification” play as opposed to a "consolidation", Merck-ScheringPlough doesn't even try to excuse itself with such rhetoric. There is Dick Clark's (Merck's CEO) trying to convince us that Schering Plough is somewhat of an international powerhouse (try telling that to executives of any of Europe's Big 3 pharmaceutical houses), and that Remicade will drive sales of several billion more-can you spell J&J? The reverse acquisition route seems spurious at best-we're no lawyers but can't imagine the transparency of this shenanigan and how it may play with the legal eagles of J&J in New Brunswick. Can we forget about potential in fighting between Fred Hassan (Schering's CEO) and the aforementioned Mr. Clark?
So, back to Roche-Genentech. Sure $95 a share is rich and many a scientist in South San Francisco is going to feel more like a Microsoft Millionaire from the 1980's and therein may lie Roche's opportunity and challenge. Genentech's pipeline is deep and rich with well over two dozen promising candidates and more to come. Much of this has been attributed and rightly so to a combination of brilliant scientists and a laissez faire culture with heralded beer blasts, parties and freedom to explore favorite projects, some of which have become major drugs. The trick is whether Roche's CEO, Franz Humer and his merry band from Basel can convince Art Levinson and Genentech's San Francisco based minions that it's business as usual and that things can only get better from here. We're going to guess that while this is a classic consolidation play, the boys of Basel will do it right.
As always, we welcome your feedback. Please contact us at larryrothmansblog@gmail.com. We look forward to hearing from you.
Contributed by Larry Rothman
Sunday, March 15, 2009
Big Pharma’s Dividends – How Safe Are They?
Recently, several large companies, Pfizer (NYSE: PFE), General Electric (NYSE: GE), and PNC (NYSE: PNC) have cut their dividends. This got me wondering, what might happen to Big Pharma’s dividends? After all, their share prices have been slammed like everyone else’s lately. (Although, admittedly, not all to the same degree.) I’ve always been suspicious that Big Pharma are not early adopters but followers. And, why not here? All that cash going out to greedy shareholders could be kept in the coffers, and, what do you do with all that cash? Why, either buy somebody else’s company or buy back your own stock. I didn’t say that this would be logical.
The Dow Jones was down about 52% from its 2007 high before its recent comeback. Buying stocks now could produce double the dividend yield from just two years ago. I’ll bet many recent purchasers of Pfizer and General Electric felt that way. But what about companies like Merck (NYSE: MRK), Bristol-Myers Squibb (NYSE: BMY), or Johnson & Johnson (NYSE: JNJ)? Decent returns now, but what about tomorrow?
What impact will Merck’s announced takeover of Schering-Plough (NYSE: SGP) have on its future dividends? I haven’t read of any changes yet but this may only be a matter of time. The media are speculating about Johnson & Johnson making a counteroffer for Schering to preserve its interests with Remicade. What might that do to Johnson & Johnson’s longstanding, unbroken record of annual dividend increases? Or, for that matter, might they have to go back a few years?
Interestingly, after Standard & Poor’s March 12th downgrade of General Electric’s credit rating from AAA to AA+, of the five remaining U.S. companies retaining their coveted AAA rating, two are Big Pharma, Pfizer and Johnson & Johnson. And, Pfizer is on Standard & Poor’s watch list because of its forthcoming acquisition of Wyeth (NYSE: WYE). I’m always amused at the herd mentality exhibited by Big Pharma.
First, everybody went after blockbuster drugs followed by direct to consumer marketing (DTC). Acquisitions came along next, and, now dividend decreases may be the next fad. Lowered credit ratings are just the unintended consequences of doing this.
OK, where does this all lead, you may be asking. (If you own Big Pharma stocks, you’d better be.) Remember several themes that Larry and I have been hammering away at for awhile.
Drug pipelines are drying up. President Obama will do “something” to U.S. healthcare. (Maybe only something easy like authorizing Medicare to negotiate volume discounts on prescription medications.) Unemployment is rising and many of the newly unemployed are foregoing their COBRA plans and other medical expenses until they find new jobs. All of this means that revenues could soon begin to disappear. Cash flow contracts and, well, you get the idea.
For now, everyone’s dividends seem safe. But, so did Big Auto’s and General Electric’s shareholders.
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
The Dow Jones was down about 52% from its 2007 high before its recent comeback. Buying stocks now could produce double the dividend yield from just two years ago. I’ll bet many recent purchasers of Pfizer and General Electric felt that way. But what about companies like Merck (NYSE: MRK), Bristol-Myers Squibb (NYSE: BMY), or Johnson & Johnson (NYSE: JNJ)? Decent returns now, but what about tomorrow?
What impact will Merck’s announced takeover of Schering-Plough (NYSE: SGP) have on its future dividends? I haven’t read of any changes yet but this may only be a matter of time. The media are speculating about Johnson & Johnson making a counteroffer for Schering to preserve its interests with Remicade. What might that do to Johnson & Johnson’s longstanding, unbroken record of annual dividend increases? Or, for that matter, might they have to go back a few years?
Interestingly, after Standard & Poor’s March 12th downgrade of General Electric’s credit rating from AAA to AA+, of the five remaining U.S. companies retaining their coveted AAA rating, two are Big Pharma, Pfizer and Johnson & Johnson. And, Pfizer is on Standard & Poor’s watch list because of its forthcoming acquisition of Wyeth (NYSE: WYE). I’m always amused at the herd mentality exhibited by Big Pharma.
First, everybody went after blockbuster drugs followed by direct to consumer marketing (DTC). Acquisitions came along next, and, now dividend decreases may be the next fad. Lowered credit ratings are just the unintended consequences of doing this.
OK, where does this all lead, you may be asking. (If you own Big Pharma stocks, you’d better be.) Remember several themes that Larry and I have been hammering away at for awhile.
Drug pipelines are drying up. President Obama will do “something” to U.S. healthcare. (Maybe only something easy like authorizing Medicare to negotiate volume discounts on prescription medications.) Unemployment is rising and many of the newly unemployed are foregoing their COBRA plans and other medical expenses until they find new jobs. All of this means that revenues could soon begin to disappear. Cash flow contracts and, well, you get the idea.
For now, everyone’s dividends seem safe. But, so did Big Auto’s and General Electric’s shareholders.
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
Thursday, February 26, 2009
Abbott Labs – Back to the Future
When I blogged recently about Abbott Laboratories (NYSE: ABT), I hadn’t expected to come back for a while. But, as I’m learning in the Blogosphere, things change.
Abbott is increasing its quarterly dividend 11%, its thirty-seventh annual increase (www.smartmoney.com/news/on/?story=ON-20090220-000734-1120 ). This was an opportunity to return and blog some more. Miles D. White, Abbott’s CEO, was upholding Guy’s Eighth Rule of Being a CEO, when in trouble, talk about the dividend, better yet, increase it.
The old saw about those who do not remember the lessons of history being doomed to repeat will really come into play here. What we’re seeing here is another of the large pharmaceuticals (does Abbott really even qualify as Big Pharma?) trying to keep up the pretense that it’s business as usual. Unfortunately, I’m only reminded of those recently unemployed who struggle to maintain their standard of living in order to convince their families and neighbors that everything is alright. One has to ask are they only really kidding themselves.
Monies that will be needed in the future are being dispensed today to keep the shareholders complacent. I still don’t see any reasons why Abbott Labs, along with several other pharmaceutical companies, won’t be traipsing up to the Hill in Washington in a few years looking for a bailout. Finding someone to blame other than themselves could be hard, especially by then. Big Auto blamed the banks. The banks blamed their borrowers. Giving that the drug industry will looking to the government for help, I suspect that they won’t be blaming Washington. But, hey, dumber things have happened.
I keep harping on companies like Abbott and Pfizer and issues like acquisitions (i.e., Wyeth), pursuit of the next “blockbuster” drug, and dividend increases because these are all busted strategies. Other industries like Big Auto and financial services have tried some or all of these and have come to naught. Why should things be any different this time?
A friend of mine (contrary to what Larry says, I do have some) once said that the definition of insanity was doing the same thing over and over expecting a different result. Get the picture. I know that I’m using up my quota of clichés in this blog but isn’t that what they’re for, right?
We’re looking at an industry that’s on the cusp of changes that will be seismic in nature. There will be winners and losers. So far, I’ve been focusing on the behaviors that will signify the losers. Shortly, I’ll begin to blog about the characteristics of the winners. This is an industry in transition and we won’t be lacking things to blog about.
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
Abbott is increasing its quarterly dividend 11%, its thirty-seventh annual increase (www.smartmoney.com/news/on/?story=ON-20090220-000734-1120 ). This was an opportunity to return and blog some more. Miles D. White, Abbott’s CEO, was upholding Guy’s Eighth Rule of Being a CEO, when in trouble, talk about the dividend, better yet, increase it.
The old saw about those who do not remember the lessons of history being doomed to repeat will really come into play here. What we’re seeing here is another of the large pharmaceuticals (does Abbott really even qualify as Big Pharma?) trying to keep up the pretense that it’s business as usual. Unfortunately, I’m only reminded of those recently unemployed who struggle to maintain their standard of living in order to convince their families and neighbors that everything is alright. One has to ask are they only really kidding themselves.
Monies that will be needed in the future are being dispensed today to keep the shareholders complacent. I still don’t see any reasons why Abbott Labs, along with several other pharmaceutical companies, won’t be traipsing up to the Hill in Washington in a few years looking for a bailout. Finding someone to blame other than themselves could be hard, especially by then. Big Auto blamed the banks. The banks blamed their borrowers. Giving that the drug industry will looking to the government for help, I suspect that they won’t be blaming Washington. But, hey, dumber things have happened.
I keep harping on companies like Abbott and Pfizer and issues like acquisitions (i.e., Wyeth), pursuit of the next “blockbuster” drug, and dividend increases because these are all busted strategies. Other industries like Big Auto and financial services have tried some or all of these and have come to naught. Why should things be any different this time?
A friend of mine (contrary to what Larry says, I do have some) once said that the definition of insanity was doing the same thing over and over expecting a different result. Get the picture. I know that I’m using up my quota of clichés in this blog but isn’t that what they’re for, right?
We’re looking at an industry that’s on the cusp of changes that will be seismic in nature. There will be winners and losers. So far, I’ve been focusing on the behaviors that will signify the losers. Shortly, I’ll begin to blog about the characteristics of the winners. This is an industry in transition and we won’t be lacking things to blog about.
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
Thursday, February 19, 2009
Pfizer-Wyeth Redux--We Can't Help It!
I’m back on the Pfizer-Wyeth again. I can’t help myself. I feel as if l’m in that dream we’ve all had of being in a slow motion crash again and again. Here’s why.
Let’s start with the overall economy. Since last autumn, we have CEO’s either being excoriated in the press or by Congress. Obviously, there have been some serious shortfalls in abilities here. Now, let me ask a question, just because Big Pharma hasn’t been dragged up to the Hill yet by Congress doesn’t mean that they won’t be. (Doesn’t mean that they will be either, but old Guy’s sticking his neck out again.) Honestly, there’s some good potential here. Have we seen anything yet from Big Pharma’s CEO’s to distinguish them from their colleagues in banking or automobiles? This is where I’d really like to get some reader feedback.
Next, let’s talk about sticking the collective heads in the sand and hoping that problems will go away. Let’s face it. Barack Obama has won the election. He took the oath of office (twice) and he’s now the President of the United States (POTUS for you acronym freaks out there). Despite some Republican protests, President Obama’s stimulus package has been passed and signed. So, anyone who doesn’t think healthcare reform isn’t coming soon to a hospital near you had better wake up and smell the coffee. Especially, if they’re in the drug or medical device businesses.
Another one of my favorite gripes about the healthcare industry, and most other industries as well, is it’s fascination with mergers and acquisitions. Don’t get me wrong in the right circumstances, with the right reasons and for the right price, these types of deals can make a lot of sense. But, please notice the qualifiers that I listed. There generally aren’t too many deals that meet those criteria and then, if there happens to be a bidding war then any value goes right out of the window. How many M&A deals over the last thirty years, in any industry, have lived up to their oft overhyped potential?
Finally, let’s get down to basics. Business is all about making things and then selling them. Good products and services with good customer service attract customers who pay their bills and come back to buy more. While you’re at it, hire good employees, treat them right, and improve your productivity as a consequence. But, Big Pharma seems to be ignoring this model. Many of them are moving to a portfolio model of buying new drugs, outsourcing everything that they can, and making their profits on the resulting margins. Not bad business if you can get it, but how many companies can be in that kind of a business. Possibly a few, but, certainly not as many as are in the pharmaceutical industry today.
Oh, and let me add that with few exceptions they are optimizing the "blockbuster" model that no longer works. And, has anyone explained the law of large numbers to these people--combining two multi -10's of billion dollars business into one, taking on "synergy targets" has been at best short on results albeit high on promises.
So, let’s see what happens this year. If I’m wrong, I think I’ll find out soon enough.
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
Let’s start with the overall economy. Since last autumn, we have CEO’s either being excoriated in the press or by Congress. Obviously, there have been some serious shortfalls in abilities here. Now, let me ask a question, just because Big Pharma hasn’t been dragged up to the Hill yet by Congress doesn’t mean that they won’t be. (Doesn’t mean that they will be either, but old Guy’s sticking his neck out again.) Honestly, there’s some good potential here. Have we seen anything yet from Big Pharma’s CEO’s to distinguish them from their colleagues in banking or automobiles? This is where I’d really like to get some reader feedback.
Next, let’s talk about sticking the collective heads in the sand and hoping that problems will go away. Let’s face it. Barack Obama has won the election. He took the oath of office (twice) and he’s now the President of the United States (POTUS for you acronym freaks out there). Despite some Republican protests, President Obama’s stimulus package has been passed and signed. So, anyone who doesn’t think healthcare reform isn’t coming soon to a hospital near you had better wake up and smell the coffee. Especially, if they’re in the drug or medical device businesses.
Another one of my favorite gripes about the healthcare industry, and most other industries as well, is it’s fascination with mergers and acquisitions. Don’t get me wrong in the right circumstances, with the right reasons and for the right price, these types of deals can make a lot of sense. But, please notice the qualifiers that I listed. There generally aren’t too many deals that meet those criteria and then, if there happens to be a bidding war then any value goes right out of the window. How many M&A deals over the last thirty years, in any industry, have lived up to their oft overhyped potential?
Finally, let’s get down to basics. Business is all about making things and then selling them. Good products and services with good customer service attract customers who pay their bills and come back to buy more. While you’re at it, hire good employees, treat them right, and improve your productivity as a consequence. But, Big Pharma seems to be ignoring this model. Many of them are moving to a portfolio model of buying new drugs, outsourcing everything that they can, and making their profits on the resulting margins. Not bad business if you can get it, but how many companies can be in that kind of a business. Possibly a few, but, certainly not as many as are in the pharmaceutical industry today.
Oh, and let me add that with few exceptions they are optimizing the "blockbuster" model that no longer works. And, has anyone explained the law of large numbers to these people--combining two multi -10's of billion dollars business into one, taking on "synergy targets" has been at best short on results albeit high on promises.
So, let’s see what happens this year. If I’m wrong, I think I’ll find out soon enough.
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
Sunday, February 8, 2009
Wow - What a Week for Pharma M&A and Our Opinions on What's What
Larry and I have been blogging a lot recently about the Pfizer/Wyeth merger and some other possibilities. I want to spend a little more time because I think that it’s fundamental to what’s happening in Big Pharma right now. Also, with Tom Daschle dropping out of consideration for a Cabinet post, President Obama won’t be able to start his agenda for U.S. healthcare policy for a while, so we have some time to focus on M&A activity in the BioPharmaceutical Sector.
While I’m still not a big believer in the sense or economics of mergers in the drug industry, they sure generate a lot of ink in the press. (Or, are they are electrons in the age of blogs? I’m having a difficult time adapting my metaphors to the Internet age.) I get the reasons, falling stock prices, lots of cash on drug company balance sheets, and CEO’s desperate to do anything to appear to be adding growth to the top line. Also, the lack of any real news seems to engender a lot of wishful thinking out there in the media.
Here’s one example. Jim Cramer over at CNBC recently blogged (http://www.cnbc.com/id/28813740 ) about the possibility of a merger between Abbott Laboratories (NYSE: ABT) and Celera (NYSE: CRA). Seems that Abbott’s CEO, Miles White, has been talking about the possibility of acquisitions (But then don’t CEO’s always talk about this? This is Guy’s Third Rule of Being a CEO.), and they are both already working together in the area of personalized medicine. Jim admits freely that he is only speculating here, but, given the article in Barron’s which came out today chiding him about his track record in making predictions, I don’t think I’ll put much into this one. I did find Jim’s summary of personalized medicine interesting and I’ll return to this in a future blog.
Meanwhile, Mike Huckman is keeping hopes alive over at his blog (http://www.cnbc.com/id/29014145 ) about the possibility of Roche (SWX Europe: ROG) acquiring Genentech (NYSE: DNA) in a hostile takeover. This was his second prediction for the pharmaceutical industry in 2009. Now, I’m not picking on Mike. I have a lot of respect for him. But, looking at his photo on his blog, I think I can safely say that I’m a few years older than him. OK, maybe more than a few years. Anyway, my point is that since 1976 when Robert Swanson and Dr. Herbert Boyer launched Genentech, I’ve been hearing people talk about a hostile takeover. It’s a perennial. Also, as I’ve blogged before, this kind of deal doesn’t make sense to me.
This week, Merck's (NYSE: MRK) CEO, Richard Clark stepped back from their long standing high and mighty point of view against mergers and "hinted" (http://blogs.wsj.com/health/2009/02/03/as-sales-slump-merck-ceo-clark-looks-to-acquisitions/ ) by saying “I don’t think any CEO in this environment can categorically rule out any transaction,” Clark said, according to Dow Jones Newswires. “There are opportunities across the whole spectrum we would look at.” We're not that clear on the position Andrew Witty, Glaxo's new CEO is taking first saying that there will be no acquisitions, and then suggesting "bolt-ons" and then suggesting that acquisitions will take a prominent role as Glaxo looks to back away from the traditional big pharma "Blockbuster" model and move further into consumer, vaccine and emerging markets (http://www.natap.org/2009/newsUpdates/010909_05.htm ). It may be of some interest that almost simultaneously and representing only about 1% of the value of the Pfizer-Wyeth deal, Glaxo acquired UCB's emerging market business for $687 million. In the meanwhile, Astellas launched a $1 billion hostile tender for CV Therapeutics (http://www.dealmakersforum.com/) and rumors continue to abound about a potential BristolMyers-Squibb-Sanofi hook up. Quite a week!
Other possibilities exist including Carl Icahn's continuing pursuit of "enhancing shareholder value" (e.g. sale to a Big Pharma company) at Biogen-Idec . That’s the fun thing about this kind of market, anyone can speculate about anything, even me. Let’s see what happens, I think that this is going to be a very interesting year.
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
While I’m still not a big believer in the sense or economics of mergers in the drug industry, they sure generate a lot of ink in the press. (Or, are they are electrons in the age of blogs? I’m having a difficult time adapting my metaphors to the Internet age.) I get the reasons, falling stock prices, lots of cash on drug company balance sheets, and CEO’s desperate to do anything to appear to be adding growth to the top line. Also, the lack of any real news seems to engender a lot of wishful thinking out there in the media.
Here’s one example. Jim Cramer over at CNBC recently blogged (http://www.cnbc.com/id/28813740 ) about the possibility of a merger between Abbott Laboratories (NYSE: ABT) and Celera (NYSE: CRA). Seems that Abbott’s CEO, Miles White, has been talking about the possibility of acquisitions (But then don’t CEO’s always talk about this? This is Guy’s Third Rule of Being a CEO.), and they are both already working together in the area of personalized medicine. Jim admits freely that he is only speculating here, but, given the article in Barron’s which came out today chiding him about his track record in making predictions, I don’t think I’ll put much into this one. I did find Jim’s summary of personalized medicine interesting and I’ll return to this in a future blog.
Meanwhile, Mike Huckman is keeping hopes alive over at his blog (http://www.cnbc.com/id/29014145 ) about the possibility of Roche (SWX Europe: ROG) acquiring Genentech (NYSE: DNA) in a hostile takeover. This was his second prediction for the pharmaceutical industry in 2009. Now, I’m not picking on Mike. I have a lot of respect for him. But, looking at his photo on his blog, I think I can safely say that I’m a few years older than him. OK, maybe more than a few years. Anyway, my point is that since 1976 when Robert Swanson and Dr. Herbert Boyer launched Genentech, I’ve been hearing people talk about a hostile takeover. It’s a perennial. Also, as I’ve blogged before, this kind of deal doesn’t make sense to me.
This week, Merck's (NYSE: MRK) CEO, Richard Clark stepped back from their long standing high and mighty point of view against mergers and "hinted" (http://blogs.wsj.com/health/2009/02/03/as-sales-slump-merck-ceo-clark-looks-to-acquisitions/ ) by saying “I don’t think any CEO in this environment can categorically rule out any transaction,” Clark said, according to Dow Jones Newswires. “There are opportunities across the whole spectrum we would look at.” We're not that clear on the position Andrew Witty, Glaxo's new CEO is taking first saying that there will be no acquisitions, and then suggesting "bolt-ons" and then suggesting that acquisitions will take a prominent role as Glaxo looks to back away from the traditional big pharma "Blockbuster" model and move further into consumer, vaccine and emerging markets (http://www.natap.org/2009/newsUpdates/010909_05.htm ). It may be of some interest that almost simultaneously and representing only about 1% of the value of the Pfizer-Wyeth deal, Glaxo acquired UCB's emerging market business for $687 million. In the meanwhile, Astellas launched a $1 billion hostile tender for CV Therapeutics (http://www.dealmakersforum.com/) and rumors continue to abound about a potential BristolMyers-Squibb-Sanofi hook up. Quite a week!
Other possibilities exist including Carl Icahn's continuing pursuit of "enhancing shareholder value" (e.g. sale to a Big Pharma company) at Biogen-Idec . That’s the fun thing about this kind of market, anyone can speculate about anything, even me. Let’s see what happens, I think that this is going to be a very interesting year.
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
Saturday, January 31, 2009
The Pfizer-Wyeth Merger - We Were Wrong – They are WRONGER
OK, I was wrong, but there is no mea culpa needed. The Pfizer (NYSE: PFE) and Wyeth (NYSE: WFE) deal has been announced and somehow financing was arranged. The hubbub in the media seems to support my opinion that this a bad deal for Pfizer’s shareholders, especially if you’re one of the 19,000+ employees who will likely lose their job in this deal. (Wanna bet that after President Obama gets through bashing banks for paying out $18 billion in TARP funds for bonuses, he’ll be setting his sights on Big Pharma.) Although, Jeff Kindler may still be trying to put a positive spin on things. Jeff better be good at spin meistering with a 50% reduction in Pfizer’s dividend-anyone notice that after an initial run up, both PFE and WYE retreated rather significantly based on some on Wall Street who don't view this merger as a layup after all.
Mike Huckman’s been busy doing the post-game review on this deal. Check out his blog (http://www.cnbc.com/id/15837675 ), in particular, his January 27th and 28th blogs. He offers some interesting perspectives and also links to a Wall Street Journal analysis of the deal. Other than the companies themselves and their hired flacks, I haven’t come across any serious commentators who think that this is a good deal.
I’m going to keep sticking my neck out on this one though. The virulent press reaction and Kindler’s ability to keep the financing together for this deal are my two main reasons.
First, the press reaction. Pfizer is simply buying revenue (at a very high price we add) to offset its looming loss of Lipitor to the generics. Kindler’s been trying to keep his job and has been shuffling assets around in a corporate finance version of three card monte. More people are going to be looking at this deal and start questioning it. I don’t expect anyone to be riding to the rescue with a counteroffer. Anybody remember Boston Scientific (NYSE: BSX) and Guidant? Let’s see, how many billions in overvalued assets did Boston write off the other day? Many pundits (and we agree) think that Pfizer would have been far better off buying several biotechnology companies (e.g., Biogen-Idec, Gilead, Genzyme or as we have advocated Amgen all would have helped) and why justify re-entering the Consumer business when two years ago, Kindler and company claimed they were selling the Pfizer Consumer business to J&J (NYSE: JNJ) so they could "focus' on Pharmaceuticals.
Next, let’s talk about that bank financing. I haven’t come across any details about which financial institutions or investors are behind the $22.5 billion in external financing or its terms. In these times of credit crisis, I’m sure that they are very interesting. By the way, another $47.5 billion will come from internal financing. One commentator noted that Pfizer would probably have to repatriate offshore cash to help with the deal. I suspect that this could mean paying US corporate taxes. Again, not a great deal for shareholders. Given the lack of value that deal produces along with the job losses noted above, I wonder if banks might start rethinking their loan arrangements. Sooner or later, Washington, DC is going to start asking what’s happening with all the money being forked over to the financial services sector. Executive bonuses and job losses don’t seem like a good return for taxpayers’ money. Somebody’s going to start paying attention here.
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
Mike Huckman’s been busy doing the post-game review on this deal. Check out his blog (http://www.cnbc.com/id/15837675 ), in particular, his January 27th and 28th blogs. He offers some interesting perspectives and also links to a Wall Street Journal analysis of the deal. Other than the companies themselves and their hired flacks, I haven’t come across any serious commentators who think that this is a good deal.
I’m going to keep sticking my neck out on this one though. The virulent press reaction and Kindler’s ability to keep the financing together for this deal are my two main reasons.
First, the press reaction. Pfizer is simply buying revenue (at a very high price we add) to offset its looming loss of Lipitor to the generics. Kindler’s been trying to keep his job and has been shuffling assets around in a corporate finance version of three card monte. More people are going to be looking at this deal and start questioning it. I don’t expect anyone to be riding to the rescue with a counteroffer. Anybody remember Boston Scientific (NYSE: BSX) and Guidant? Let’s see, how many billions in overvalued assets did Boston write off the other day? Many pundits (and we agree) think that Pfizer would have been far better off buying several biotechnology companies (e.g., Biogen-Idec, Gilead, Genzyme or as we have advocated Amgen all would have helped) and why justify re-entering the Consumer business when two years ago, Kindler and company claimed they were selling the Pfizer Consumer business to J&J (NYSE: JNJ) so they could "focus' on Pharmaceuticals.
Next, let’s talk about that bank financing. I haven’t come across any details about which financial institutions or investors are behind the $22.5 billion in external financing or its terms. In these times of credit crisis, I’m sure that they are very interesting. By the way, another $47.5 billion will come from internal financing. One commentator noted that Pfizer would probably have to repatriate offshore cash to help with the deal. I suspect that this could mean paying US corporate taxes. Again, not a great deal for shareholders. Given the lack of value that deal produces along with the job losses noted above, I wonder if banks might start rethinking their loan arrangements. Sooner or later, Washington, DC is going to start asking what’s happening with all the money being forked over to the financial services sector. Executive bonuses and job losses don’t seem like a good return for taxpayers’ money. Somebody’s going to start paying attention here.
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
Monday, January 26, 2009
Pfizer and Wyeth – What’s in for Pfizer’s Shareholders?
This week stories began circulating about a potential merger between Pfizer (NYSE : PFE) and Wyeth (NYSE: WFE). Larry’s already written about what it could mean for the pharmaceutical industry if it happens. I’d like to focus on what it means to Pfizer’s shareholders. Personally, I think that it’s nothing more than a defensive ploy on the part of Pfizer. I refer my readers to my January 5th blog of this year for my thinking on large life sciences mergers and acquisitions given the current financial climate.
In this week’s Barron’s, correspondent Jacqueline Doherty writes in the Follow-Up section about the proposed deal and she offers an interesting analysis. I find one point particularly interesting. Acquiring Wyeth would give Pfizer the over-the-counter products Advil and Robitussin. Didn’t Pfizer recently sell off some very valuable consumer products to Johnson & Johnson (NYSE: JNJ)? Sounds like management is a bit confused if you ask me.
Acquiring Wyeth will probably dilute Pfizer’s earnings for some time. How long? I don’t know and I haven’t seen anything published yet. But, it’s a reasonable expectation. Doherty suggests that a combined firm would still have Pfizer’s earnings down by 11% from the prior year. I suspect that we have yet another management buying earnings. Why it should work here when it hasn’t anyplace else, I don’t understand.
Pfizer’s dividend yield is respectable (Barron’s states 7.2%), but, two things about this. First, above normal dividend yields, especially in times like these, normally indicate some sort of market risk. Next, how much longer will this dividend continue? Even General Electric (NYSE: GE) has had to cut its dividend! Depending on how Pfizer finances this deal, the dividend might be at risk. Normally once safe healthcare brands are not as recession-proof as they once were. Johnson & Johnson is learning this to its own chagrin. Of course, there’s the possibility of good things to come from Wyeth’s pipeline. Just how realistic is that though?
Pfizer’s CEO, Jeffrey Kindler, appears to be struggling with what to do. I don’t want to criticize him. He’s in a tough spot like every Big Pharma CEO today. A big acquisition would build momentum and excitement in the press and buy time in the hopes that something, anything, happens outside in the real world. Kind of like what the Federal government and Big Auto are doing, huh?
I’m still not convinced that deals like Pfizer and Wyeth are nothing more than hype being churned by people anxious for a story, any story, to add some pizzazz to what is an otherwise bleak market situation. From a shareholder perspective, this isn’t a god long term play. No, I really don’t think that we’ll see these deals happen. (And, even if announced, completing the financing is another story for another blog.)
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
In this week’s Barron’s, correspondent Jacqueline Doherty writes in the Follow-Up section about the proposed deal and she offers an interesting analysis. I find one point particularly interesting. Acquiring Wyeth would give Pfizer the over-the-counter products Advil and Robitussin. Didn’t Pfizer recently sell off some very valuable consumer products to Johnson & Johnson (NYSE: JNJ)? Sounds like management is a bit confused if you ask me.
Acquiring Wyeth will probably dilute Pfizer’s earnings for some time. How long? I don’t know and I haven’t seen anything published yet. But, it’s a reasonable expectation. Doherty suggests that a combined firm would still have Pfizer’s earnings down by 11% from the prior year. I suspect that we have yet another management buying earnings. Why it should work here when it hasn’t anyplace else, I don’t understand.
Pfizer’s dividend yield is respectable (Barron’s states 7.2%), but, two things about this. First, above normal dividend yields, especially in times like these, normally indicate some sort of market risk. Next, how much longer will this dividend continue? Even General Electric (NYSE: GE) has had to cut its dividend! Depending on how Pfizer finances this deal, the dividend might be at risk. Normally once safe healthcare brands are not as recession-proof as they once were. Johnson & Johnson is learning this to its own chagrin. Of course, there’s the possibility of good things to come from Wyeth’s pipeline. Just how realistic is that though?
Pfizer’s CEO, Jeffrey Kindler, appears to be struggling with what to do. I don’t want to criticize him. He’s in a tough spot like every Big Pharma CEO today. A big acquisition would build momentum and excitement in the press and buy time in the hopes that something, anything, happens outside in the real world. Kind of like what the Federal government and Big Auto are doing, huh?
I’m still not convinced that deals like Pfizer and Wyeth are nothing more than hype being churned by people anxious for a story, any story, to add some pizzazz to what is an otherwise bleak market situation. From a shareholder perspective, this isn’t a god long term play. No, I really don’t think that we’ll see these deals happen. (And, even if announced, completing the financing is another story for another blog.)
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
Friday, January 23, 2009
Pfizer-Wyeth-Are We Kidding? If Not, Who and What is Next??
A Pfizer Wyeth Merger—Are We Kidding? If not, Who's Next??
This morning, January 23rd, The Wall Street Journal “speculates” that there have been talks between Pfizer and Wyeth about a combined company, although they quickly point out that there is nothing imminent. My colleague Guy de Lastin recently wrote in this blog that there isn't a rational business reason for big pharmaceutical company mergers this year and has been notably supported in The Journal with "The record of big mergers and acquisitions in big pharma has just not been good. There's just been an enormous amount of shareholder wealth destroyed," said Gary Pisano, a Harvard Business School professor who has written about the issue.
Admittedly there are contravening forces at play here-Pfizer among others has been notably non-productive in its R&D sector spending over $7.5 billion a year with little tangible payoff—in fact they announced 800+ layoffs for this particular group in the last week or so. On the other hand, Wyeth has had a bit more success with a newly re-engineered R&D organization—having said that, both companies have major blockbusters, Lipitor and Enbrel come from acquisitions, not in house development. Clearly there are enormous “synergy targets” should two such massive businesses merge. Combine these factors with an investment community that is pushing for consolidation, and a lower market cap this year than last mixed together with a cash position of over $25 billion for Pfizer and a market capitalization of just over $50 billion for Wyeth—maybe, just maybe this could happen.
If Pfizer-Wyeth becomes a reality, we enter a new realm of what we call “Super-Mega-Global” Pharmaceutical giants. This may force other merely mega-globals into a merger frenzy. Europe's big 3, Glaxo, Novartis and Sanofi may view the world in a different way and look in their backyards at the likes of AstraZeneca, Bayer and even Roche as feeding fodder. How about the likes of Merck, J&J, Abbott or BristolMyers looking over the landscape at each other or such potentially delectable morsels as Amgen, ScheringPlough or others or each other or some large generics, or...... You get the point, in an industry known for follow-the-leader mentality, the investment bankers, lawyers and our friends the consultants are in for some major paydays.
Contributed by Larry Rothman
This morning, January 23rd, The Wall Street Journal “speculates” that there have been talks between Pfizer and Wyeth about a combined company, although they quickly point out that there is nothing imminent. My colleague Guy de Lastin recently wrote in this blog that there isn't a rational business reason for big pharmaceutical company mergers this year and has been notably supported in The Journal with "The record of big mergers and acquisitions in big pharma has just not been good. There's just been an enormous amount of shareholder wealth destroyed," said Gary Pisano, a Harvard Business School professor who has written about the issue.
Admittedly there are contravening forces at play here-Pfizer among others has been notably non-productive in its R&D sector spending over $7.5 billion a year with little tangible payoff—in fact they announced 800+ layoffs for this particular group in the last week or so. On the other hand, Wyeth has had a bit more success with a newly re-engineered R&D organization—having said that, both companies have major blockbusters, Lipitor and Enbrel come from acquisitions, not in house development. Clearly there are enormous “synergy targets” should two such massive businesses merge. Combine these factors with an investment community that is pushing for consolidation, and a lower market cap this year than last mixed together with a cash position of over $25 billion for Pfizer and a market capitalization of just over $50 billion for Wyeth—maybe, just maybe this could happen.
If Pfizer-Wyeth becomes a reality, we enter a new realm of what we call “Super-Mega-Global” Pharmaceutical giants. This may force other merely mega-globals into a merger frenzy. Europe's big 3, Glaxo, Novartis and Sanofi may view the world in a different way and look in their backyards at the likes of AstraZeneca, Bayer and even Roche as feeding fodder. How about the likes of Merck, J&J, Abbott or BristolMyers looking over the landscape at each other or such potentially delectable morsels as Amgen, ScheringPlough or others or each other or some large generics, or...... You get the point, in an industry known for follow-the-leader mentality, the investment bankers, lawyers and our friends the consultants are in for some major paydays.
Contributed by Larry Rothman
Friday, January 9, 2009
Contrarianism Lives!
There seems to have been a lot of writing recently about the lack of merger activity and what may be possible. Amgen seems to be getting a bit of ink too, but, then that one always seems to. First, Julie MacIntosh of the Financial Times published an interesting piece (http://www.ft.com/cms/s/0/57ccbec6-db91-11dd-be53-000077b07658.html ) concerning this subject on their website this January 6th. Her take was that the mergers and acquisitions market would be slow in coming back as companies assess risks and investment advisors want to appear cautious in recommending deals. Earlier in the week, Andrew Jack, also of the Financial Times speculated (http://www.ft.com/cms/s/0/20d8f19e-da8a-11dd-8c28-000077b07658.html ) about Pfizer entering into a large acquisition of a rival and what it might lead to in a pharmaceutical industry shying away from the large deals that spawned many of today’s Big Pharma companies. His musings were based on comments by Jeff Kindler, Pfizer’s CEO. He noted debates in the investment community about Pfizer acquiring Amgen. (CNBC had also reported this story.) As I wrote earlier, that’s an old story heard many times before.
What I find interesting here is how from very substance, a lot of speculation is going on. As I blogged earlier, I don’t think there is much of a market for large deals in the pharmaceutical industry right now. I find myself more in agreement with Julie MacIntosh about deal prospects in the industry. That is, the length and breadth of this recession will determine people’s willingness to return to the deal markets. Like I wrote earlier, she quotes Mark Shafir, the global mergers and acquisitions head at Citibank, who believes that bankrupt or near bankrupt companies will provide the first wave of opportunities. He goes further saying that cash rich companies may then begin to prowl for values. But, all this will take time. While these activities may start this year, I don’t think that they will culminate in any significant deal activity until 2010 at the earliest.
I know that some people have been writing about 2009 being the big year for drug company acquisitions. I’m just not buying into it. Let’s see what comes of these vaunted pipelines. Let’s see what happens when a President Obama instructs Medicare to negotiate drug prices with the drug companies. (I’ve always found it interesting that when corporations squeeze their vendors for lower costs, it’s capitalism; when the government does it, it’s Marxism.) As this blog has repeatedly said over the last year, there is too much capacity in the drug industry. Whatever deals happen this year will be restructurings designed to handle this fundamental problem.
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
What I find interesting here is how from very substance, a lot of speculation is going on. As I blogged earlier, I don’t think there is much of a market for large deals in the pharmaceutical industry right now. I find myself more in agreement with Julie MacIntosh about deal prospects in the industry. That is, the length and breadth of this recession will determine people’s willingness to return to the deal markets. Like I wrote earlier, she quotes Mark Shafir, the global mergers and acquisitions head at Citibank, who believes that bankrupt or near bankrupt companies will provide the first wave of opportunities. He goes further saying that cash rich companies may then begin to prowl for values. But, all this will take time. While these activities may start this year, I don’t think that they will culminate in any significant deal activity until 2010 at the earliest.
I know that some people have been writing about 2009 being the big year for drug company acquisitions. I’m just not buying into it. Let’s see what comes of these vaunted pipelines. Let’s see what happens when a President Obama instructs Medicare to negotiate drug prices with the drug companies. (I’ve always found it interesting that when corporations squeeze their vendors for lower costs, it’s capitalism; when the government does it, it’s Marxism.) As this blog has repeatedly said over the last year, there is too much capacity in the drug industry. Whatever deals happen this year will be restructurings designed to handle this fundamental problem.
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
Monday, August 18, 2008
Is this the time we all predicted....Transformation of the Pharmaceutical Biotechnology Industry?
Is this the time we all predicted....Transformation of the Pharmaceutical Biotechnology Industry?
Can the Services Industry be of help?
It is fairly obvious to those of us who are involved with the Bio-Pharmaceutical Industry that things could not stay as is. The industry is suffering with a multiplicity of challenges including but not limited to:
1.With dry (or near dry) pipelines despite massive spend on R&D.
2.Negative productivity gain from additional sales force additions (interestingly enough this could be a salvation as the industry consolidates and/or continues buying pipelines or licensing deals from biotech companies).
3.Massive governmental pressure on pricing and a hyper-vigilante, highly politically charged FDA making new drug approvals difficult, costly and lengthy.
4.Significant reductions in value for both Pharmaceuticals and to an extent Biotechnology companies that are traded on the stock exchanges.
5.Throw in for good measure that generic drugs now represent somewhere over 60% of all volume of prescriptions while accounting for under 20% of dollar spend and that there is a concurrent consolidation in that business.
Is this not the making of the perfect storm and is it possible that the service providers can help the industry in this regard?
One doesn't need to look much further than the business press to recognize the enormous change taking place, just look at these 5 deals that have taken place or will that are in aggregate way over $100 billion:
1.Roche wanting to buy the remaining share it doesn't own in Genentech
2.BMS bidding to buy what it doesn't own of Imclone
3.Pfizer's multiple Biotech purchases
4.Takeda's takeover for Millenium
5.AstraZeneca's purchase of Medimmune
There are several other interesting consolidations that are taking place within generics as well:
1.Teva of Israel buying IVAX (US) and now Barr (US)
2.Daichii Sankyo of Japan buying Ranbaxy of India
3.Novartis's earlier adding EON Labs (US) and Hexcel (Germany)
My thinking is that we are rapidly seeing consolidations on at least two concurrent fronts-and both are global:
1.Large pharmaceutical companies paying high premiums to acquire a combination of soon to be commercially attractive pipelines and/or complimentary product lines to add to their existing therapeutic areas.
2.Companies of various size forcing a major global consolidation in the generic space. This becomes a most interesting aspect of the equation as more and more drugs go off patent over the next few years and pricing and reimbursement pressures mount.
3.What about the next targets—it's easy to speculate about Amgen, Genzyme, Biogen-Idec and Gilead as the big fish here—but what about those big pharmas such as Merck and ScheringPlough potentially getting together and what that could mean?
Since part of our target audience are service providers to the industry, the question/challenge I pose is-what can you do to help?
As always your comments are welcome at larryrothmansblog@gmail.com
Can the Services Industry be of help?
It is fairly obvious to those of us who are involved with the Bio-Pharmaceutical Industry that things could not stay as is. The industry is suffering with a multiplicity of challenges including but not limited to:
1.With dry (or near dry) pipelines despite massive spend on R&D.
2.Negative productivity gain from additional sales force additions (interestingly enough this could be a salvation as the industry consolidates and/or continues buying pipelines or licensing deals from biotech companies).
3.Massive governmental pressure on pricing and a hyper-vigilante, highly politically charged FDA making new drug approvals difficult, costly and lengthy.
4.Significant reductions in value for both Pharmaceuticals and to an extent Biotechnology companies that are traded on the stock exchanges.
5.Throw in for good measure that generic drugs now represent somewhere over 60% of all volume of prescriptions while accounting for under 20% of dollar spend and that there is a concurrent consolidation in that business.
Is this not the making of the perfect storm and is it possible that the service providers can help the industry in this regard?
One doesn't need to look much further than the business press to recognize the enormous change taking place, just look at these 5 deals that have taken place or will that are in aggregate way over $100 billion:
1.Roche wanting to buy the remaining share it doesn't own in Genentech
2.BMS bidding to buy what it doesn't own of Imclone
3.Pfizer's multiple Biotech purchases
4.Takeda's takeover for Millenium
5.AstraZeneca's purchase of Medimmune
There are several other interesting consolidations that are taking place within generics as well:
1.Teva of Israel buying IVAX (US) and now Barr (US)
2.Daichii Sankyo of Japan buying Ranbaxy of India
3.Novartis's earlier adding EON Labs (US) and Hexcel (Germany)
My thinking is that we are rapidly seeing consolidations on at least two concurrent fronts-and both are global:
1.Large pharmaceutical companies paying high premiums to acquire a combination of soon to be commercially attractive pipelines and/or complimentary product lines to add to their existing therapeutic areas.
2.Companies of various size forcing a major global consolidation in the generic space. This becomes a most interesting aspect of the equation as more and more drugs go off patent over the next few years and pricing and reimbursement pressures mount.
3.What about the next targets—it's easy to speculate about Amgen, Genzyme, Biogen-Idec and Gilead as the big fish here—but what about those big pharmas such as Merck and ScheringPlough potentially getting together and what that could mean?
Since part of our target audience are service providers to the industry, the question/challenge I pose is-what can you do to help?
As always your comments are welcome at larryrothmansblog@gmail.com
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