Happy New Year! Larry and I would like to thank all our faithful readers who have been reading and following our blog during the last year. We appreciate your loyalty and your feedback.
This year has been a wild one for the economy and the markets. Most of us haven’t seen anything like this before (there’s probably some old trader left from 1929 running around out there somewhere) and probably won’t again in our lifetimes (hopefully). The Presidential election back in November gave us a clear and clean call to action by the electorate. The last thing the country needed right now was another hanging chad escapade. Personally, I had expected a more active year for the healthcare industry. I suspect that I was premature in my calls. My last series of blogs comparing Big Pharma to Big Auto had indicated several cyclical trends which are inevitable to me. Of course, I’m leaving myself open to the charge that given enough time, any prophet will be proven right. But, the fundamentals can’t be changed.
As for our blog in the New Year, Larry and I are looking to increase the frequency of posts and to recruit additional bloggers (hint, hint). We are also planning to increase our interviews.
Larry and I are expecting the New Year to be a wild one whichever way it plays. The U.S. government, along with most of the industrialized nations, is getting ready to throw a lot of money at the financial crisis. On the other hand, we have yet to see the other shoe drop from the recent poor retail season, and, it’s not just about retailers. Watch what happens to the REIT’s when shopping malls start to have more vacancies than occupancies. The world political and social situation is still unstable. I have many friends from Mumbai and have visited its streets. I was horrified by what happened there. But, I don’t want to put too negative a spin on things. There are always opportunities in life. And, Larry and I will be there blogging about the healthcare industry.
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
Wednesday, December 31, 2008
Sunday, December 14, 2008
Are Pharma Companies Headed Down the Same Path as Automotive? Part 3
Last time, I blogged about what may happen to Big Pharma’s outsourcers after the financial crisis catches up with them. This time in my final blog in the trilogy I’ll write about what may happen to the consultants.
Actually, I believe that the consultants are already experiencing a downturn. Over the last several weeks, I had opportunities to meet with friends who work for the consulting firms. What I heard was that layoffs are already occurring. While I’m told that limited hiring can occurs for the right opportunity, this is the exception more than the rule.
The consulting firms are also experiencing the fallout from the financial service sector which is cutting into their projected revenues.
The growth drivers of the last decade are either long gone or fading fast. Y2K, e-commerce, ERP implementations and outsourcing are played out. There’s really nothing immediate that can help out. I’ve noticed the senior executives of the major consulting firms spending more time at their clients, looking for new business, and making “investments” to do so. I don’t sense panic yet but if current trends continue then that might change as we go into 2010.
The pharmaceutical industry is generating media and anecdotal evidence of spending cutbacks for next year. Expensive consultants usually are among the first to go. I predict that after the second quarter of 2010, we’ll see more layoffs at the consulting firms particularly at the senior levels.
What might be areas of opportunity in the future? One could be International Financial Reporting Standards (IFRS). This is the adoption of common generally accepted accounting principles (GAAP) by global businesses. The recent business failures in the U.S. financial services sector seem to have added some impetus to this initiative as there is a fear that failure to do so could keep U.S. firms from accessing global capital markets.
At a recent IFRS seminar that I attended in NYC, one Big Four accounting firm partner said that IFRS could be even bigger than Sarbanes-Oxley. (And, we all know how the accounting firms made out on that one.) Unfortunately, other than education and some planning activities, there won’t be much here until maybe 2013 or 2014. Also, Ernst & Young, PriceWaterhouseCoopers, Deloitte, and KPMG could play well in this space with their hordes of accountants. IBM Global Services and Accenture may not be able to offer the same services given their more technical focus.
Like in the auto and drug industries, the consulting industry is experiencing excess capacity. And, regrettably, cutbacks are the only way to go here when there is no new growth to absorb it. I don’t expect this industry to go to Washington, D.C. looking for bailouts.
In these three recent blogs, I’ve tried to summarize Larry’s and my thinking about the next year will bring for Big Pharma and the outsoucing and consulting firms that have been making their livings from it. 2009 will be a tough year for all of them. President-elect Obama will dominate the media after his inauguration next month. The quiet story behind the scenes will be the drug industry and its suppliers slowly following in the footsteps of the U.S. auto industry
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
Actually, I believe that the consultants are already experiencing a downturn. Over the last several weeks, I had opportunities to meet with friends who work for the consulting firms. What I heard was that layoffs are already occurring. While I’m told that limited hiring can occurs for the right opportunity, this is the exception more than the rule.
The consulting firms are also experiencing the fallout from the financial service sector which is cutting into their projected revenues.
The growth drivers of the last decade are either long gone or fading fast. Y2K, e-commerce, ERP implementations and outsourcing are played out. There’s really nothing immediate that can help out. I’ve noticed the senior executives of the major consulting firms spending more time at their clients, looking for new business, and making “investments” to do so. I don’t sense panic yet but if current trends continue then that might change as we go into 2010.
The pharmaceutical industry is generating media and anecdotal evidence of spending cutbacks for next year. Expensive consultants usually are among the first to go. I predict that after the second quarter of 2010, we’ll see more layoffs at the consulting firms particularly at the senior levels.
What might be areas of opportunity in the future? One could be International Financial Reporting Standards (IFRS). This is the adoption of common generally accepted accounting principles (GAAP) by global businesses. The recent business failures in the U.S. financial services sector seem to have added some impetus to this initiative as there is a fear that failure to do so could keep U.S. firms from accessing global capital markets.
At a recent IFRS seminar that I attended in NYC, one Big Four accounting firm partner said that IFRS could be even bigger than Sarbanes-Oxley. (And, we all know how the accounting firms made out on that one.) Unfortunately, other than education and some planning activities, there won’t be much here until maybe 2013 or 2014. Also, Ernst & Young, PriceWaterhouseCoopers, Deloitte, and KPMG could play well in this space with their hordes of accountants. IBM Global Services and Accenture may not be able to offer the same services given their more technical focus.
Like in the auto and drug industries, the consulting industry is experiencing excess capacity. And, regrettably, cutbacks are the only way to go here when there is no new growth to absorb it. I don’t expect this industry to go to Washington, D.C. looking for bailouts.
In these three recent blogs, I’ve tried to summarize Larry’s and my thinking about the next year will bring for Big Pharma and the outsoucing and consulting firms that have been making their livings from it. 2009 will be a tough year for all of them. President-elect Obama will dominate the media after his inauguration next month. The quiet story behind the scenes will be the drug industry and its suppliers slowly following in the footsteps of the U.S. auto industry
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, December 8, 2008
The Convergence of Two Perfect Storms—The Drug Industry and The Outsourcing Businesses
The Convergence of Two Perfect Storms—The Drug Industry and The Outsourcing Businesses
by Larry Rothman
We like and fear the term “Perfect Storm”, it conjures up severe disruption if not destruction. We wonder if the drug industry is in the midst of not just one but perhaps a double perfect storm and here's why we think so.
Severin Schwan recently named Chief Executive for Roche Holding AG was quoted in the December 8th issue of the Wall Street Journal saying: “As the global pharmaceutical market gets tougher, some drug makers probably will fail because they won't have enough innovative medicines that health insurers will be willing to pay for”. He goes on to say “Some drug makers might be forced into bankruptcy in coming years. Others could be forced into mergers, or to diversify into other businesses.”
The Perfect Storm causing this is a combination of rare circumstances coming together simultaneously including, but not limited to:
1.Researcher productivity as measured by number of new drug entities approved is at or near an all time low.
2.Discovery and development of new, novel, cost effective compounds is not happening despite great advances in technology as well as all the supposed process improvements made by spending hundreds of millions on outside experts (e.g consultants).
3.Stricter regulations and enforcement (and the promise of more to come) from regulatory authorities, much emanating from the US FDA, but certainly not limited to this country, rather a global phenomenon.
4.The likelihood that in the US (based on President-elect Obama's promises) that the government will soon step in with some form of price controls and the increasing pressures by PBM's and insurance companies to be unwilling to pay for newer drugs without clear benefit and the compounding of the strong push toward generics and there is challenge on the horizon.
5.Oh yes, let's add a global economic downturn that promises to be the worst in 30-70 years.
We do have great respect for the industry and its attempts to focus on these issues, so to suggest a failure of management similar to the US Auto Industry would not be totally fair. However, one of the major tools for cos reduction that the drug industry has deployed is outsourcing and that business is itself facing challenges of the same magnitude as the pharmaceutical industry.
The Outsourcing Industry has its own perfect storm in the making including:
1.The recent tragic events in Mumbai will cause a natural reluctance to place mission critical work in what is perceived as “harms way”, in other words, offshore from the US.
2.Clinical trials have been viewed as an area of great promise both as a globalization vehicle and certainly as a way to lower drug development costs. HOWEVER, there is a perception that despite lower costs and faster recruitment for clinical trials in developing countries that the results may not be “at standard” or even worse as clinicians eager to please their sponsors may “unintentionally” skew results. (We will follow-up separately on this issue and to be fair—suspicions and perceptions are just that, there may be no factual basis to these claims).
3.Talent pools are getting scarcer and their cost is escalating so that many of the outsourcing companies are trying to find the optimum mix of geographies, skills, costs and capabilities. This is easy to describe but very difficult to manage.
4.Finally, at least in the US, there is a political backlash to sending “US jobs” overseas.
So where do they go from here. We'll discuss our opinions in the coming weeks. What do you think?
by Larry Rothman
We like and fear the term “Perfect Storm”, it conjures up severe disruption if not destruction. We wonder if the drug industry is in the midst of not just one but perhaps a double perfect storm and here's why we think so.
Severin Schwan recently named Chief Executive for Roche Holding AG was quoted in the December 8th issue of the Wall Street Journal saying: “As the global pharmaceutical market gets tougher, some drug makers probably will fail because they won't have enough innovative medicines that health insurers will be willing to pay for”. He goes on to say “Some drug makers might be forced into bankruptcy in coming years. Others could be forced into mergers, or to diversify into other businesses.”
The Perfect Storm causing this is a combination of rare circumstances coming together simultaneously including, but not limited to:
1.Researcher productivity as measured by number of new drug entities approved is at or near an all time low.
2.Discovery and development of new, novel, cost effective compounds is not happening despite great advances in technology as well as all the supposed process improvements made by spending hundreds of millions on outside experts (e.g consultants).
3.Stricter regulations and enforcement (and the promise of more to come) from regulatory authorities, much emanating from the US FDA, but certainly not limited to this country, rather a global phenomenon.
4.The likelihood that in the US (based on President-elect Obama's promises) that the government will soon step in with some form of price controls and the increasing pressures by PBM's and insurance companies to be unwilling to pay for newer drugs without clear benefit and the compounding of the strong push toward generics and there is challenge on the horizon.
5.Oh yes, let's add a global economic downturn that promises to be the worst in 30-70 years.
We do have great respect for the industry and its attempts to focus on these issues, so to suggest a failure of management similar to the US Auto Industry would not be totally fair. However, one of the major tools for cos reduction that the drug industry has deployed is outsourcing and that business is itself facing challenges of the same magnitude as the pharmaceutical industry.
The Outsourcing Industry has its own perfect storm in the making including:
1.The recent tragic events in Mumbai will cause a natural reluctance to place mission critical work in what is perceived as “harms way”, in other words, offshore from the US.
2.Clinical trials have been viewed as an area of great promise both as a globalization vehicle and certainly as a way to lower drug development costs. HOWEVER, there is a perception that despite lower costs and faster recruitment for clinical trials in developing countries that the results may not be “at standard” or even worse as clinicians eager to please their sponsors may “unintentionally” skew results. (We will follow-up separately on this issue and to be fair—suspicions and perceptions are just that, there may be no factual basis to these claims).
3.Talent pools are getting scarcer and their cost is escalating so that many of the outsourcing companies are trying to find the optimum mix of geographies, skills, costs and capabilities. This is easy to describe but very difficult to manage.
4.Finally, at least in the US, there is a political backlash to sending “US jobs” overseas.
So where do they go from here. We'll discuss our opinions in the coming weeks. What do you think?
Wednesday, November 26, 2008
Are Pharma Companies Headed Down the Same Path as Automotive? Part 2
Last week, I blogged about what may happen to Big Pharma after the dust settles from Big Auto and the rest of the financial crisis. I think that I made a pretty good case for revenues being off in the future. (I never said that I was humble.) In this blog and the next, I’ll write about what might happen to Big Pharma’s partners, the outsourcers and consultants.
This week’s blog will focus on the outsourcers. The whole idea behind outsourcing is to lower costs through economies of scale and price differentials (arbitrage). With either a stable revenue base requiring efficiencies or growing revenues that could be managed better, drug companies have used outsourcing, in particular, offshoring, to reduce their costs. But, what happens if those revenues decline dramatically? An article published this week (Sports Business Journal, November 17, 2008) suggested that drug companies’ revenues could decline by as much as $10 billion (10-20% we think) next year because of expiring patents and perhaps significantly more if the Universal Health Care promise from the Obama campaign platform occurs. Research and development spending could be greatly reduced as well.
For example, recently, Mike Huckman in his CNBC blog, (http://www.cnbc.com/id/27576321 ), noted that Charles River Labs’s pre-clinical laboratory business is off because small biotech firms aren’t spending there now. He implies that this problem with early stage testing could indicate more trouble further out. Mike also talks about how the credit crunch is curtailing these firms ability to finance drug development. My point is that as the business is shrinking, expenditures will fall, and fast, to preserve profitability. If there is no business activity then there’s nothing to outsource, right? Not to mention that outsourcing requires a financial outlay up front to start off which probably won’t be happening in 2009. If we are correct in our presumption that revenues and expenditures decrease next year, big Pharma is sure to revisit its outsourcing strategy. Deloitte’s decision earlier decision to close its outsourcing operations in the Asia/Pacific seems to indicate that the salad days of outsourcing may be drawing near.
I think that the train has already left the station for many outsourcers. Rates have been rising and companies have been becoming less enamored about the limitations of working with outsourcers. The traditional outsourcing meccas of India and China are being challenged by other emerging locations such as the Philippines, other Southeast Asia countries, Central and South America, Eastern Europe and even some areas of the US. This adds to the challenges these suppliers are confronting. While I’m not suggesting that the outsourcing industry will crater anytime soon, I believe that the rapid growth is over and there may be some consolidation to come.
The global recession and changes in public healthcare will affect the pharmaceutical industry adversely and probably for some years to come. The ripples will go beyond the industry itself. The outsourcing companies, whether they supply clinical trials, payroll, or other backroom functions, and who have profited from the drug companies’ growth in the latter part of the twentieth century are going to have to recede with them.
Next week, I’ll finish this series with my blog on how consulting companies will deal with Big Pharma’s coming downturn.
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
This week’s blog will focus on the outsourcers. The whole idea behind outsourcing is to lower costs through economies of scale and price differentials (arbitrage). With either a stable revenue base requiring efficiencies or growing revenues that could be managed better, drug companies have used outsourcing, in particular, offshoring, to reduce their costs. But, what happens if those revenues decline dramatically? An article published this week (Sports Business Journal, November 17, 2008) suggested that drug companies’ revenues could decline by as much as $10 billion (10-20% we think) next year because of expiring patents and perhaps significantly more if the Universal Health Care promise from the Obama campaign platform occurs. Research and development spending could be greatly reduced as well.
For example, recently, Mike Huckman in his CNBC blog, (http://www.cnbc.com/id/27576321 ), noted that Charles River Labs’s pre-clinical laboratory business is off because small biotech firms aren’t spending there now. He implies that this problem with early stage testing could indicate more trouble further out. Mike also talks about how the credit crunch is curtailing these firms ability to finance drug development. My point is that as the business is shrinking, expenditures will fall, and fast, to preserve profitability. If there is no business activity then there’s nothing to outsource, right? Not to mention that outsourcing requires a financial outlay up front to start off which probably won’t be happening in 2009. If we are correct in our presumption that revenues and expenditures decrease next year, big Pharma is sure to revisit its outsourcing strategy. Deloitte’s decision earlier decision to close its outsourcing operations in the Asia/Pacific seems to indicate that the salad days of outsourcing may be drawing near.
I think that the train has already left the station for many outsourcers. Rates have been rising and companies have been becoming less enamored about the limitations of working with outsourcers. The traditional outsourcing meccas of India and China are being challenged by other emerging locations such as the Philippines, other Southeast Asia countries, Central and South America, Eastern Europe and even some areas of the US. This adds to the challenges these suppliers are confronting. While I’m not suggesting that the outsourcing industry will crater anytime soon, I believe that the rapid growth is over and there may be some consolidation to come.
The global recession and changes in public healthcare will affect the pharmaceutical industry adversely and probably for some years to come. The ripples will go beyond the industry itself. The outsourcing companies, whether they supply clinical trials, payroll, or other backroom functions, and who have profited from the drug companies’ growth in the latter part of the twentieth century are going to have to recede with them.
Next week, I’ll finish this series with my blog on how consulting companies will deal with Big Pharma’s coming downturn.
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, November 16, 2008
After Big Auto, Is Big Pharma Next?
The election’s over and I have to admit I feel a certain sense of vindication. I called it. OK, so did just about every political pundit worth their salt. I’ve waited a few days before I wrote this blog because I wanted to see what would happen in the markets and in the nation after Obama’s election. I also had an opportunity to read some of the other blogs and media to see what was going on.
In this blog, I’m going to write about what could happen to Big Pharma in the future. Everyone is focused on Big Auto and what little time they have left goes to the financial services industry. Well, I write about the healthcare industry, drug companies in particular, and their fellow travelers, outsourcing and consulting firms and I’m sticking with it. The reason for my stubbornness is that what certain sectors are experiencing right now will inevitably overtake Big Pharma.
Gene Epstein, the Barron’s columnist, asked in his November 10th column, Economic Beat, how long the slump would last. He focuses on real consumer spending and suggests that a recession could be more serious and last longer if it deteriorates. This would not be good for retailers or auto makers. Layoffs are continuing to rise. People are losing their medical benefits. Anecdotal evidence in the media suggests that people are deferring or going without their drugs because of hard times. Not a good sign. Let’s move over to one of my favorite topics, the pharmaceutical industry’s lagging drug pipeline. Lagging revenues, and no new products to help out, sooner or later, cash flows are going to be affected. Isn’t this what happened to the auto industry? Selling products nobody wants (toenail fungus doesn’t seem like a priority when the sheriff is repossessing your home) and having none of the products that people want or really need hasn’t been a winning strategy for the auto industry and it’s not going to work for Big Pharma.
One of my favorite industry bloggers, Mike Huckman over at CNBC posted a blog last Thursday (http://www.cnbc.com/id/27698475) concerning the impact of the global financial crisis on the drug industry. He summarizes the results of study on the health of the industry conducted by Ernst & Young. The end of the blockbuster era and the struggle to figure out what happens next are put forward. Mike does his usual superb job in outlining the issues. (If you follow the drug industry, you have to check in with Mike regularly. Right after you’re finished here.)
Now, don’t get me wrong. I’m not predicting the next Great Depression. Unless people really lose their heads down in Washington, D.C. and elsewhere, we’ll come out of this on the other side. But, I’m not saying that we’re not going to have a recession like we haven’t seen for a long time.
In my next blog, I’m going to write about the outsourcing companies and what’s going on over there. That’s going to be an interesting story in 2009.
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 blog, I’m going to write about what could happen to Big Pharma in the future. Everyone is focused on Big Auto and what little time they have left goes to the financial services industry. Well, I write about the healthcare industry, drug companies in particular, and their fellow travelers, outsourcing and consulting firms and I’m sticking with it. The reason for my stubbornness is that what certain sectors are experiencing right now will inevitably overtake Big Pharma.
Gene Epstein, the Barron’s columnist, asked in his November 10th column, Economic Beat, how long the slump would last. He focuses on real consumer spending and suggests that a recession could be more serious and last longer if it deteriorates. This would not be good for retailers or auto makers. Layoffs are continuing to rise. People are losing their medical benefits. Anecdotal evidence in the media suggests that people are deferring or going without their drugs because of hard times. Not a good sign. Let’s move over to one of my favorite topics, the pharmaceutical industry’s lagging drug pipeline. Lagging revenues, and no new products to help out, sooner or later, cash flows are going to be affected. Isn’t this what happened to the auto industry? Selling products nobody wants (toenail fungus doesn’t seem like a priority when the sheriff is repossessing your home) and having none of the products that people want or really need hasn’t been a winning strategy for the auto industry and it’s not going to work for Big Pharma.
One of my favorite industry bloggers, Mike Huckman over at CNBC posted a blog last Thursday (http://www.cnbc.com/id/27698475) concerning the impact of the global financial crisis on the drug industry. He summarizes the results of study on the health of the industry conducted by Ernst & Young. The end of the blockbuster era and the struggle to figure out what happens next are put forward. Mike does his usual superb job in outlining the issues. (If you follow the drug industry, you have to check in with Mike regularly. Right after you’re finished here.)
Now, don’t get me wrong. I’m not predicting the next Great Depression. Unless people really lose their heads down in Washington, D.C. and elsewhere, we’ll come out of this on the other side. But, I’m not saying that we’re not going to have a recession like we haven’t seen for a long time.
In my next blog, I’m going to write about the outsourcing companies and what’s going on over there. That’s going to be an interesting story in 2009.
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, November 3, 2008
Obama’s Won, Now What?
OK, I’m getting ahead of myself, but only by a little. I understand that I have to wait for the votes to be cast and then counted for the rest of the world to know what I do today – Barack Obama will be the next President of the United States.
I’m going to leave the significance of this momentous event to the historians and the pundits. I want to talk about what this means to the people who read this blog. What happens to the Life Sciences/Pharmaceutical Industry now that we have a new Democratic President? Actually, a lot depends on what happens in the Congress and the Senate. If the Democrats can achieve a filibuster proof majority in both Houses then President-elect Obama is sitting in the catbird seat. Without these, a lot’s possible but it won’t be as easy.
Let’s start with Big Pharma. In my last blog, I forecast tough times ahead, if not an actual overhaul of the business model:
We may see a very significant decrease in private funding of major new drugs.
Mergers or acquisitions? Especially with target companies valuations falling? Not likely, unfortunately, given the state of the markets, mergers and acquisitions, except in the financial services industry, are practically nonexistent.
New drug pipelines that are already running dry. The FDA has not exactly been setting records for new drug approvals despite record R&D spending by Big Pharma. Are we to believe that the promised "new regulations" will help or hinder FDA cycles--we would strongly suggest that things will get worse for a while and approvals will be even more difficult and slower.
We think that 2009 will probably show declining revenues for the major drug companies, dramatically so if the ambitious plans for universal health insurance and concentration of buying power occurs--in fact Obama may be a breath of fresh air here compared with the McCain campaign promises (more like threats) toward big Pharma. Profits will depend on how well they manage their cost cutting programs. I won’t even go into what the foreign exchange markets’ impact could be.
Next, let’s talk about outsourcing companies. Here the damage may be even bigger than just the pharmaceutical industry. With a new President talking about giving preferential tax rates to companies that bring jobs back to America, folks might not be so quick to outsource/offshore jobs as they once were. (Remember that filibuster-proof Congress?). The other side of that equation is the possibility that R&D done offshore certainly will be more cost attractive and therefore may still be compelling.
Now, let’s talk about consulting firms. These guys are normally pretty good at playing it whichever way it lays. There is a unique problem this time, two things are working against them:
First, I don’t think the drug companies have figured out what to do next. They won’t spend until they do.
Second, with cost cutting (efficiency) programs being put in place as a response to declining revenues, there is another good reason not to spend money on consultants without laser4 focused projects. So, there is another industry segment could be in for a hard time.
This will be my final blog entry before Election Day. Assuming I’m right about the outcome, we’ll have a lot to talk about in the next few months. If I’m wrong, I’ll get over it and figure out what could happen next.
As always, we welcome your feedback. Please contact us at
Contributed by Guy de Lastin
Friday, October 31, 2008
What’s Going to Happen after Election Day?
Less than a week to Election Day. I’m going to stick my neck out, Larry loves it when I do, and predict that it’s going to be Obama. Not exactly good for McCain, but, he only has himself to blame. He neglected to notice that the Cold War was over. But, there will be bad news for others, such as Big Pharma. (OK, there probably would have been bad news even if McCain won.)
Earlier, I had written about how neither of the two candidates would be good for the drug industry. I wasn’t the only who thought so. In fact, I recently came across an opinion article in the online edition of The Wall Street Journal , WSJ.com - Opinion: How Obama Would Stifle Drug Innovation, by a Dr. Scott Gottlieb outlining how Obama’s policies could curtail drug research.
Dr. Gottlieb presents the proposition that in order to pay for affordable medical care for younger people, Obama would have to introduce controls over newer, more effective drugs for diseases such as cancer. While I agree with him that the next administration will attempt to rein in drug prices, I’m a little skeptical about a new front opening up in the ongoing generational conflict.
I do subscribe to the argument that preventative healthcare can lead to reductions in the incidence of diseases such as diabetes. We’ve been told for years that not smoking reduces the likelihood of lung cancer and emphysema. Reduce or eliminate the illness and you eliminate the need for expensive treatments. Funding improved healthcare for younger people can avoid more expensive solutions later on. Not to mention the improved quality of life for those concerned. To say nothing of the improvements to the American landscape afforded by a major reduction in obesity.
I also have reservations about the idea that drug companies should charge whatever the market will bear for their drugs. If tomorrow someone discovers a cure for AIDS, does anyone really think that they would be permitted to charge whatever they wanted? Third world countries have already been breaking drug patents when they felt that public need outweighed the profit motive. Precedent exists for this. Defense contractors have been limited to “fair” profits for their products in time of war.
The success rates for new drugs mentioned by Dr. Gottlieb seem to suggest that the current model of private funding may have outlived its usefulness. Great risks require great rewards. I think that I’ve already shown that great rewards are going the way of the dodo bird. If government funding can split the atom, send a man to the moon, and, maybe, just maybe, avert another Great Depression, then finding a cure for cancer may not be beyond the realm of possibility.
Whatever happens after Obama wins next week, Big Pharma’s days of unchallenged domination of drug development are numbered. In fact, they may devolve into generic manufacturers of products developed by government research programs.
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
Earlier, I had written about how neither of the two candidates would be good for the drug industry. I wasn’t the only who thought so. In fact, I recently came across an opinion article in the online edition of The Wall Street Journal , WSJ.com - Opinion: How Obama Would Stifle Drug Innovation, by a Dr. Scott Gottlieb outlining how Obama’s policies could curtail drug research.
Dr. Gottlieb presents the proposition that in order to pay for affordable medical care for younger people, Obama would have to introduce controls over newer, more effective drugs for diseases such as cancer. While I agree with him that the next administration will attempt to rein in drug prices, I’m a little skeptical about a new front opening up in the ongoing generational conflict.
I do subscribe to the argument that preventative healthcare can lead to reductions in the incidence of diseases such as diabetes. We’ve been told for years that not smoking reduces the likelihood of lung cancer and emphysema. Reduce or eliminate the illness and you eliminate the need for expensive treatments. Funding improved healthcare for younger people can avoid more expensive solutions later on. Not to mention the improved quality of life for those concerned. To say nothing of the improvements to the American landscape afforded by a major reduction in obesity.
I also have reservations about the idea that drug companies should charge whatever the market will bear for their drugs. If tomorrow someone discovers a cure for AIDS, does anyone really think that they would be permitted to charge whatever they wanted? Third world countries have already been breaking drug patents when they felt that public need outweighed the profit motive. Precedent exists for this. Defense contractors have been limited to “fair” profits for their products in time of war.
The success rates for new drugs mentioned by Dr. Gottlieb seem to suggest that the current model of private funding may have outlived its usefulness. Great risks require great rewards. I think that I’ve already shown that great rewards are going the way of the dodo bird. If government funding can split the atom, send a man to the moon, and, maybe, just maybe, avert another Great Depression, then finding a cure for cancer may not be beyond the realm of possibility.
Whatever happens after Obama wins next week, Big Pharma’s days of unchallenged domination of drug development are numbered. In fact, they may devolve into generic manufacturers of products developed by government research programs.
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
Tuesday, August 12, 2008
Follow-up with Ken Kam (Part 2)
This blog is the second in a series following up with Ken Kam of Marketocracy (www.marketocracy.com). Larry and I had talked with him last month about the drug industry and Elan Corporation PLC, currently conducting clinical trials on a drug, Tysabri, which could be used in the treatment of multiple sclerosis and Alzheimer’s disease, in particular. Ken predicted a bright future for Elan. Then came two pieces of bad news and Elan’s price came down 60% from its recent high. In my last blog, Ken explained what had happened and gave us his opinions. Today, he will talk about Elan’s future prospects and another pharmaceutical opportunity.
Ken Kam’s fund, Marketocracy Masters 100 Fund (MOFQX), has continued to accumulate Elan shares despite the 60% sell off. He says that a two year investment horizon is needed. By then the Phase 3 clinical trial data for Tysabri will be out and the Phase 2 data will be analyzed and fully appreciated. (See my last blog for Ken’s position on Tysabri’s Phase 2 clinical trial results.) According to Ken, analysts have a short term impact on a stock’s price, long term, it’s the multiple sclerosis patients taking the drug that affect the price.
While admitting to the risks arising from PML with use of the drug, Ken believes that it is still well below expectations and when caught early is survivable. People will have to become comfortable with its risk though. He notes that it is rare to have a new class of drug that has such a big effect on a disease that a lot of people have.
Ken was shocked at the market reaction but feels that it is a Wall Street reaction and not a real world one. In particular, Ken feels that the accusations of data mining and lying that were thrown at Elan in recent weeks were totally unfounded.
Ken’s expectations are that Elan will have to play out to the end of the Phase 3 clinical trials for optimal valuation. Meanwhile, Elan is a good valuation and could be a takeover target. Ken thinks the investment community is presently looking at the valuation differences and measuring them. He is unsure about what to hope for, a takeover bid or letting it run out.
Our opinion is that Wyeth has surely got to be interested in Elan at this price level and diminished market cap as the risk-reward levels are extremely attractive. While considered a takeover play itself, Biogen Idec may also find Elan an attractive takeover target as well.
In wrapping up, we asked Ken what other opportunities did he see in the pharmaceutical sector. He replied that he liked Novo Nordisk and their new diabetes program which is in Phase 3 clinical trials. Ken also noted that Wall Street often gets clinical trial data wrong and this is what creates the opportunities in the market.
As always, Larry and I found Ken Kam’s opinions and views interesting and a little contrarian. We’ll stay in touch with him and, again, would like to thank for taking the time to meet with us.
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
Ken Kam’s fund, Marketocracy Masters 100 Fund (MOFQX), has continued to accumulate Elan shares despite the 60% sell off. He says that a two year investment horizon is needed. By then the Phase 3 clinical trial data for Tysabri will be out and the Phase 2 data will be analyzed and fully appreciated. (See my last blog for Ken’s position on Tysabri’s Phase 2 clinical trial results.) According to Ken, analysts have a short term impact on a stock’s price, long term, it’s the multiple sclerosis patients taking the drug that affect the price.
While admitting to the risks arising from PML with use of the drug, Ken believes that it is still well below expectations and when caught early is survivable. People will have to become comfortable with its risk though. He notes that it is rare to have a new class of drug that has such a big effect on a disease that a lot of people have.
Ken was shocked at the market reaction but feels that it is a Wall Street reaction and not a real world one. In particular, Ken feels that the accusations of data mining and lying that were thrown at Elan in recent weeks were totally unfounded.
Ken’s expectations are that Elan will have to play out to the end of the Phase 3 clinical trials for optimal valuation. Meanwhile, Elan is a good valuation and could be a takeover target. Ken thinks the investment community is presently looking at the valuation differences and measuring them. He is unsure about what to hope for, a takeover bid or letting it run out.
Our opinion is that Wyeth has surely got to be interested in Elan at this price level and diminished market cap as the risk-reward levels are extremely attractive. While considered a takeover play itself, Biogen Idec may also find Elan an attractive takeover target as well.
In wrapping up, we asked Ken what other opportunities did he see in the pharmaceutical sector. He replied that he liked Novo Nordisk and their new diabetes program which is in Phase 3 clinical trials. Ken also noted that Wall Street often gets clinical trial data wrong and this is what creates the opportunities in the market.
As always, Larry and I found Ken Kam’s opinions and views interesting and a little contrarian. We’ll stay in touch with him and, again, would like to thank for taking the time to meet with us.
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, August 10, 2008
Follow-up Interview with Ken Kam (Part 1)
Last month, Larry and I had the opportunity to interview Ken Kam of Marketocracy (www.marketocracy.com) about the drug industry and Elan Corporation PLC, currently conducting clinical trials on a drug, Tysabri, which could be used in the treatment of multiple sclerosis and Alzheimer’s disease, in particular. Ken predicted a bright future for Elan. Then came two pieces of bad news and Elan’s price came down 60% from its recent high.
Larry and I wanted to follow up with Ken and talk about what happened and what he thinks about Elan’s future. Ken graciously made himself available for us recently and what follows is a summary of our conversation.
When we asked Ken what happened, he replied that these things happen when a company’s value is tied up in clinical trial data, because a lot of investors react to just the headline He feels that when the dust settles people will have a different view when they look at the data. The confidence level for the trial results was at 92% instead of the expected 95%. But, despite trial data showing drug safety and being very close to efficacy at the top level, the stock began moving downward. That was the first piece of bad news. Then came the second.
An announcement came out later indicating that twelve cases of vascular edema and three deaths. As Ken put it, although the three deaths were unrelated to the trial and the cases of vascular edema were safely resolved, unexpected deaths and complications are never good when associated with clinical trial results. (Although, recently neither Ken nor Larry could retrieve that news item.) However, Ken feels that CNBC got the story right in Mike Huckman’s broadcast where he differentiated between those trial participants who had the gene for the disease and those who didn’t. The results for both groups would obviously be different which Huckman got but the market didn’t follow his lead. As the bad news was coming from a medical conference, Ken said, it is very important and can really drive the stock. And, in this case, a lot of people piled on. In addition, there were two cases of PML from the users of Tysabri in Europe. Although it looks like both patients will survive, one is already home from the hospital, PML can be deadly.
Ken went on to say that investors need to look past the headlines and get into the specifics to understand what’s going on. Analysts can be off the mark with knee jerk reactions. It takes a long time for a drug to build a reputation. In Ken’s opinion, Bapineuzumab warrants going to Phase 3 clinical trials. Phase 2 trials are to determine safety and how to dose. Phase 3 results are the ones that really count.
Ken told us that 14,000 patients have been taking Tysabri for over a year. 30,000 patients are now currently taking the drug. He believes that Tysabri is more effective than any other drug on the market for treating multiple sclerosis. His opinion is based on his review of the clinical trial results as well as from members of his online investment community at www.marketocracy.com.
I’m stopping here for now. I’ll continue our interview with Ken Kam in my next blog which will be posted in two days. In it, Ken will talk about his opinions on Elan’s future and another opportunity in the pharmaceutical sector.
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
Larry and I wanted to follow up with Ken and talk about what happened and what he thinks about Elan’s future. Ken graciously made himself available for us recently and what follows is a summary of our conversation.
When we asked Ken what happened, he replied that these things happen when a company’s value is tied up in clinical trial data, because a lot of investors react to just the headline He feels that when the dust settles people will have a different view when they look at the data. The confidence level for the trial results was at 92% instead of the expected 95%. But, despite trial data showing drug safety and being very close to efficacy at the top level, the stock began moving downward. That was the first piece of bad news. Then came the second.
An announcement came out later indicating that twelve cases of vascular edema and three deaths. As Ken put it, although the three deaths were unrelated to the trial and the cases of vascular edema were safely resolved, unexpected deaths and complications are never good when associated with clinical trial results. (Although, recently neither Ken nor Larry could retrieve that news item.) However, Ken feels that CNBC got the story right in Mike Huckman’s broadcast where he differentiated between those trial participants who had the gene for the disease and those who didn’t. The results for both groups would obviously be different which Huckman got but the market didn’t follow his lead. As the bad news was coming from a medical conference, Ken said, it is very important and can really drive the stock. And, in this case, a lot of people piled on. In addition, there were two cases of PML from the users of Tysabri in Europe. Although it looks like both patients will survive, one is already home from the hospital, PML can be deadly.
Ken went on to say that investors need to look past the headlines and get into the specifics to understand what’s going on. Analysts can be off the mark with knee jerk reactions. It takes a long time for a drug to build a reputation. In Ken’s opinion, Bapineuzumab warrants going to Phase 3 clinical trials. Phase 2 trials are to determine safety and how to dose. Phase 3 results are the ones that really count.
Ken told us that 14,000 patients have been taking Tysabri for over a year. 30,000 patients are now currently taking the drug. He believes that Tysabri is more effective than any other drug on the market for treating multiple sclerosis. His opinion is based on his review of the clinical trial results as well as from members of his online investment community at www.marketocracy.com.
I’m stopping here for now. I’ll continue our interview with Ken Kam in my next blog which will be posted in two days. In it, Ken will talk about his opinions on Elan’s future and another opportunity in the pharmaceutical sector.
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, August 5, 2008
Comment about Post on the Economy
Larry I think you're right on with the assessment... and I'd predict start-ups will be in the integration of technology, information and services. Take the cocreation that is happening with the iPhone 3G where folks can create applications for the device and have them 'posted' at Google for public consumption. I think we're at the cusp of a period of high invention as computing power is not a barrier to solving problems.... sometimes real-time for businesses and individuals. I want my iPhone to tell me when to replace my toothbrush 90 days after I open the wrapper --- naturally when I'm in a food store near the toothbrush aisle.
Greg Poorten,
Greg Poorten,
Monday, August 4, 2008
State of the Economy
Normally, I don’t write much about the economy in general. But, recently, Larry was forwarded a link to the ADP National Employment Report®. We read the report and came away with a few observations.
While there wasn’t any specific information concerning the pharmaceutical industry, we noticed a couple of things that may be of potential impact. First, US employment declined by 65,000 positions in the month of July in the goods-producing sector where we figure the pharmaceutical industry is located. Certainly there have been numerous reports of continuing layoffs, restructurings and consolidations within the industry we follow which may reflect the macroeconomics cited in this study. The report goes on to say that the sectors hardest hit were those affected by recent difficulties experienced by the mortgage markets. (Do I have a knack for understatement or what?) So, even allowing for the mortgage mess, large employer payrolls still seem to struggling. Second, employment in small businesses defined as those with under fifty (50) employees actually increased by 50,000 during the same period, July.
Here’s what Larry and I came away with. We suspect that outsourcing and offshoring are continuing to eat away at jobs in the types of large companies defined by this study. Next, the growth in small businesses could be a resurgence in the type of small start-up’s which has fueled the start of growth in sectors as varied as technology and biotech in the past. Admittedly, Larry and I are going on a limb here but since we have over a half century of business experience between us, we don’t think that we’re too far off the mark. We hope to interview one of the economic advisers behind this study and test our ideas. Please keep an eye out for future updates on this blog.
The study itself can be found at http://www.adpemploymentreport.com/.
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
Subscribe to:
Posts (Atom)