First Stop – Hey, I Didn’t Get too Far

As our readers may recall, I’ve begun a journey across the Internet looking for evidence from Big Pharma that there really is a good story out there for them and that they’re just going through a slump right now like everyone else. Well, imagine my chagrin when I found myself back at where I first started, Pharmaceutical Research and Manufacturers of America (PhRMA) (http://www.phrma.org/ ), one of Big Pharma’s lobbying groups.

On Wednesday, August 25, 2010, I caught a segment about drug prices on ABC World News with Diane Sawyer (http://abcnews.go.com/WN/cost-brand-drugs-soars-hurting-elderly-americans-fixed/story?id=11478210 ). The story was based on a recent AARP report (http://assets.aarp.org/rgcenter/ppi/health-care/i43-watchdog.pdf ) which stated that the prices of brand name drugs used by elderly Americans were increasing more rapidly than inflation. The correspondent cited that such drugs rose in price by 41.5% in the five year period from 2004 to 2009 while the Consumer Price Index rose by 13.3%.

Now, here’s where it starts to get interesting. ABC asked for an interview with PhRMA and was refused. Submitted written questions were ignored. But, PhRMA did issue a statement, and I’m quoting directly from ABC here, “called the AARP report "distorted and misleading" for not including cheaper generic equivalents which account for 75 percent of prescriptions filled.” Did you get that? Big Pharma’s lobbyists are taking credit for lower drug prices because of generics! You can’t make this stuff up.

I went to PhRMA’s website to see this for myself (http://www.phrma.org/news/news/phrma_statement_aarp_report ). One thing I want to do is to thank ABC for clarifying PhRMA’s statements because I had to read it about half a dozen times before I understood what they were trying to say. The report even claims that increases for drugs were the lowest since 1961. I didn’t go back and check their sources and I can only speak anecdotally about what I hear going on around me with family and friends and I have a hard time with that.

This is where I start to question the long term viability of Big Pharma as well as their ability to get out of their own way. I’ve blogged before about the threat of generics to Big Pharma’s brand name drugs. Check on Google and you’ll find many links to this topic. This was a factor in Big Pharma’s future even before there was a World Wide Web. Now, when their backs are to the wall, they justify themselves by citing the lower prices of generics. Are we seeing a shift here? Is Big Pharma moving to a commodity type model? Might we see more consolidation in the pharmaceutical industry? Could possibly Big Pharma not realize this themselves? Follow my journey for the next several weeks and we’ll see.

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

Pharmservices Blog Named among Top 10 Pharmaceutical Blogs in the World!

We have been informed that the blog "Pharmatching" based in Germany had selected our blog included on their “Best Pharma Websites List”, the 10 top sites in their opinion. This marks the second time in two years where our blog has been cited as among the best in the world - we are truly humbled.

The entire list can be seen at https://www.pharmatching.com/blog/2010/08/the-best-pharma-life-sciences-biotech-websites-part-1/ . Pharmatching wrote of us:

This Blog discusses issues related to the politics, finance and technology and their impact on the industry. Always great thoughts and interesting views.

We would like to thank both Pharmatching and you, our readers, for following us and letting us know that we’re adding some value. Additionally, much of the credit for the high quality of our blog is due to my colleague, Guy de Lastin. Guy has continued to provide thought provoking, well researched articles that have attracted many to our blog.

We’ll continue to write about Big Pharma and the challenges that the entire life sciences sector faces. Stay tuned as we go out onto the Web to see what Big Pharma is actually saying about themselves in our next series of blogs.

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

Larry

More Visits to Big Pharma

In my last blog, I went looking for Big Pharma. I came across one of their lobbying groups, Pharmaceutical Research and Manufacturers of America (PhRMA) (http://www.phrma.org/ ), and didn’t find much of a story. So, I decided to head over to the other major Big Pharma lobbying group, Biotechnology Industry Group (http://www.bio.org/ ), and see what they had to say.

I found another site without content, at least relevant to an explanation of how an industry will grow out of its slump. The site is busy with all the de rigueur flash for a modern website. Although, I didn’t see Twitter, Facebook, or any other social media application. (But, I’ll bet they’ll be there soon.)

Like PhRMA’s site, there’s a lot going on but no general theme. One link looks suspiciously like a paid advertisement. Overall, this site reminds me of the saying that a horse is a camel designed by committee. There’s something for everyone. The prerequisite “green” sections are even there but don’t seem to tie together.

This is what I think is wrong with Big Pharma today. There is no direction. Everything is reactive, trying to please whomever the particular gods of the moment happen to be. Let’s hope they don’t get the idea that human sacrifice is needed. Nope, sorry, it’s been done. Just look at the layoffs of all the talent from many major pharmaceutical companies over the past several years. They’ll soon find that their best and brightest have been sacrificed to false gods as others have found throughout history.

I’m starting on a journey with this series of blogs. I’ll be traveling around the Web looking for Big Pharma’s story in its own words. But I want to get past the publicists’ hype. If you read the blurbs coming out of the executive suites, everything is fine. Pipelines are strong, healthcare reform is a non-issue, and on and on. I’m reminded of what IBM dispensed from Armonk when John Akers was still in charge.

My trip will go past the type of sites that I’ve been to lately. I’ll be looking for the real story because I know it’s there. Big Pharma is an industry in a state of flux as this blog has been reiterating since its inception. I believe that time is running out for Big Pharma. They’re going to hit the proverbial “tipping point”. Yes, the coffers are still full of cash, but revenue is beginning to sputter, and while cost cutting can keep the bottom line looking healthy for a while even a first year investment analyst knows that game gets played out eventually.

So, keep an eye on this blog as I go in search of Big Pharma’s future.

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

Visiting Big Pharma

For those of you who have been following my blogs (and Larry and I are grateful to all of you, feel free to refer us to your friends), you know that I talk about “Big Pharma” a lot. Sometimes I think I get a little carried away and give folks the impression that Big Pharma is a group of people who get together in Starbucks for a latte every once and again.

I’m not sure anyone has an exact definition of who or what is in Big Pharma and it’s probably a lot like the one for art – I’ll know it when I see it.

So, I went looking for Big Pharma. Who knows, I thought to myself, maybe I’ll end up with a latte.

Stopping at one of my favorite Web research tools, Wikipedia (http://www.wikipedia.org/ ), to see what I could find I went looking for this nebulous group. Well, it turns out that there’s an entry and I’m happy to say Big Pharma is alive and well if not drinking lattes. Interestingly, keying in “Big Pharma” in the Wikipedia search field yields, drum roll please, the “pharmaceutical lobby.” I have to admit that for the all the advertising money that Big Pharma spends they’re really ought to look for some better talent if this is the best that they can get for their money. (Larry, maybe you should think about coming out of retirement, there’s money to be made here.)

According to Wikipedia, the top twenty pharmaceutical companies are represented by two trade groups, an expensive way of saying lobbyists. Being the wanderer that I am, I visited one of these trade groups’ websites. I selected Pharmaceutical Research and Manufacturers of America (PhRMA) (http://www.phrma.org/ ). I must admit I was somewhat underwhelmed. Here’s why.

The site has all the requisite bells and whistles that are expected these days, Twitter, RSS syndication, electronic newsletters, even Facebook. What I couldn’t find a lot of was content. Oh, sure, there were many words. But, I couldn’t escape the sense that this was a very defensive site. (Spoiler alert – here’s where I go into my spiel about Big Pharma going away.)

PhRMA’s mission statement on the site says their goal is “is to conduct effective advocacy for public policies that encourage discovery of important new medicines for patients by pharmaceutical/biotechnology research companies.” What does that mean? Seriously, I’m not playing dumb here. I feel that they are trying to be all things to all people with this site.

If Big Pharma is really introducing new products and driving for revenue growth then why all the self justification? Does Big Pharma know something that we don’t?

Tune in next week for the next installment of my 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

Big Pharma – More Doubts

If you’ve been following my blogs lately then you know that I’ve announced the end of Big Pharma as we know it and since I’ve been trying to prove it. When I started this series, I thought that this might prove controversial but as I’ve been researching and blogging, I’ve come to realize that I’m probably not alone here.

Another point that I’m realizing is that some of these warning signs have been around for awhile. Maybe not with billboards and newspaper advertisements but the signs are there if you look closely enough. (Larry does say that I have too much time on my hands.)

For example, while researching, a fancy way of saying surfing the Net, I came across a report on the Federal Trade Commission’s (FTC’s) website (http://www.ftc.gov/reports/pharmaceutical/drugexsum.shtm ) entitled The Pharmaceutical Industry: A Discussion of Competitive and AntitrustIssues in an Environment of Change. The report is dated June 25, 2007 and is meant to address possible antitrust practices but I believe is a clue to how Big Pharma’s practices will work against it in the long term. Also, note that this is over two years before healthcare reform legislation was passed and even before most people even thought that Barack Obama had a chance of becoming President of the United States.

The report notes four changes in the pharmaceutical industry and discusses them from an antitrust perspective. I don’t wish to blog about that but what these changes mean to an industry that’s going through a period of elimination and consolidation.

First, the report notes that information technology is becoming a driver of competitive advantage for drug companies. My take is that early innovators who can make the big investments here will pull ahead of their competitors.

Second, the authors make the point that pharmaceutical companies could then segment their pricing strategies to different categories of users because of this technology. Here’s where I feel that since these buyers will be either the government or medical insurance providers that this will work against the drug companies. As I’ve blogged before many times, the drug companies can’t squeeze their suppliers and employees for cost reductions without the same ultimately happening to them. What goes around comes around.

The final two points discuss the antitrust implications of vertical and horizontal consolidations. These points are indications of an industry going through shake-out and consolidation. There’s no rocket science here. Go back to the nineteenth century when the first trusts were being established in the railroad and oil industries to see some of the first examples.

These points are interesting and I’m not the report’s authors thought about it the way that I am. But, I feel my points are valid. Please check the report out for yourself and let me know your thoughts.

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

Big Pharma – Why the Doom and Gloom?

OK, last week, I announced the end of Big Pharma. CNBC and the Wall Street Journal haven’t called me yet. (And, if they ever do, you’ll know that it’s been really slow week in the markets.) I suspect that many of my readers (you’re out there somewhere) probably dismissed me as either a crank or a sensationalist. But, for that faithful minority who have kept the faith, I can say that there is a method to my madness. In this blog, I’ll write about some of my reasons for taking this position.

First, I’d like to return to GlaxoSmithKline’s problems with Avandia. Shelley DuBois has written an interesting article about this at CNNMoney.com (http://money.cnn.com/2010/07/13/news/companies/avandia_fda_panel.fortune/index.htm ). In particular, she raises the point of what does it mean for future drug investments if after eight (8) years on the market a drug can be pulled by the FDA, not to mention the potential for litigation. This is important because it hits right at the heart of today’s drug business – making money. If a reliable cash flow can’t be forecast, investors will seek a higher return to offset the risk. However, potential returns aren’t infinite. I make the point to reinforce that business as usual is over for the pharmaceutical companies.

Next, here’s another interesting blog (http://www.alternet.org/story/146471/8_invented_diseases_big_pharma_is_banking_on ) by Martha Rosenberg at AlterNet.com. She has two points that in particular stand out for me. She notes the move of Big Pharma away from its current big molecules to vaccines and biologics and the resistance being encountered from the anti-vaccine movement and how it may be returning to inventing new diseases for the drugs that it’s just happened to have developed. Martha then proceeds to list and describe eight new diseases that we may soon see being advertised on television soon. ( I also like how Martha snuck in the fact that a former CDC director, Julie Gerberding, is now the president of Merck vaccines.)

I’m using these two sources to substantiate my case that Big Pharma’s revenue model is dead and future growth will be unsustainable. If greater risks without offsetting higher returns are to be the future then new private sponsorship of drug development will wither away. Healthcare reform will act as a ceiling to potential returns.

Healthcare reform will also act as a brake, or at least introduce uncertainty, into “new” diseases being introduced for reimbursement anytime soon. A move to prevention as opposed to treatment on the part of the public could cause new drugs to be less successful upon introduction than in the past.

In closing, I see much turmoil ahead for pharmaceutical companies. Let’s watch earnings announcements over the next several years and see what happens.

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

Big Pharma – When Will the Music Stop?

My recent blog series on Barron’s article on Big Pharma (The article is available online only for subscribers, a short preview is available at http://online.barrons.com/article/SB50001424052970203296004575320891909686872.html .) got me thinking about what’s going on with Big Pharma. Looking at the company level gives one picture, the day to day struggles of individual companies. Sometimes looking at that level misses the bigger picture.

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

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

I have two observations about this.

First, many are still in denial about what’s going on. Like Andrew Bary in his Barron’s article, they’re not seeing the big picture. Moody’s recent downgrading of its earnings expectations to negative for Eli Lilly (http://www.fiercepharma.com/story/moodys-cuts-outlook-eli-lilly-negative/2010-05-24 ) recognizes the current problem but still misses the future ones. The myth of long term earnings improvements is based on the myth of the future drug pipeline. It never ends! Whatever happened to provocative business journalism and rigorous financial analysis?

Next, what replaces Big Pharma? I still believe that fragmentation and geographic dispersal will result from the changes that are underway. There is historical precedent for this. Remember IBM and DEC? Once upon a time they dominated the computer industry. In fact for one brief, shining moment, IBM had it all. Then the personal computer and local area networks came along and, poof, the magic was gone. Not only that, but many of the personal computer players came and went even more quickly. And, now? Now, Lenovo sits in China with the remnants of IBM’s personal computer division. All that in about a generation.
Take a look at a blog (http://stocks.investopedia.com/stock-analysis/2010/playing-big-pharma-with-cros-crl-prxl-ppdi-mrk-kndl-cvd-iclr0706.aspx ) about contract research organizations (CRO’s) that I’ve come across recently and you may see some of the same trends unfolding with pharmaceuticals.

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

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

Contributed by Guy de Lastin

Big Pharma – Corruption? Say It Ain’t So

To prepare for these blogs, I do research. That’s a fancy way of saying that I sit in front of my laptop and do a lot of Google searches (my preferred engine of choice). And, I’m noticing a few things lately.

First, there’s not a lot of good news out there for Big Pharma. OK, sure there’s a lot of marketing hype and spin meistering going on but not any really positive trends. Talk about biotechnology and its promise but not much on delivering on those promises.

Second, the usual bad news stories, patent expiration, generic competition, cost models out of whack, diminishing pipelines, and I’m sure I missed a few are still there. These stories go back for years, the beginning of the decade in some cases with more coming every year.

So imagine my chagrin when I came across a recent article from Natural News written by David Gutierrez posted on Kevin Trudeau’s website (http://www.ktradionetwork.com/health/who-issues-warning-about-big-pharma-corruption/ ) discussing the release of a fact sheet from the World Health Organization (WHO) discussing corruption and unethical practices in the pharmaceutical industry. These guys just can’t catch a break.

We seem to be moving from a period of public perception of an industry under siege to one that’s preying on the public. I suspect that except for BP’s current contribution to the public image of multinational corporations, Big Pharma might be getting more heat than they have been lately.

Now, let’s get back to that WHO report. WHO Fact Sheet No. 335 was first released back in December 2009. The actual report can be viewed at http://www.who.int/mediacentre/factsheets/fs335/en/index.html . The authors looked at what they call the medicines chain which included all steps in the development, marketing, and consumption of drugs and they claim that there is corruption in every step of the chain. In fact, they’ve included a pretty nifty chart (http://www.who.int/mediacentre/factsheets/images/medicines_20091209.gif ) diagramming each of those steps and the corresponding types of corruption that occur. (Rest assured, there will be future blogs about what’s going on here.)

The fact sheet states that all countries regardless of their developed status have issues. Developed countries are estimated to lose $23 billion US annually to dishonest healthcare practices. Certain practices would seem to lend themselves to certain countries and companies. I’ll hazard a guess and say that research and development and clinical trial fraud are probably more likely in the developed countries where much of this work occurs than with the less developed ones. Likewise, counterfeit drugs are a bigger for less developed countries lacking the necessary infrastructure to examine the drugs. And, I’m sure there are examples which contradict both scenarios.
In closing, I’m getting the sense that Big Pharma’s troubles are far from over and if anything they’re entering a new stage which may presage new ones coming soon.

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

A Shot Across the Bow III

This week, I’ll be finishing 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 started this series of blogs because after reading the article for the first time I was astonished at the lack of analysis of what simply appeared to be regurgitations of pharmaceuticals’ public relations flacks. The other interesting aspect of the article is the long term view that I takes. When the dates that Andrew is writing about finally come around no one’s going to remember either this article or him. I wish I could get writing gigs like that.

Last time I left off just as Andrew was about to tackle Roche. He quotes unnamed “bulls” as saying that this company has the best potential of the nine companies he’s writing about. He assumes the stock could rise 30% simply from earnings growth in the next several years. OK, why? Or, better yet, given all that we know that is out there working against this industry why should we expect earnings to simply “increase”? Especially since maybe $1 billion in annual revenues could be at risk if the FDA reconsiders its previous approval of the breast cancer drug Avastin. Check out the Bloomberg Businessweek article for more details (http://www.businessweek.com/news/2010-07-16/roche-avastin-trials-not-as-good-as-early-tests.html ).

Next up, Andrew tackles GlaxoSmithKline. This one is going to be easy. (You can tell that I’m enjoying this can’t you?) Now, Andrew couldn’t have known that the Avandia story (http://www.cbsnews.com/8301-504763_162-20010767-10391704.html ) would have broken so soon after he wrote his article. In fairness, his comments about the drug are probably his most insightful in the entire article. But, once again, he misses the obvious to follow lemming-like the unnamed bulls that he appears to be so enamored with. What gives here?

Andrew reviews three more companies in his article, Lilly, Bristol Meyers Squibb, and Astra-Zeneca. I won’t prolong the torture by going through these one by one. But, the same themes are there. A long term look at 2015, the current dividends are good, or yeah, there’re problems but there’s always tomorrow. (I’m expecting Annie to get some credits here.) Can this guy really believe all this?

I think Barron’s and Andrew really missed an opportunity here. I’m also disappointed with Barron’s, they typically run tougher pieces that challenge the conventional thinking.

It’s not like this hasn’t happened before in the U.S. economy. The auto and banking industries are good current examples. The personal computer industry is a slightly older example and the mainframe computer industry in the Sixties is another good example. How many of you out there remember Snow White and the Seven Dwarves? (Larry will tell you, I’m a serious student of history.)

One more thing, I’ll take a look back on this article in 2015 and see just well Andrew called this one.

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

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

A Shot Across the Bow

I don’t often get worked up over other writers’ work but a recent cover story by Andrew Bary in Barron’s about the rosy prospects for drug stocks set me off. (The article is available online only for subscribers, a short preview is available at http://online.barrons.com/article/SB50001424052970203296004575320891909686872.html . By the way, a subscription to Barron’s online edition is a very cost effective, environmentally friendly thing to do. Both Larry and I subscribe.) Here’s what got me going.

Andrew’s premise is that far from being dead, Big Pharma is on the cusp of a resurgence that could see some stocks rise by 30%. OK, now, those of you who have been faithfully following this blog know that I think anything but that about Big Pharma. The article was to me nothing more than a compilation of Big Pharma press releases. Sorry Andrew.

Let me explain why I feel this way. And, in fairness to Andrew, I’m not disputing his facts, I just see things differently, very differently.

First up, Andrew writes of the shift to vaccines and biologics. No argument there but will the profit margins be there? Also, given where healthcare reform is headed in this country and the budget shortfalls for many governments around the world (e.g., Greece, Ireland) how much money can actually be made here? Then there’s competition. What will happen when all the major pharmaceutical companies pile on? Profit margins will only get thinner. Biologics sound expensive and with their apparent manufacturing complexity can manufacturers really handle this and still make a profit?

Next, the writer quoting an analyst implies that drug stocks may be at their lows. I’ll admit that contrarianism would make the case that a buying opportunity may exist here but I don’t believe so. Contrarianism can’t trump fundamentals. (There’s a PhD dissertation in here somewhere.) And, the fundamentals aren’t good here.

Then, the dividend argument is played. (The older I get the more I can’t believe how these old bones keep getting gnawed.) Yes, dividend payouts are high for some of these companies. The argument is given that cash flows are strong. Yes, they are today but what about tomorrow when they dry up and cash balances are drawn down. Unless of course, some bright spark decides to borrow to continue paying those dividends. Shareholders of General Electric, and General Motors once used to look forward fondly to those quarterly dividend checks which don’t come anymore or are far smaller than they once were.

I’m not finished here. I’ll be back in the next several blogs to continue to dissect this article because I feel it needs to be put into perspective.

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

Europe – Big Pharma’s Next Big One?

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

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

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

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

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

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

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

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Contributed by Guy de Lastin