A new pharma golden age?
The promised land in pharmaceuticals was 10 years ago. Until we see a major technological breakthrough in pharmaceutical development, for now it’s all about working what you have. - David Markowitz
The above quote from David Markowitz, an analyst at Caris & Co., appears in today’s Philly Inquirer in an article by Miriam Hill summarizing analysts’ opinions on the Wyeth/Pfizer merger deal. Is he right?
Nah.
First off, I haven’t written about the deal yet, and I don’t intend on saying too much, because frankly, it’s not all that interesting to me. The Pfizer sponge is sopping up another large company…ho hum…been there before…more than once. Lots of good folks on both sides will lose their jobs, while senior executives will get even richer, with or without a job afterwards. Neither company’s shareholders will particularly benefit in the long run, as the combined Pfizer will have a very tough task of growing profits post cost-cutting, because its profit base will be enormous. Sometime before 2012, the combined firm will reduce its profit base by selling off a major unit (Wyeth’s consumer business, I’m guessing) and spinning out another (vaccines?). And so it goes.
But back to the quote. The promised land for Pharma was entered well before 10 years ago, sometime in the early 1980’s in fact, when the drug discovery engine was revved up sufficiently to produce the blockbusters of the early to mid-90’s. Despite, the dry spell in the land of Promise this decade, the discovery engine, already revved to the max, has been retooled to become more efficient and has been boosted with a goodly dose of in-licensing fuel supplement. Pharma’s decision-making is still bogged down amidst a large, feather-footed bureaucracy, but some important lessons are being learned. Arguably the most important lesson of all–that in the absence of accurate nonclinical predictive ability (the technological breakthrough alluded to in the Moskowitz quote) success is a throughput and asset management game–has been learned. The result is that early clinical pipelines of the nimblest majors are being filled sufficiently for robust volume growth in the decade to come.
Now I know I’ve said nothing about the increasing pressures to curb price increases, and certainly such pressures will counteract the forthcoming proliferation of new drugs to restrain profit growth. But I think with all important payers now requiring substantial evidence of societal benefit for new health technologies, the industry will be able to price its best medicines more competitively with other health technologies. In other words, I think that the industry will be held to a slightly fairer standard for “reimbursement” going forward. Also, as I stated in a recent post, the industry must take advantage of recent regulatory trends to push for longer periods of market exclusivity, thus providing new products with more time to become profitable and encouraging a slightly higher risk tolerance among innovators.
In short, the industry still dwells in the promised land it entered more than twenty years ago. I advise senior executives of larger companies to resist an urge to merge with other large firms to relieve near-term pressures, understanding that this sometimes means forsaking short-term personal gain. Once critical R&D and sales mass is reached–and there’s reason to believe it has been reached at every Top 15 firm–there is no compelling business case for a mega merger. Indeed, going it alone provides a much easier opportunity to grow profits and increase shareholder value.
Alternate views, as always, are welcome to comment right here.
