Pharmaceutical Executive Europe - September 2008 - (Page 16) Pharma’s new winners and losers In her new column for Pharmaceutical Executive Europe, acclaimed healthcare writer Jacky Law looks at why, from a company perspective, bigger isn’t necessarily better in the evolving pharma landscape. Jacky Law P harmaceuticals used to be such a simple business when everyone knew their place. The giants dominated and the smaller players either developed markets the giants weren’t interested in or concentrated on supplying new science for those they were. Now, the picture could hardly be more different. A report published this summer entitled The Rise of Mid-Sized Pharma1 shows that during 2000–2006, companies with annual revenues of more than $10 billion (Big Pharma) have been losing out to companies with revenues of $1 billion–$10 billion (mid-sized pharma) on virtually every financial yardstick. In terms of performance, Big Pharma revenues and net income grew by 9 and 11% during this period, while the mid-tier grew by 12 and 25%, respectively. In terms of valuation, the collective market cap of the big companies fell by 2%, while that of the mid-tier climbed to 12%. As far as investor confidence is concerned, the price–earnings ratios of the big players fell by 9.5% while the mid-tier saw a rise of 6.2%. The reasons for this turnaround are well documented, and revolve around the unsustainability of the Big Pharma model at a time when healthcare budgets are tight, patents are expiring before pipelines can be replenished, the industry’s reputation has plummeted — particularly in the heartland US market — and regulators are becoming more cautious. Moreover, Big Pharma companies can no longer merge themselves out of trouble and are being forced to downsize, apply a much keener focus to what they do, and usher in new and younger CEOs to apply new thinking to what is a very new situation. How companies shape up is being closely watched. Some are buying back their shares in the largely forlorn hope of propping up falling share prices. The EvaluatePharma Yearbook 2008 shows, for example, that the UK giant GlaxoSmithKline had net debts of $12.2 billion in 2007.2 Those of Germany’s Bayer were even higher at $16.5 billion, while Abbott Laboratories was $9.4 billion in the red and AstraZeneca $9.1 billion. This is a major change in strategy for companies that, in the past, have tended to hoard their cash. Another turnaround stems from the strong euro. The EvaluatePharma database shows that European companies are buying into the US market at an unprecedented rate. Of the 66 company acquisitions that took place worldwide in the first 7 months of 2008, 22 came from EU companies snapping up their US counterparts. Radically new market conditions are forcing companies to think differently. 18 Executive Profile Pharm Exec Europe talks to NNIT’s CEO, Per Kogut. 22 Regulatory Affairs Will the FDA/EMEA joint inspection programme work? 25 Last Words The month’s key events from the industry’s mouth. 4 News A round-up of the last four weeks in pharma.
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