Monday, September 5, 2011
Life after death: Pharma
Despite the fixation of
industry pundits on pharma's woes, the fundamentals of big companies look
better than they have in a long time - and upcoming milestones suggest much of
the worst could be behind it.
There's no denying the
sector's lack of value creation, with the core group of 15 companies actually
falling from $1.3 trillion in aggregate market cap following the 2002-04 wave
of mergers to $914 billion at the bottom in March of 2009.
The 13 that remain -
Schering Plough Corp. and Wyeth having disappeared into Merck & Co. Inc.
and Pfizer Inc. - collectively are valued at about $1.2 trillion -
less than in 2004.
Share buybacks and dividends
mean the total return to investors has not been negative. Indeed, only Pfizer
and Eli Lilly and Co. are still under water since 2004. And every big
pharma stock is up since March 2009. The winner has been Novo Nordisk A/S,
with a gain of 154%; seven companies have gained 62-79%.
The patent cliffs have long
since been baked into valuations, and investors presumably are looking at what
companies are building on the other side of the chasm.
A case in point is Bristol-Myers
Squibb Co., whose stock is up 57% since 2004. The company has been
implementing a three-stage plan to get through two key patent expirations:
Plavix clopidogrel in May 2010 and, on a smaller scale, Avapro/Avalide irbesartan
in March 2012. The company has been selling off non-core units, closing sites,
renegotiating deals and doing a series of biotech acquisitions (see
BioCentury, July 27, 2009).
Pharma's upside will come
from a new set of novel compounds that will read out in the next two years.
Of 13 big pharmas, six each
have nine or more compounds against novel targets either in Phase III trials or
registration, many of which should have data or regulatory action by the end of
2012. The majority of these are in large indications; some, like stroke and
Alzheimer's disease (AD), with almost totally unmet need; others, like diabetes
or heart failure, where there is plenty of room for better products.
Six companies each have 3-8
compounds in Phase III or registration, also against new targets. Again, many
will report data or have regulatory action by YE12.
Obviously, not all of these
will succeed. But FDA's Janet Woodcock has stated publicly that she expects to
see more approvals - and more rapid approvals - of the upcoming generation of
novel targeted drugs.
Further down the road, even
with rebasing of R&D, big pharma and its brethren in the mid-tier and big
biotech spaces will be spending $537 billion on R&D through 2015 (see "Trying
to Make Do," A19).
Assuming 20% of R&D
money is for research, that means about $107 billion in total - or $21 billion
a year - to refill the industry's pipeline.