There have been several articles and blog posts circulating about whether many of the Big Pharma companies ought to consider breaking up to bring more focus -- and success -- to their drug businesses. Several analysts and Wall Street watchers seem to be proponents of this idea.
The fact is that Big Pharma's R&D pipeline has not been as productive this past decade - the so-called Lost Decade. This may be due (pick your poison) to tighter standards at the FDA, short-term return management practices, and poor R&D project selection and execution. The situation is exacerbated by looming patent expirations (lost revenue) and by increasing 3rd party payer and government pricing pressures. All of this makes it difficult to keep funding expensive R&D groups that are exhibiting low returns. Seeking Alpha presented an analysis today that shows Pfizer, BMS, Merck, and Lilly all showed a 55-65% loss in real terms in their stock value over the past decade. OUCH!
Luke Timmerman wrote a post for BioBeat in Xconomy this morning that notes "bigger isn't always better". The gist is that mega-mergers in pharma have not created value. Additionally, these very large enterprises are too difficult to manage because they are so far flung. They also consume a lot of managment time, overhead, and other cost not directly related to discovery (in R&D area). Basically, it is wasteful and inefficient. Should the industry look to spin out non-core pharma businesses so it can concentrate on the finding new drugs?
Well, Pfizer has announced that it does plan to look at whether it will sell or spin-off its non-core pharma businesses - animal health, nutritionals, consumer health and capsules -- to get back to its "innovative core". The notion generally drew positive comments from commentators and the stock price rose 2%.
Analysts have also wondered aloud if a company like Abbott might not do something similar with its valuable nutrional and diagnostic business units. Speculation is that Abbott could see a 33% bump in its stock price if it were to make such a move. It could then presumably focus the increased wealth on its drug business and get ready to find replacments for Humira revenues by 2016. See PharmaGossip and Barrons.
For a final word on this, we'l turn to a recent interview of GSK's CEO Andrew Witty, "We need to recapture the ability to empower creative talent in the discovery phase of R&D by creating an environment in the labs that reflects the fact that discovering a drug is as much an art as it is a process."
We need to get back more to a biotech feel in R&D -- an environment that is smaller, nimbler and entrepreneurial and not so stifflingly big and corporate. Plus we need to explore taking som eof the savings from these trimmed R&D groups and spend that money on external public-private collaborations, research consortiums with more open data-sharing models, and look for better collaboration between discovery groups, regulators and governments.
Posted by Bruce Lehr March 28th 2011.