I saw a couple random posts today with some Big Pharma factoids that have some interesting implications I suppose. The first via PharmaGossip from Business week related the enormity of Big Pharma profits that are being generated and invested abroad (outside US). In many cases, the percentage of profits generated outside the US are much bigger than the percentage of sales so generated.
These companies do seem to be positioned to make whatever investments they need in terms of acquisitions of biotechs, product or technology acquisitions, or even R&D funding partnerships with biotech or academic research. They never seem to be as poor as they sometimes let us believe -- patent cliff or no patent cliff. There is ample raw material (i.e cash) to work with here. It just needs to be applied appropriately it would seem. See Business Week here.
Then In the Pipeline reported on a post from Life Sci VC on the R&D spend in Big Pharma versus the rest of the industry. It was basically examining the enormity of Big Pharma spend and looking at efficiency - plus also making some commentary on what Big Pharma's extravagance (and relative non-productivity is doing to the overall drug financing eco-system).
As pointed out in Derek's summary of the post, the top 20 Big Pharma companies spend ($96 billion) about 26 times more than the rest of the private biotech universe combined ($3.7 B). Pfizer when compared to the universe of privately financed companies (460) reveals that it is equivalent to about 1000 biotechs -- or two and half times the number that exist! Pfizer's proposed R&D cuts for itself over the next few years ($3-4 B) is equivalent to cutting all the funding to private biotechs! Egad - maybe there is some FAT to trim thereabouts.
Sadly, if one calculates the annual utilities and facility costs (avg 3%) for the top 20 Big Pharma's R&D organizations, get this now, it exceeds ALL the funding for venture-backed biotechs combined.
There is efficient use of capital right? Whatever happened to economies of scale? If venture backed funding only amounts to 4% seen in the whole system, why is venture backed production and innovation greater than 4%? The numbers certainly indicate that smaller R&D groups are being more efficient in the current circumstances (and probably have been for some time).
It looks like it is the RIGHT thing to do for Big Pharma (Top 20) to invest more in private and small-cap biotechs to get some more productivity out of the system. MIght be a better thing to do than buy back stock or pay a bigger dividend. Maybe even result in some products to meet the "unmet needs".
Posted by Bruce Lehr March 25th 2011.