As Patents Run out, Drug Firms Need to Find a New Viagra to Keep Share Prices Rising ; ANALYSIS
Tobin, Lucy, The Evening Standard (London, England)
THE head of Pfizer, the world's largest drug company, this week set the pharmaceutical industry alight with talk of a megadeal when he revealed a shopping list of rivals in his sights.
"The real goal is to grow revenues. We are open to opportunities and constantly looking at those which are big, small and in - between," said Pfizer chief executive Jeff Kindler.
The Viagra-producing drug company may need to go shopping. With the patent on its [pounds]8 billion-a-year cholesterol drug Lipitor due to run out in 2011, Pfizer has a serious headache that none of its huge back catalogue of pills looks set to solve.
The problem is not exclusive to the American pharma giant. Many of its competitors, including the UK's two biggest drug companies, AstraZeneca and GlaxoSmithKline, are facing falling future sales.
The industry worth [pounds]7 billion to the UK economy and employing 70,000 people has a stream of blockbuster drugs coming out of patent, and generic drug developers are gearing up to move into the market.
The Association of the British Pharmaceutical Industry estimates that it takes [pounds]500 million of investment to launch a new branded medicine. When patents expire, usually after 20 years, a generic version can be developed for less than [pounds]100,000, and sold for a much lower price.
With 40% of AstraZeneca's sales coming out of patent by 2012, and a quarter of GSK's sales in the same predicament, the next few years could see a dramatic reshaping of the pharma industry.
The sector considered a safe haven in a recession was one of 2008's few positive success stories. While the FTSE 100 index crashed 31%, its worst performance since its inception in 1984, pharmaceutical shares ended the year up 7%. AstraZeneca was a particularly bright star, rising 29.7% by the close of the stock market in 2008, benefiting from strong sales in emerging markets and serious cost-cutting.
The market has warmed to drug stocks in part because of so- called efficiency plans that are shifting the industry eastward.
For UK workers, the restructuring has been a bitter pill to swallow. British drug giants have made large-scale redundancy plans for thousands of staff as they shift investment to China and India.
GSK is closing two UK factories with 600 redundancies in Dartford, Kent, and 200 in Barnard Castle, Durham, plus 350 jobs in research and development, including some at its site in Harlow, Essex, as part of 2000 worldwide job losses. Astra- Zeneca has shed the first of 250 UKbased manufacturing jobs as part of its own massive restructuring plans.
Announcing plans to cull 11% of its 66,000-strong global workforce, Astra- Zeneca revealed the extent that the Western side of the drug industry is changing. "Manufacturing for Astra- Zeneca is not a core activity," explained David Smith, AstraZeneca's head of operations. "There are lots of people and organisations that can manufacture better than we can. …