Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Global Pharma: Consolidation imminent... - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Oct 14, 2002

    Global Pharma: Consolidation imminent...

    The drop in market capitalization of pharma companies on the US bourses, gives one a clear indication of the unprecedented pressure on MNC pharma companies to sustain growth. The issues, which are giving a nightmare to these companies are wide ranging including patent expiration and dearth of new products.

    Further, intense competition from generic companies, especially from emerging countries like India is adding to the problems. The most immediate problem for these companies is the falling productiveness from their research labs. Despite a surge in R&D budgets, the number of new products coming out of research pipelines is getting squeezed. For an industry that attributes its high prices to the need to reinvest in R&D and boosting success ratio in research, productiveness becomes paramount. And judging by numbers, the days of price premiums seem poised to ebb out. Studies on R&D productivity show that a large portion of the R&D budget is absorbed into the clinical trials, which is the last stage of drug development. Ten years ago, for safety and efficacy 1,000 patients were enough. But now regulators are stressing on higher number of clinical trials to be done before a drug could be approved. This is not only increasing R&D budgets but also increasing the time to market for new drug discoveries, leaving a short period for them to cash in through patent exclusivity. The industry desperately is in need of a wonder drug, which just does not seem to be coming out from their pipelines.

    While on one hand, the R&D / marketing budgets of these companies are soaring, there is increasing pressure from the governments all around the world on placing limits on pricing drugs. To large extent, the demand for drugs in developed markets has a strong relation with public health budgets, as healthcare is funded by states. Consequently, rising drug pricing is making governments and non-profit organizations stand up and raise their voice against the excessive pricing policy adopted by drug companies.

    The problems of the Pharma industry do not stop there. Expiring patents and a rush of generic competitors are eating into the profitability of these companies. As patent expires, discoverers are at risk of losing volumes and revenues, as generic competition offers a cheaper alternative. The generic market is expected to approach double-digit growth over the next three years, compared to a mere 5% growth expected for branded formulations.

    The most recent examples of generic threat to these companies are the patent challenge on Augmentin (antibiotic) and Norvasc (Cardiovascular) of Glaxo and Pfizer respectively. These are multi-billion dollar and strategically important patents for multinationals. Augmentin for example contributes to more than 8% of GSK's worldwide revenues. Domestic generic companies, Dr. Reddy's and Ranbaxy, are aggressively challenging the patents for these drugs. As the pharma industry tides through uncertain times, the solution seems to be in a new round of consolidation. Successful mergers to a large extent would help these companies introduce newer molecules to fuel growth and squeezing their marketing costs. Bigger companies with more products have more bargaining power with states and insurance companies, which to a large extent dictate pharmaceutical sales in the US.

    The Pfizer deal to acquire Pharmacia has already kicked in another round of consolidation in the industry. More deals are likely to follow soon. The principal argument for striking merger deals is the cost cutting and leveraging of sales force in the short term, while waiting for new therapies to make their way out of their labs. However, it needs to be seen how successful can these mergers be in the long run, which are right now driven by dry spells in global pharma R&D labs.



    Equitymaster requests your view! Post a comment on "Global Pharma: Consolidation imminent...". Click here!


    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Were You Lured By Mr Market's Bait? (The 5 Minute Wrapup)

    Aug 23, 2017

    Mr Market lured investors into believing they'd bitten into a crash. Did you take the bait?

    Deep State First (Vivek Kaul's Diary)

    Aug 23, 2017

    Nowhere was the darkness deeper than in the nation's capital. There, no light shone. No flicker of awareness...observation...learning...or reflection appeared.

    Why Hasn't Warren Buffett Rung the Bell Yet? (The 5 Minute Wrapup)

    Aug 22, 2017

    It's surprising Warren Buffett hasn't warned investors about the expensive stock market? Let us know why.

    Think Twice Before You Keep Money In A Savings Bank Account (Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 23, 2017 (Close)