Feature Drug Research

Balancing Big Pharma’s books

BMJ 2008; 336 doi: https://doi.org/10.1136/bmj.39491.469005.94 (Published 21 February 2008) Cite this as: BMJ 2008;336:418
  1. Andrew Jack, pharmaceuticals correspondent
  1. 1Financial Times, London
  1. Andrew.Jack{at}ft.com

    With patents running out on their big earning products and recent scandals undermining their image, drug companies are under pressure. Andrew Jack reports on their problems

    When business chief executives joined politicians and public officials gathered at the World Economic Forum in Davos last month, one group of industry leaders was noticeably under-represented: those from the pharmaceutical sector. Some regulars in previous years, such as Hank McKinnell, the outspoken former head of Pfizer, the world’s largest drug group, have lost their jobs. Others, like Richard Clark from Merck and Daniel Vasella from Novartis, pulled out at the last minute. The message was clear. At a time of investor dissatisfaction with their companies and employee disgruntlement at cutbacks, they would do better to stay in their headquarters and focus on internal problems rather than debate the broader issues of the world.

    To many, it seems hard to believe that the drug industry - long spoilt by lavish revenues and little need for controls on spending - is in crisis. In fact, its current malaise is characterised by a series of problems.

    Illusion of plenty

    Judged by their accounts, “big pharma” companies look healthy. They spend heavily to market expensive medicines, generate large cash piles that shield them from the current credit crunch, and report high profits with margins envied by most other industries. Yet shareholders are sceptical. The cliché is that investors are focused on short term returns. But the share prices of quoted drug companies do not bear that out: they have low valuations precisely because the stock market is concerned at the bleaker longer term prospects.

    Once seen as defensive growth stocks that offered investors a safe haven of steady future expansion, drug company shares have underperformed those in many other sectors in recent years. The reason is a belief that worse …

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