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Big Pharma – Hitting a Wall?

From today’s Wall Street Journal (subscription may be required)

Over the next few years, the pharmaceutical business will hit a wall.

Some of the top-selling drugs in industry history will become history as patent protections expire, allowing generics to rush in at much-lower prices. Generic competition is expected to wipe $67 billion from top companies’ annual U.S. sales between 2007 and 2012 as more than three dozen drugs lose patent protection. That is roughly half of the companies’ combined 2007 U.S. sales.

At the same time, the industry’s science engine has stalled. The century-old approach of finding chemicals to treat diseases is producing fewer and fewer drugs. Especially lacking are new blockbusters to replace old ones like Lipitor, Plavix and Zyprexa.

The coming sales decline may signal the end of a once-revered way of doing business. “I think the industry is doomed if we don’t change,” says Sidney Taurel, chairman of Eli Lilly & Co. Just yesterday, Bristol-Myers Squibb Co. announced plans to cut 10% of its work force, or about 4,300 jobs, and close or sell about half of its 27 manufacturing plants by 2010…more

(the article goes on to explain the threat of patent expirations, the dearth of great pipeline drug candidates, etc.

In a related note to the last paragraph above, the Bristol-Myers press release regarding their re-org/right-sizing is an absolute classic of biz speak. The link to the full article, which is really almost a self-parody, is here…below are a few choice quotes:

(Headline): Bristol-Myers Squibb Company Outlines Strategy and Productivity Transformation Initiative During Update to Investment Community (always tremble when you read words like this – it inevitably means layoffs!)

The company is seeking opportunities to maximize the value of its Health Care Group companies for shareholders. Consistent with this objective, the company plans to divest its Medical Imaging business. Further, the company is currently reviewing a range of strategic alternatives for its ConvaTec and Mead Johnson businesses. “We remain fully aware of the important contributions these businesses have made to earnings and cash flow, and we will take these factors into full consideration when weighing our strategic options,” said James M. Cornelius, chief executive officer, Bristol-Myers Squibb…

In addition to its overview of the company’s strategy, senior management will discuss the scope and details of its Productivity Transformation Initiative, the company’s first step to achieve a culture of continuous improvement which was begun earlier this year. Over 300 initiatives have been identified that will enhance the company’s efficiency, effectiveness and competitiveness and substantially improve its cost base….

Some positions have been eliminated in 2007 and the substantial majority of positions will be eliminated in 2008 and 2009. “It is difficult to see our valued colleagues leave the company, but right-sizing our workforce across all areas is critical to achieving our productivity goals and enhancing the competitive position of the company. While we are reducing headcount in certain functions, we will continue to invest in R&D, biologics and commercialization talent,” said Mr. Cornelius…

…and, the best sentence of all: Key productivity initiatives include reducing general and administrative operations by simplifying, standardizing and outsourcing, where appropriate, processes and services, rationalizing the company’s mature brands portfolio, consolidating its global manufacturing network while eliminating complexity and enhancing profitability, simplifying its geographic footprint and implementing a more efficient go-to-market model.

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