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Pharma and biotech

The prognosis for the drug industry is poor. Patents on blockbuster drugs such as Lipitor that propelled big pharmaceutical companies through the last decade are expiring in the next few years. A slower economy already seems to be cutting into prescription sales.

The prognosis for the drug industry is poor. Patents on blockbuster drugs such as Lipitor that propelled big pharmaceutical companies through the last decade are expiring in the next few years. A slower economy already seems to be cutting into prescription sales.

As a result, drug companies have been cutting thousands of jobs - Merck & Co. Inc., GlaxoSmithKline P.L.C. and Wyeth all announced layoffs - and millions in costs to compensate for declining revenue.

Companies have pursued different strategies to succeed in this less buoyant era. GlaxoSmithKline, for example, is banking on revenue from consumer products such as Aquafresh toothpaste to diversify its revenue from pharmaceuticals, which include Advair and Flonase. Merck still hopes for a big boost from its vaccines, including Gardasil targeting cervical cancer.

There is one perverse bright spot. So many other industries are in such bad shape that pharmaceutical companies may generate better returns than other investments. Deutsche Bank AG analyst Barbara Ryan recently told investors: "Relative earnings for the drug group could be favorable for the remainder of the year, and remain stable, while forecasts may continue to fall for many other more cyclically sensitive groups."      - Miriam Hill