Obama and Big Pharma: The Case for Pfizer

The street has long been concerned over the fate of big pharma under Obama.  Affordability and access to healthcare is important for America.  So too is innovation.

America has long led the world in commerce.  Its leadership has sprung from strong corporations with access to capital, the vision to recognize and profit from a changing world, access to excellent management and the ability to innovate.

The last decade has seen big pharma suffer.  Is it because of patent expiry?  Yes of course, but is that all?  It is my view that the industry has been crippled because its ability to innovate has been hamstrung by a rudderless FDA. The result has been weak pipelines and crippled innovation industry-wide; this more than anything else has caused the industry's suffering. 

Ultimately, R&D costs billions.  The drugs that emerge improve quality of life, they extend longevity, and yes, they even extend the economic life of what is perhaps the most important economic asset of a nation – its people.  The last, is perhaps an important consideration for a nation with a social security system expected to be in deep trouble.

What the FDA has done this decade is ensure that the time on market following approval to patent expiry has reduced significantly.  With less time to recover their R&D expenses, big pharma margins have had to increase and this has had a negative impact on affordability.  At the same time, the economic case for continued innovation is weak because the number of drugs eventually approved has fallen considerably.

Killing an industry never makes sense; during this period of economic uncertainty, it makes even less sense.  I do not see Obama as one who will execute policy that will stifle innovation. Going ahead, intellect will reside in the White House once again. What should the pharma industry expect?

• Direct negotiations between big pharma and government agencies
• A revitalized FDA with quicker pipeline flow-through, higher levels of approval and reduced time to approval
• Changes in law in a litigious society to one compensating for misfortune while permitting a profit from the same
• Perhaps the reconsideration of patent laws to reward innovation

This could re-ignite growth and prosperity for the industry.  It does not require a rocket scientist to recognize that for America to prosper, its competitive cutting edge innovation must continue.  Similarly, a simple accountant can understand that re-igniting growth will improve R&D utilization and improve affordability and access.

Who will benefit most? In my view Pfizer (PFE) is one entity which will benefit.  In the recent past they have:

1. Maintained R&D and the ability to innovate
2. Re-focused on biologics, genetics and stem cells
3. Improved and accelerated their pipeline achieving their target one year ahead of plan
4. Entered the growth field of generics without compromising commitment to innovation
5. Diversified geography to profit from international growth
6. Maximize potential of existing drug portfolio through new indications and defending patents
7. Developing a good in-licensing portfolio while reducing risk through some out-licensing
8. Reducing cost to align the business

Management is re-vitalized and recently moving with increased confidence.  I feel sure that moving away from atherosclerosis/hyperlipidemia, heart failure, obesity, and peripheral arterial fields must have been a difficult decision. That the organization is able to look to the future without nervously clutching its past area of success is good.  

Their new areas of R&D focus have strong potential and frankly, post patent loss will be far lower in genetics, biologics and stem cell compared with statins and small molecules.  I like that they did not abandon their existing pipeline in the abandoned therapeutic areas. 

At the same time, with some reservation, I like their walking away from obesity.  It is an expression of confidence in their pipeline, it is also somewhat sensible to focus on non-critical areas, during this time – obesity after all can be cured by self control in certain cases.  Pfizer has been beaten up for not putting their cash hoard to work, so far I think they have done right, they have used their resources well and as valuations return down to earth I believe Pfizer management will make the correct value decisions.

I have liked Pfizer for a few months now; my only reservation was Jeff Kindler as an effective leader. Since September, I am much more comforted by his leadership because I sense a newly re-invigorated and confident management.

Disclosure: Long Pfizer

Comments

[gwhillikers:]

If humans needed chemicals to survive, evolution would have developed mechanisms for providing those drugs naturally.

2008 Nov 10 09:18 PM

[xander:]

God provided herbs which are the basis for most pharmacueticals.

2008 Nov 10 11:27 PM

[Ouch$:]

You are both right ( gwhillikers, xander), herbs are turned into chemicals and most people are to lazy to look for natural cures and believe in their Doctors.

2008 Nov 11 11:31 AM