Big pharmaceuticals companies, such as Anglo-Swedish AstraZeneca, are undergoing a Twilight of the Gods. Once-haughty groups that have contributed hugely to the wealth and health of nations will diminish or even vanish.
Like Götterdämmerung, the doomy opera by Wagner (the one from Leipzig, not Dudley), the process will be lengthy and often boring. You may wish that you could slip out to the bar halfway. But the sense of predestination is compelling, as embodied in AstraZeneca’s third-quarter results published on Thursday.
Sales were off 2 per cent in constant currency terms, reflecting competition from generic drugs. Such erosion has always niggled at drugs multinationals. But increasingly, white-coated laboratory spods are not producing enough valuable new treatments as an offset.
Broker Killik & Co writes of a “patent cliff”, with monopolies supporting half of AstraZeneca’s sales expiring in the next few years. The group’s overenthusiastic promotion of the antipsychotic Seroquel, for which it was fined $520m in the US, smacked of resulting desperation.
Earnings per share dropped 26 per cent on legal provisions and cancellation of a disappointing drug project. Anyone waking from a Brunnhildean nap would be shocked by how mightily AstraZeneca has fallen. A once stratospheric prospective earnings multiple is now knee-high to dwarfish Alberich. To be fair, AstraZeneca has cut costs and expanded smartly into emerging markets. Yet its plans do not have the bravado that a slew of new blockbuster treatments would once have justified. Its strong brand will support sales of off-patent drugs in Asia, though pricing control will inevitably be less. Treatments targeted at patient subgroups – for example, non-smoking women – show promise. However, economies of scale will be low.
The missing Rhine gold for big pharma are breakthroughs to rival the small molecule world-beaters of yore. Genomics has largely flopped. Stem cell treatments are decades away from payback.
The ultimate fate of big pharma companies will probably be more prosaic than that of the Wagneri’s gods, who were barbecued by Wotan. They will become ordinary businesses reliant on marketing and accretive innovation to survive. It will be like heroic Siegfried mislaying his magic helmet and donning a bobble hat.
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