Pharmaceutical Industry
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Although most big pharmaceutical companies still have fairly healthy P&L profiles, there is currently unprecedented pressure on the industry from all sides: -
1.Governmental and general political downward price pressures and attacks over perceived excessive profits. This can manifest itself in enforced lower prices at product launch, arbitrary across-the-board price cuts (a Japanese speciality), extra taxes on deemed super profits (e.g. UK with PPRS - 'Pharmaceutical Profit Regulation Scheme' - Spain and France), imposing strict global drug budgets for doctors/hospital trusts etc.
2.Governments de-listing drugs deemed to be too expensive and only approving cheaper branded alternatives or generic equivalents.
3.Rigid controls on sales and marketing methods - no more junkets to the Caribbean, offers of expensive computer equipment etc.
4.Competitive pressure from within the industry itself. The rewards of success are high but the R&D costs of getting there are colossal. There is more and more focus on targeted discovery and research rather than blank cheques for general research into whatever takes a scientist's fancy. Researchers are increasingly being held accountable for their areas of research. Even if a lot of money has already been spent, but the work isn't going anywhere, then the 'plug' is pulled and historical expenditure written off. This tends to displease the affected scientists for whom their baby is more important than mere potential profitability. The downward pricing pressure is squeezing the money available for research but, without the latter, the long-term future for new discovery and drug therapies would be bleak indeed.
5. Media attacks on the 'profiteering' pharma industry - 'only interested in profit not people', 'why are all the companies researching into the same therapeutic areas rather than pooling resources?' (It's called COMPETITION!), 'why isn't the industry doing more charitable work for the third world?' etc.
6.Increasingly, even the general public is being turned against the industry through constant media and governmental criticism.
7.The constant attacks and the slowing of profits are having a marked effect on the investment community. The pharma industry is no longer seen as a rock solid haven for investors. Traditionally pharma stocks have traded at a significant price/earnings premium to the general market but this situation has been substantially eroded over the past two years. Analysts are increasingly warning of the potential downside due to the governmental and general public 'profiteering' press.
8.The ever increasing litigious environment. Drug side effects are seen as a bottomless pit of money for patients and lawyers alike. At a time when the industry is trying to slash R&D lead times and therefore costs, this all pervasive threat of legal action puts ever increasing pressure on the need for even more vigilance in the development and launch processes.
