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επισκόπηση της διεθνούς φαρμακευτικής αγοράς του 2011 με αναφορά στις μεγάλες
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Pharma & Biotech Stock Review & Outlook
Πηγή: Zacks
Investment Research
With 2011 coming to an end,
the pharmaceutical industry continues to face challenges like sluggish
prescription trends, EU pricing pressure, intensifying generic competition,
pipeline failures and limited late-stage catalysts. The next five years are
expected to reflect a significant imbalance between new product introductions
and patent losses. All these factors will lead to a slowdown in global
pharmaceutical market growth in the next five years, with major
revenue-generating drugs like Lipitor, Plavix, Lexapro and Zyprexa losing
exclusivity.
In fact, by the end of 2011,
drugs worth more than a total of $30 billion will lose patent protection. This
includes drugs like Lipitor, Zyprexa and Levaquin. The effect of the
genericization of these products will be felt mostly in 2012, which will be a
challenging year for several companies. At the same time, new products are not
expected to generate the same level of sales as products losing patent
protection.
Moreover, the government is
exploring options which will help increase the availability of generics.
Recently, the Obama administration announced that it is looking to implement a
proposal under which the exclusivity period for biologics will be cut down by 5
years, thereby allowing generics to enter the market sooner. The government is
looking to bring this proposal into effect from 2012.
The government is also
seeking to increase the availability of generics by preventing companies from
entering into anti-competitive or “pay for delay” agreements which push out the
availability of generics. These initiatives, if implemented, would result in
additional pricing competition and genericization in the pharma industry.
With revenue growth stalling
or slowing down, pharma companies have been resorting to cost-cutting and share
buybacks to drive bottom-line growth.
M&A
Activity
The merger & acquisition
(M&A) activity that was witnessed in the pharma sector in 2010 continued in
2011. With most of the big pharma companies already facing or likely to face
patent challenges for their blockbuster products, the companies have been
looking towards M&As and in-licensing activities to make up for the loss of
revenues that will arise with key products losing patent exclusivity.
We saw huge M&A activity
over the last few months. Major deals included Johnson & Johnson’s
(NYSE:JNJ) upcoming acquisition of Synthes, which should help strengthen its
medical device portfolio.
Pfizer (NYSE:PFE) acquired
King Pharmaceuticals to strengthen its presence in the pain management market.
Pfizer has been adding to its portfolio with other acquisitions as well
including that of Icagen and Excaliard.
Merck (NYSE:MRK) is looking to expand its ophthalmology product
portfolio through its acquisition of Inspire Pharmaceuticals, Inc.
Another pharma major,
Bristol-Myers Squibb (NYSE:BMY), is also not far behind where acquisitions and
deals are concerned. The company has been looking to expand via acquisitions
and partnerships to counter the loss of revenues that will arise following the
genericization of its key drugs, including the blockbuster blood thinner
Plavix.
Oncology also remains a much
sought-after therapeutic area with companies like Sanofi (NYSE:SNY) and Celgene
(NASDAQ:CELG) strengthening their presence in this market through acquisitions.
Meanwhile, generic players are not far behind in the acquisition game. While
Teva (NASDAQ:TEVA) acquired Cephalon, Inc., Watson Pharmaceuticals (NYSE:WPI)
acquired generic company Specifar Pharmaceuticals to expand and strengthen its
presence in Europe.
Elsewhere, companies have
been looking towards biotech firms to build their product portfolios. A prime
example is French pharma giant Sanofi’s acquisition of biotech company Genzyme
Corp. With this acquisition, Sanofi is looking to create a new source of growth.
The Genzyme acquisition will boost Sanofi’s revenues as well as its pipeline.
In April 2011, Gilead
Sciences (NASDAQ:GILD) acquired biotechnology firm Calistoga Pharmaceuticals,
which focuses on developing therapies to combat cancer and inflammatory diseases.
Going forward, we expect the
M&A trend to continue. We also expect a significant pickup in in-licensing
activities and collaborations for the development of pipeline candidates.
Instead of developing a product from scratch, which involves a lot of funds,
pharma companies are shopping for mid-to-late stage pipeline candidates that
look promising.
Small biotech companies are
also game for in-licensing activities and collaborations. Most of these
companies find it challenging to raise cash, thereby making it difficult for
them to survive and continue with the development of promising pipeline
candidates. Therefore, it makes sense for them to seek deals with pharma
companies that are sitting on huge piles of cash.
We would recommend investors
to put their money in biotech stocks that have attractive pipeline candidates
or technology that can be used for the development of novel therapeutics.
Therapeutic areas which could see a lot of in-licensing activity include
oncology, central nervous system disorders, diabetes and
immunology/inflammation. The hepatitis C virus (HCV) market is also attracting
a lot of attention.
Another trend that we are
seeing in recent months is the divestment of non-core business segments. Pfizer
sold its Capsugel unit in August 2011 and is currently exploring strategic
alternatives for its Animal Health and Nutrition businesses. Meanwhile,
GlaxoSmithKline (NYSE:GSK) is divesting non-core brands from its Consumer
Healthcare segment.
In August 2011, AstraZeneca
sold its Astra Tech business to DENTSPLY (NASDAQ:XRAY). The monetization of
non-core assets will allow the pharma/biotech companies to focus on their areas
of expertise. 2012 will see Abbott Labs (NYSE:ABT) splitting into two separate
publicly traded companies. While one company will deal in diversified medical
products, the other will focus on research-based pharmaceuticals.
Emerging
Markets
Another recent trend seen in
the pharmaceutical sector is a focus on emerging markets. Companies like Mylan
(NYSE:MYL), Pfizer, Merck, Eli Lilly (NYSE:LLY), Glaxo and Sanofi are all
looking to expand their presence in India, China, Brazil and other emerging
markets. Until recently, most of the commercialization efforts were focused on
the US market — the largest pharmaceutical market — along with Europe and
Japan.
However, emerging markets
are slowly and steadily gaining more importance and several companies are now
shifting their focus to these areas. Emerging markets should see strong sales
thanks to higher demand for medicines. Several factors like government
initiatives for healthcare, new patient population, and increasing use of
generics should help drive demand. Growth in emerging markets could help
stabilize the base business during the industry’s 2010-15 patent cliff.
According to the IMS
Institute, spending on medicines in pharmerging markets will double to
$285-$315 billion in the next five years from $151 billion in 2010. This will
catapult pharmerging markets to the second position where spending on medicines
is concerned.
Branded
Drugs Market Share to Decline
According to the IMS
Institute, market share for branded drugs will continue declining in the next
five years. Branded drugs market share, which declined from 70% in 2005 to 64%
in 2010, is expected to decline to 53% by 2015. The decline will be driven by
patent expiries, with generics accounting for a significant part of pharma
spending. Spending on branded medicines in 2015 is expected to remain at the
same level as in 2010.
While the US will witness a
major increase in generics, generic spending in Japan will continue to be the
lowest even though significant efforts are being made to increase their use in
the country. Overall spending in generics is expected to increase from 20% in
2005 to 39% in 2015.
Global spending for medicines
is expected to reach almost $1.1 trillion by 2015, according to the IMS
Institute. However, the five year compound annual growth rate of 3-6%
represents a significant slowdown from the 6.2% annual growth seen in the last
five years.
Moreover, the US’ share of
global spending is expected to decline from 41% in 2005 to 31% in 2015. The
share of spending from the top 5 European countries is also expected to decline
(from 20% in 2005 to 13% in 2015) with spending by pharmerging markets expected
to increase from 12% in 2005 to 28% by 2015.
Opportunities
We continue to have a
Neutral outlook on large-cap pharma stocks (Zacks #3 Rank). While the companies
will continue to face challenges like pricing pressure and genericization,
growth in emerging markets and product approvals could help reduce the impact.
About 35 new molecular
entities have been approved by the FDA up to mid-November 2011. Important
product approvals include Johnson & Johnson’s prostate cancer therapy,
Zytiga, Merck’s hepatitis C virus (HCV) treatment, Victrelis, Bristol-Myers’
melanoma treatment, Yervoy, AstraZeneca’s Brilinta, Vertex Pharma’s
(NASDAQ:VRTX) HCV treatment, Incivek, Pfizer’s lung cancer treatment, Xalkori,
and Glaxo/Human Genome Sciences Inc.’s (NASDAQ:HGSI) lupus drug Benlysta, among
others.
In the biotech space, we are
positive on Biogen Idec (NASDAQ:BIIB). Biogen started 2011 on a strong note
with revenues being driven by Tysabri and Avonex. Earnings estimates for Biogen
have been increasing based on continued strong performance of the multiple
sclerosis franchise. Longer term, we are optimistic on BG-12, the company’s
oral multiple sclerosis candidate.
We currently have an
Outperform recommendation on Perrigo Company (NASDAQ:PRGO) — we believe
Perrigo’s strong position in the brand OTC pharmaceutical market and growing
generics and API businesses will help it deliver solid top- and bottom-line
growth in the coming years. Perrigo also has a very strong and impressive
pipeline which could drive growth in fiscal 2012 and beyond.
In spite of a Neutral
recommendation on Bristol-Myers, we are positive on the stock. 2011 has been a
fruitful year for Bristol-Myers so far, with many key drugs getting approved.
Growth in the coming quarters is expected to be driven by new product launches
and acquisitions and deals.
Weaknesses
We recommend avoiding names
that offer little growth or opportunity for a take-out. These include companies
which are developing drugs that are likely to face regulatory hurdles. The US
Food and Drug Administration (FDA) has been exercising more caution in granting
approval to new products and several candidates are facing delays in receiving
final approval.
We would also avoid
companies like Eli Lilly, which are facing patent expirations on key products
and whose new products may not be enough to make up for the loss of revenues
that will take place once generics enter the market. 2012 will be a challenging
year for Eli Lilly with the company losing patent exclusivity on Zyprexa in
October 2011. Zyprexa sales should erode rapidly with the entry of generics.
Moreover, we expect continued erosion of Gemzar sales due to genericization.
Another company that is highly exposed to a patent cliff is Forest Labs
(NYSE:FRX).
We currently have a Zacks #4
Rank (short-term Sell rating) on Alkermes, Inc. (NASDAQ:ALKS). The company,
which merged with Elan Corp.’s (NYSE:ELN) Elan Drug Technologies, delivered
average results in the second quarter of fiscal 2012.
Moreover, while releasing
the revenue guidance for fiscal 2012, the company did not alter the earlier
projection of the standalone unit and merely added the expected sales of the
purchased unit to it. We believe that it will take some time for the newly
formed entity to start delivering and prefer to remain on the sidelines until
then.
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