Profit squeeze hits drugmakers as Europe crisis leads to cuts - (Bloomberg via NewsPoints Desk)

  • Europe’s financial troubles are leading Johnson & Johnson, sanofi-aventis and Merck & Co. to lower forecasts and reduce spending, adding pressure on drug companies already pressured by generic competition, Bloomberg reported Monday.
  • Phil Johnson, Eli Lilly's vice president of investor relations, said annual price cuts of 1 percent to 2 percent on medicines mandated by European governments have been “commonplace," but noted that now more countries are demanding deeper price reductions involving a wider range of products.
  • "Based on what we’ve seen so far, the pricing erosion in Europe in 2010 could be the greatest it has ever been," warned Sanford C. Bernstein & Co. analyst Tim Anderson.
  • "The industry as a whole needs to be a little bit more productive with their investments in R&D, and get a little more bang for their buck," added Leerink Swann & Co. analyst Joshua Schimmer, adding that "it ultimately pushes the pharmaceuticals industry to innovate, to bring new and better drugs to the market as the old, more mature ones start to fade off."
  • "The drugs that are going to be most vulnerable are the ones that add the least value or are the least innovative," Schimmer said, adding that on top of coming patent expirations, price cuts to older medicines make development of new drugs even more important, and may drive companies to form more partnerships or make acquisitions to get access to new products.
  • Orphan drugs and the companies that make them may become particularly appealing, as some European countries didn’t reduces prices as severely on medicines that treat rare diseases, making them “a good place to hide,” Schimmer and colleagues previously said.
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