One could argue that although Donald Trump's presidential victory provided an immediate rally for pharmaceutical stocks, his election casts a shadow of considerable uncertainty across the sector.
Speaking at the Financial Times Global Pharmaceutical and Biotech Conference on Tuesday, GlaxoSmithKline CEO Andrew Witty and his counterpart at Sanofi, Olivier Brandicourt, both agreed that pricing pressures in certain segments of the US market will not dissipate, thanks to the role of pharmacy benefit managers. Brandicourt, whose company has endured a particularly challenging time at the hands of PBMs over the past 12 months, added that in many cases additional rebates are not being passed onto patients.
Continued exposure to pricing headwinds could put diversified business strategies back in favour. Delegates were in agreement; in response to an audience poll, just 43 percent of respondents said a pure play focus on prescription drugs is the best strategy for a modern pharmaceutical company.
Keynote speakers at the event reflect how diversification may be coming back into vogue, albeit if Pfizer's group president of innovative health, Albert Bourla, confirmed his company will consider divesting its consumer health business if this creates additional value. That said, getting an accurate grasp on Pfizer's future identity is challenging. Although management recently confirmed it would not split its innovative and established drugs businesses apart, this has not been entirely ruled out as a future option. Furthermore, having failed in bids to acquire AstraZeneca and Allergan, it looks likely that Pfizer will seek out another transformative acquisition; to this end, Trump's plan to allow repatriation of overseas cash at a lower tax rate is likely to benefit the US pharma giant – ViewPoints: Is a ‘Trumped-up trickle-down’ buying bonanza on the way?
For GlaxoSmithKline, identifying future strategic priorities appears more clear cut. Echoing key passages from Witty's corporate rule book, chief strategy officer David Redfern suggested it is crucial that companies are aware of their capabilities and identifying those areas of the market where they have a "right to win." In GlaxoSmithKline's case this has seen the company invest heavily in both its consumer health and vaccines units, albeit to the detriment of its focus on prescription pharma argue some; divesture of its marketed oncology portfolio to Novartis in 2014 remains a sore point among many analysts.
Such accusations are unfair, Redfern told FirstWord on the conference sidelines and have been forged by an inability by analysts and other market commentators to look beyond oncology when identifying areas of marked 'innovation'. GlaxoSmithKline's vaccine and HIV pipelines are both highly innovative and evidence that a strong R&D culture remain intact at the company, he added.
Innovation, agree most in the sector, is paramount to pharma's ability to retain pricing power. However, in delivering his keynote speech, Witty – perhaps emboldened by his pending departure as GlaxoSmithKline CEO next year – argued that payers will no longer pay blindly for innovation; as a result, the industry needs to concentrate more on volume and less on price, he added.
To what extent incoming CEO Emma Walmsley follows this model when she steps into Witty's shoes next March remains to be seen, but Redfern described her background as the head of GlaxoSmithKline's consumer health business as a "red herring," for those attempting to read into how this may influence her priorities in prescription pharma.
"Far too much emphasis is put on a CEO's background," suggested Redfern, adding "good CEOs are actually better in managing areas where they have little or no experience as they are required to ask tough, objective questions." Speaking to FirstWord, Redfern said "the new CEO has been chosen as the board feels she represents the best fit for the pharma business."
Redfern played down the likelihood of GlaxoSmithKline seeking out large scale M&A in the near future, given recent completion of its asset swap deal with Novartis. However, citing Trump's plans to ease the financial burden of repatriating overseas cash he expects "quite a lot of M&A next year."
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