The Wyeth Lesson for the Stock Market
Are the heydays of the pharmaceutical industry in the stock market over? Proprietary technology has always been associated with extraordinary returns, and the end of the 20th century saw an especially prolific flow of new products emerging from leading research companies, both in the United States and Europe. Some companies in this sector diverted resources to make forays in to generic drug production, as well as to enter the lucrative consumer health segment. Many stock market analysts were critical of these horizontal movements because of the lower margins and new competencies involved.
Recent developments, as the first decade of the new millennium draws to a close, see new thinking on the matter emerging in some stock market circles. Patent expiry has always been associated with cataclysmic margin losses, but many emerging countries have begun to use international laws to eat in to patent lives. Former US President Clinton has thrown his considerable weight behind pirate companies, and the US health care system will probably see further erosions of margins for research based companies, if another Clinton takes over the White House!
Failures of research molecules to make it to the market have added to the woes of some pharmaceutical companies. The industry had hoped that collaborations with start-up laboratories and other purely research-centered organizations, would enrich their pipelines with glorious profit potentials, but many of these acquisitions have come unstuck, to the considerable chagrin of their stock market owners!
This seems to explain the plight of Wyeth, once considered to be an icon of the stock market. The company is accustomed to operations without any direct competition since it has grown on the backs of blockbuster molecules from the research laboratories of the past. The company’s new batch of scientists seems to have run out of ideas, and stock market hopes for this company, which rested on molecules it had purchased from other companies, have been belied by regulatory refusals to let these new brands enter the market.
Pharmaceutical companies can continue to be attractive for stock market investors, but they must develop strengths in generic production, as well as in consumer marketing, in order to develop integrated vertical strengths in this dynamic sector.