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) said on Thursday it would separate its generics prescription business, which has been a drag on results, to focus on consumer healthcare following a strategic review, sending the drugmaker’s shares down about 8 percent.
None of the new businesses into which the pharmaceutical companies are expanding have the same margins as branded drugs, and that raises doubts about whether pharmaceutical companies will be able to maintain their past levels of profitability.
(See Exhibit 1.) “Some will, some won’t, because there won’t be as big a proprietary market to go around in the near term,” says Miles D.
But the era of the blockbuster drug is nearing an end. To be sure, there is still plenty of room for improvement in the medications people take, and no shortage of human suffering to alleviate.
But it is doubtful whether big pharmaceutical companies will be able to pursue these goals within the old model of developing exclusive new pills that they can sell under patent protection.“We do not think it is understood how dilutive this is likely to be.” Perrigo’s announcement comes just a day after larger rival Mylan said it was evaluating all strategic options, citing a tough U. Analysts said the plan to separate the prescription pharmaceuticals business was “long overdue”.Regulatory, supply chain and competitive headwinds have taken a toll on a differentiated business that is very niche and highly profitable, Berenberg analyst Patrick Trucchio said.White, the chief executive of Abbott Laboratories, which is in the process of separating into two companies, one focused on diagnostics and medical devices, the other on prescription drugs.To survive — and perhaps thrive — in this unpredictable future, pharmaceutical companies need to make some bets about the way the future of the industry will unfold, and design their diversification strategies to position them for success in one or more of the scenarios they envision.Internally, the number of molecules in pharmaceutical company pipelines is shrinking, and the risk/reward ratio for research and development outlays is worsening.Overall, these trends have resulted in lower revenue, reduced profitability, and declining P/E valuation ratios for most major pharmaceutical companies.The question, however, is more fundamental than what pharma companies will do for an encore in the post-blockbuster era: The question is whether they can survive at all in their present form.There is no consensus about what comes next, as evidenced by the different strategic moves the major companies have made with mergers, acquisitions, and divestitures in recent years.In the pharmaceutical industry, nothing is quite as exciting as a new molecule in the pipeline — especially one that has a chance of solving some major human health problem.In the last few decades, pharma companies have consistently developed and launched new proprietary drugs, bringing hope to sick or at-risk patients, and providing enviable financial returns for the companies’ shareholders.