Stagnant pharma may take Hollywood cue

NEW YORK Wed May 11, 2011 4:37pm EDT

Tim van Biesen, a leading authority in pharmaceutical industry strategy and head of Bain & Company's Healthcare Practice in North America, speaks during the Reuters Health Summit in New York, May 11, 2011. REUTERS/Shannon Stapleton

Tim van Biesen, a leading authority in pharmaceutical industry strategy and head of Bain & Company's Healthcare Practice in North America, speaks during the Reuters Health Summit in New York, May 11, 2011.

Credit: Reuters/Shannon Stapleton

NEW YORK (Reuters) - The pharmaceutical industry tends to boast about blockbuster drugs, but it may be better off looking at blockbuster movies for inspiration.

The world's biggest drugmakers face years of stagnant growth ahead as they lose exclusive rights to their best-selling medicines, a reality likely to fuel even further consolidation, according to consultancy Bain & Co.

Some industry executives see an even more drastic pruning as possible, one that would whittle the top 25 players down to six or eight massive drug companies, supported by services firms and smaller innovative players, said Tim van Biesen, head of Bain & Co's healthcare practice

"At the end of the day, it's about having a global commercial footprint, like the movie studio model. There's three or four global studios and they source movies and scripts from all over the place. They don't really write any of them," van Biesen said at the Reuters Health Summit in New York.

"The biggest companies have considered this and said 'Are we going to be in that top tier? Are we going to be a global commercialization platform? Are we going to be a sourcer of innovation?'"

The problem is change comes slowly, and van Biesen questions whether that theory of consolidation will materialize.

"That's a massive transformation for this industry and this industry moves painfully slowly," he Biesen said.

In the last decade, concerns over growth compelled Pfizer (PFE.N) to make three huge acquisitions, most recently the $67 billion purchase of Wyeth. Rival Merck (MRK.N) paid $41 billion for Schering-Plough and this year France's Sanofi (SASY.PA) paid more than $20 billion for biotech Genzyme,

Since then, prospects have grown even bleaker. Van Biesen expects aggregate industry sales growth for the top 25 global pharmaceutical companies of between zero and 1 percent a year through 2016, compared with annual sales growth of 6 to 7 percent in the previous five years.

"Drug pipelines are empty, patents are expiring, and prices are under pressure," van Biesen said. "People have hit the wall."

He said small biotechnology companies, defined as those with revenue of $5 billion or less, could see annual sales growth in the range of 5 to 6 percent.

Such forecasts could further influence deals activity in the sector. While drug executives told the Reuters Health Summit that they only sought smaller, bolt-on acquisitions or partnerships to strengthen their product portfolios, some may still need to seek greater scale to cut costs.

"Scale deals, more often than not, are done out of a position of weakness -- when you get backed into a corner -- you find yourself needing to do a scale deal," Van Biesen said. "There's very little evidence that scale has delivered much value in pharmaceuticals."

(Reporting by Deena Beasley and Jessica Hall, editing by Matthew Lewis)