Big Pharma and Biotech companies continue to cut marketing spending in US

We’ve been covering this topic for a while now.  Correctly I may add (see earlier post)     

https://57thstresearch.wordpress.com/2011/09/16/e-detailing-and-cloud-ipad-are-changing-in-pharma-generics-and-biologics-massive-sales-reps-to-be-layed-off/

AstraZeneca is the latest large pharma company  to report disappointing financials including  net profit  (- 8.3%) and top line revenue (-400 million) from last year.  The company is now outsourcing research and using more digital technologies to reduce overall head count and fixed costs.

In a very ominous sign AstraZeneca has “outsourced” research groups in North America and Eastern Europe with virtual groups at academic institutions and small biotechs.  The reasons the companies cited are “lower cost base” and access to best academic minds available (Yeah right))!

We expect mergers and acquisitions to pick up in the large cap marketplace as expiring patents, frugal insurers, generic competition and a dearth of new medicine has transformed these large innovate companies into “one trick” ponies.

The traditional pharma reps with fleets of new cars  full of doctor samples is no longer needed.  Companies are now use digital marketing tools complete with online avatar of sales presentation and IPAD’s to seamlessly integrate payments from insurers.  Companies that haven’t laid off enough sales teams are trying to position the sales teams as “trusted advocates”. The trusted advocate role is not long term as most doctors won’t see the value and companies will have a hard time not laying off higher paid employees for telemarketers,  low cost replacements or contract sales personnel.

 

Stay tuned for more and catch more indepth research at http://www.57thstventures.com

Generic Company Teva

 

 

 

 

 

Buy and Bill for Pharma and Biotech in 2012

Buy and Bill is changing the business model for all large and mid cap companies.

The sales rep is only beneficial to the doctor if it can assist him/her in buying the products a the lowest wholesale price and billing quickly enough to recoup the

reimbursement from the insurance company. Investors should look at liquidity ratios on balance sheets. If 30% of A/R are > 90 days and days payable outstanding is increasing it’s a warning flag.

Therefor if the sales rep’s company doesn’t have significant “buyer power” (i.e. Teva, Pfizer, Norvartis, Merck) it’s harder to get a low wholesale price.

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Does Walmart (WMT) want to be lowest cost primary health care services and PBM company?

WMT PBM RESEARCH NOTE

WMT made an splashy entry into the PBM market  with new clinics about 6 years ago when it started offering generic perscriptions for $4.00.

So everybody thought that Walmart could use it’s business model and scale up with clinics to be a player in the PBM marketplace.

Walmart also moved into EHC (Electronic Health Record) and  in-store clinics with very limited success.

Companies such as WMT  and other companies are in a race to build more clinics before 2014 when President Obama’s health care overall will take affect and millions of americans will gain health-insurance coverage.

Right now Walmart lags the industry in the # of clinics

CVS – Caremark has 645 clinics

Walgreens has 347 clinics

Walmart has 141 clinics

So what does this mean for Walmarts bottom line?   Today WMT announced that it’s revenue exceeded Wall Street expectations however

it’s gross margin and profit number missed. This is not concerning short term as Walmart attempts to gain back market share that it lost in the last 3 years. The only way to do this is to keep prices low and sacrifice margin.

The primary health care services strategy would act as a “traffic driver” for WMT and that would eventually drive bottom line when prices are increased.

Here’s why WALMART WILL NOT BE A PLAYER IN THE PRIMARY HEALTH CARE SERVICE MARKET

Respondent is responsible for managing the Midwest region for large Biotech firm. He previously worked at Pfizer for 13 years where he launched Viagra, Ziphromax and other $B drugs. He worked as a Region Manager managing hospitals , PBM relationships and over 200 sales representatives responsible for a million dollar book of business.

 Participant – 21 years in Pharma and Biotech marketplace. Currently working at Sepracor and previously worked in sales management at Pfizer.

The respondent asked that he not be identified, and that his company not be identified.

What impact could Wal-mart potential entry as a PBM (Pharmacy Benefits manager) would have on the industry, especially the sale of

 Pharmaceuticals, and competitive impact/reaction for Target and  Walgreen’s and other drugstore retailers. (Impact on traffic, sales,

 pricing, etc. for Wal-mart, vs. other drugstore retailers?)

Answer: Mark said “ What a provocative question regarding Wal-Mart  entering the PBM arena.

The answer to that is a resounding NO.

Though the PBM business model is run much like the Wal-Mart business model, i.e. brand secondary, cheaper generic (knock

off) alternatives primary, there are several issues which exist that would inhibit Wal-Mart’s ability to be successful in

this area:

1. Other than Wal-Mart employees, most of who are underinsured already, I can’t think of another employer group

eager to be represented by Wal-Mart as their PBM. The brand of Wal-Mart, and their reputation of how their employees are

treated, would not be a good “PR” fit with most employer groups and I would think they’d be a bit hesitant in

diluting their brand with that association.

2. Secondly, PBMs are extremely expensive to run and I can’t think of any competitive  advantage they offer against more

veteran PBMs such as Medco and Caremark. For example, the cost eventually the customer sees in the tiered

 copay system is absorbed in the current system by the  employer, wholesaler and MCO (United, BCBS, ect).

The  advantages these firms have are longstanding relationships with major employer groups that will be hard to

supplant. Wal-Mart won’t be able to offer anything different what current PBMs offer, lesser priced drugs (generics) as the

preferred agent with step edits in place to ensure that branded agents are tried only after generics fail.

Most Tier 1 drugs already have a copay that is nominal ($2-$5) Wal-Mart will be unable to offer anything over what that current

PBMs offer other than some sort of  point of service discount since they run their own pharmacies. The problem with that

is Caremark and Medco already have lucrative deals in place with Walgreen’s, CVS and Target so I don’t see the business

opportunity for them, especially considering what their margin expectations will be from running the business.

Overall my guess is that, from a distance it appears to be potentially a good  opportunity; however when they look at

operation cost and other variables, this will…nowhere. Merck Pharma found this out sometime ago, when it purchased

Medco for 7.2 billion, lost a ton of cash, then divested itself from it. The reasons were not entirely the same; however the

cost was the major issue there as well.

For more in depth analysis and reports contact us at www.57thstventures.com

Imminent Managed Care M&A activity

The Managed Care Health Care faces dim prospects for growth as (1) The Health Care Reform Act has caused sector earnings growth of only 3%!

This puts the large cap companies (Aetna , Cigna) at a disadvantage vs. Niche managed care companies such as Coventry and Health Net.

In my opinion I would stay away from this sector all together because of uncertainty around health care exchanges and other more profitable plays in smaller firms.
Essentially if Obama wins reelection in 2012 then I would SELL