PHARMA: More on Crestor and Astra-Zeneca

One of the great fun things about doing this blog is meeting people via email who have interesting insights. Of course sometimes I feel like an investigative journalist as I can’t always reveal my sources.  That’s the case with the Crestor issue which I’ve blogged on for a while most recently yesterday, when I suggested that it might be time to short Astra-Zeneca. Well today in my email box popped this gem from a pharma industry veteran:

    I’ve noticed some people are placing bets down on AZ stock but I’ve also seen that for the past several weeks, AZ has been buying 200,000-300,000 shares of its own stock every day.  Looks to me as if McKillop and his CFO have been propping themselves up on the ropes with their left hand while trying to parry the jabs with their right.

    In any case I don’t think that some investor activity is indicative of how Crestor and Exanta will perform competitively.  My own hunch is that if (a major "if") no ADR reports surface of rhabdo for Crestor and liver toxicity for Exanta, both products will eventually do well.  I define "well" for these products in more modest terms, however, something closer to $1b-$1.5B rather than $3B for Exanta and $2.5B for Crestor.

    I honestly feel that these Big Pharma companies do substantial harm to themselves by over-inflating the market prospects for their new drugs.  A couple of years ago I closely assessed for clients the development progress of Bristol-Myers Squibb’s Vanlev.  They touted that thing as likely to revolutionize hypertension care and as a $5B drug.  Merck similarly blared the sirens for its Substance P antagonist and its PPAR, both of which they just abandoned.  In terms of marketing strategy this early hyping makes little sense.  The companies do it mainly because it gives a short term boost to the stock and the compensation of senior managers is closely tied to stock appreciation.  By the time reality hits, when the stock price tumbles and ordinary blokes lose their jobs, these boardroom Tony Sopranos are off looting some other venture.

There’s clearly a lot in that last paragraph. Pharma execs in general benefit from actions that happened before they got to the top.  Not that they don’t have huge challenges, but they benefit (or not) from bets made years before which either turn into blockbusters (or don’t). Similarly the PhRMA’s decision to go for Medicare reform will end up profiting the pharmas in the short and medium term, but will likely open them up to price controls in the next decade or so.  Of course by that stage the executives behind today’s deals will be happily in retirement.

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