Pharmaceuticals and The Economy

From The Times
January 27, 2009
Gordon Brown plans tonic for pharmaceutical industry
Tom Bawden and David Rose

The Government has placed the pharmaceuticals industry at the heart of
its economic agenda with the appointment of Lord Mandelson and Alan
Johnson to a key health sector group that will report to the Prime
Minister.

Gordon Brown has summoned senior industry figures, such as Andrew
Witty, chief executive of GlaxoSmithKline, and David Brennan, his
opposite number at AstraZeneca, to a meeting at No10 to discuss ways
of protecting pharmaceuticals and biotechnology companies, their
revenues and their jobs, as the economy deteriorates rapidly.

Lord Mandelson, the Business Secretary, and Mr Johnson, the Health
Secretary, will also attend the meeting, along with Lord Drayson, the
Science Minister, Angela Eagle, the Exchequer Secretary to the
Treasury, and a series of other pharmaceuticals industry figures.

The decision to install Mr Johnson as chairman of the Ministerial
Industry Strategy Group (MISG), a position normally occupied by a more
junior minister, shows how concerned the Government is about
safeguarding the industry. It employs about 67,000 people in the UK,
attracts £3.9 billion of research and development investment and
accounted for £8.4 billion of Britain's GDP in 2007.
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The Government's concern is underlined further by its appointment of
Lord Mandelson to be a full-time member of the MISG, which, for the
first time, must begin reporting to the Prime Minister, starting in
the autumn.

Mr Witty is leading the industry delegation, which has been organised
by the Association of British Pharmaceutical Industries (ABPI). The
meeting formally kicks off an initiative in which the Government and
the pharmaceuticals industry will work together to address the barrage
of problems they face over the next few years.

The traditional pharmaceuticals companies, for which some key patents
will expire in the coming years, are concerned about the increasing
cost of bringing new drugs to the market and growing regulatory
hurdles. They hope to persuade the Government to introduce a package
of measures, which may include changes to taxation and patent
legislation. In return, they may agree to conditions, such as reducing
the extent to which the manufacturing process is moved to cheaper
developing countries.

The biotechnology industry, characterised by small loss-making
companies involved in potentially groundbreaking new products, has a
different set of concerns. Biotechnology companies are finding it
virtually impossible to raise money by issuing equity because
investors have deserted such offerings. Meanwhile, the debt markets
are totally off limits for most of these companies because they do not
make a profit and would struggle to make the repayments.

The BioIndustry Association, chaired by Clive Dix, is expected to
discuss with the Government several measures to rescue the endangered
industry. In a letter to The Times this month, the Association of
Clinical Professors of Medicine (ACPM) warned that British biotech
companies "are on the verge of extinction" as they struggle to raise
money in the face of the rising cost of clinical trials in Britain.

As if to underline the point, Intercytex Group, the Cambridge-based
maker of a treatment for chronic wounds, announced yesterday that it
would have to cut about half its 76 staff and halt new projects to
save cash. Nick Higgins, its chief executive, said: "This is the first
time I have had to impose cuts where there has been no failure. Our
projects are going well, but there is just a shortage of cash. These
are harsh times."

At the other end of the spectrum, big established pharmaceuticals
companies are considering mergers to ensure their survival by cutting
costs.

- Pfizer, the world's biggest pharmaceuticals group, has agreed to buy
Wyeth, an American rival, for about $68 billion (£49 billion) to
prepare for the loss of a significant source of revenue in 2011, when
its Lipitor cholesterol treatment, the world's bestselling drug, goes
off-patent. This will allow rivals to manufacture their own versions
of the drug. Pfizer, based in New York, said that about 8,000 jobs
would be cut from the merged entity, representing a tenth of the
workforce, and that five factories would be closed.

http://business. timesonline. co.uk/tol/ business/ industry_ sectors/health/ article5594350. ece