Is the Pharma Industry Facing Pharmageddon? Pfizer Inc. (PFE) and More

Additionally, pharma companies are looking to buy small drug makers. Pfizer has already expressed interest in acquiring Israel-based Protalix BioTherapeutics Inc. (NYSEAMEX:PLX), in a deal valued around $1 billion. One major advantage of making such acquisitions is that it widens customer access without having to develop structures and market niche. This reduces R&D costs, something PWC pointed to be essential, if the big pharma companies are to realize the 2020 dream.

Another major problem facing the Pharma industry is the luck of talent. The pharma industry has shed 150,000 employees within a space of six years, but is now claiming to be running short of the right people to run their businesses.

Furthermore, rising costs in R&D are cannibalizing on margins. If this continues, the companies might begin posting distressed balance sheets, as cash reserves diminish. This explains one of the reasons behind the spin-offs, which analysts view as an attempt to “let go” of the unyielding units.

The companies have also been forced to stash cash in tax friendly countries in a bid to fund the heavy investment in R&D as well as possible acquisitions. For Instance, Merck, which is also the third-largest drug-maker in the U.S., in 2009 brought more than $9 billion from abroad without paying any U.S. tax to help finance its acquisition of Schering-Plough.

Bottom Line

The report by PWC suggests that pharma companies should focus on managing R&D costs and adverse outcomes associated with drug production rather than selling drugs. The companies look too far ahead before strategizing on how they could minimize the impact of the two quandaries. As evidently revealed, a good outcome will always pay dividends, and handsomely. But once again it’s never guaranteed.

This year, Pfizer would be an awesome buy following the three approvals from FDA, Johnson & Johnson has nothing to lose as it looks to launch more drugs during 2013, and therefore short term could be a wise investment. Merck, on the other hand, will have to overcome its most recent setback (in ongoing litigation over its osteoporosis drug Fosamax). The company has already received several downgrades from analysts following the news. Stay on the fence with Merck.

The article Is the Pharma Industry Facing Pharmageddon? originally appeared on Fool.com and is written by Nicholas Kitonyi.

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