Buyouts and Cost Cutting To Put Pressure On Companies That Depend on Big Pharma Research Dollars
Tue, 03/10/2009 - 9:28am
NEW YORK (AP) — Life sciences companies that depend on research dollars from big pharma could see a downturn in contracts if pharmaceutical companies continue buying each other and cutting costs. On Monday, Whitehouse Station, N.J.-based Merck & Co. said it is buying Kenilworth, N.J.-based Schering-Plough Corp. for $41.1 billion in the latest industry consolidation. Earlier this year, New York-based Pfizer Inc. said it would buy Madison, N.J.-based Wyeth for $68 billion. In each case, the companies making the acquisitions are looking to shore up their development pipelines while saving operating costs, which includes research and development. In a note to clients late Monday, Thomas Weisel Partners analyst Peter Lawson said the latest buyouts could pressure other companies to combine as they lose patent protection on blockbuster drugs and see generic competition cut into revenue. "We believe research and development cost cutting would serve to reduce visibility for capital spending by pharma in the short term," he said. He said Merck spent about $4.68 billion in research and development in 2008 while Schering-Plough spent about $3.52 billion. He had expected biopharma research and development growth of 4.3 percent in 2010, but that could be limited to 2.2 percent because of the Pfizer-Wyeth deal. Considering both the Pfizer-Wyeth deal and the merger of Merck and Schering-Plough, growth could be less than 1 percent. Billerica, Mass.-based Millipore Corp., Carlsbad, Calif.-based Life Technologies Corp., and Palo Alto, Calif.-based Varian Medical Systems Inc. are among the companies with high exposure to biopharma research and development spending. Sunnyvale, Calif.-based Dionex Corp., Waltham, Mass.-based PerkinElmer Inc. and Thermo Fisher Scientific Inc., and Santa Clara, Calif.-based Affymetrix, are also vulnerable to a downturn.