[lou_lou]

With consolidation and change the dominant themes in 2006, drugmakers head into 2007 under pressure to maintain leaner profiles, beef up product pipelines and maintain premium prices.

As a whole, the sector saw modest growth this year. The American Stock Exchange's Pharmaceutical Index, which follows 15 major drugmakers, peaked at 362.47 after most U.S. drugmakers beat Wall Street's third-quarter earnings estimates. Year to date, the index has risen 8.2 percent to close Thursday at 346.22.

The index's best performer in 2006 was Merck & Co. with a 37 percent increase, while Teva Pharmaceutical Industries Ltd. investors saw the worst losses at 27 percent.

High-profile senior management shake-ups at major drugmakers sent a signal to the industry that boards and shareholders will no longer tolerate poor performance or shaky deals going forward.

In July, Pfizer replaced heavily criticized Chief Executive Hank McKinnell with Jeffrey B. Kindler, and recently replaced McKinnell as chairman with Kindler ahead of schedule. Many questioned McKinnell's effectiveness given the company's 40 percent drop in share price in his five years as CEO, and still question whether he deserves a severance and retirement benefits package that could total $200 million.

Bristol-Myers Squibb Co. continued the shake-up theme when it let go of CEO Peter Dolan in September after a string of missteps that culminated in a botched deal involving the company's best-selling drug, blood thinner Plavix.

Pfizer is still under the gun to trim down. One of McKinnell's final actions as CEO was agreeing to sell Pfizer's consumer products business to Johnson & Johnson for $16.6 billion, and one of Kindler's most decisive actions as CEO was slashing 20 percent, or 2,200 jobs, from the company's U.S. sales force in November.

Pfizer's problems in 2006 underscored changes already under way in the industry, notably the pressure on drugmakers to develop successful product pipelines while weathering heightened liability and patent concerns.

Earlier in the month, Pfizer's Kindler stunned the sector when he pulled development of the company's most promising drug, torcetrapib, because of an unexpected number of deaths and complications in studies. The drug was meant to replace the company's $12 billion-a-year Lipitor cholesterol drug, which loses patent protection in less than five years.

The news of torcetrapib's demise came as a boon to Abbott Laboratories, which agreed in early November to acquire Kos Pharmaceuticals Inc. for $3.7 billion. Kos' lead product Niaspan, an extended-release niacin that raises "good" cholesterol, was seen as torcetrapib's main competitor. It remains to be seen what Pfizer will do in 2007 to shore up its bottom and top lines against Lipitor's eventual demise.

Another trend in the sector that will continue into next year is Big Pharma muscling its way into biotech as a way of beefing up product pipelines, says AG Edwards analyst Joseph Tooley.

"Borders are being blurred," Tooley said in an interview.

Companies such as Wyeth, Eli Lilly & Co., Bristol-Myers and Pfizer have all touted their biotech pipelines at recent conferences, drawn to the technology because of the higher prices biotech drugs command and the current lack of a regulatory path for generic biotech therapies.

Merck made a play this year to snap up small biotech firms. In May, Merck spent nearly $500 million to buy two research companies, GlycoFi Inc. and Abmaxis Inc., and in October, agreed to pay $1.1 billion to buy tiny biotech Sirna Therapeutics Inc. for its RNA interference technology. Merck closed the latter deal Friday, a day after Sirna shareholders agreed to the $13 per share offer, more than twice the share price before the offer was made.

Also, biotech drug maker Icos Corp. was offered about $2.3 billion by joint venture partner Lilly in a deal that awaits shareholder approval. Icos and Lilly formed a joint venture in 1998 to develop and sell the impotence treatment Cialis. Launched in 2003, Cialis sales are projected to top $950 million for 2006.

Overseas, Swiss drug maker Novartis AG closed its bid to acquire remaining shares of biotech Chiron Corp. that it did not already own for about $5.4 billion. Novartis is primed to make a splash in 2007, says Banc of America Securities analyst Chris Schott.

The analyst predicts about 18 product launches for the sector in 2007, on par with 2006, with Novartis turning out products like Galvus for diabetes, Tekturna for high blood pressure and Tasigna for chronic myeloid leukemia.

Another issue that will see a higher profile in 2007 is drug pricing, analysts maintain.

Prudential analyst Kim Monk said 2007 will be an unpredictable environment for drugmakers with a Democrat-led Congress. Many Democrats campaigned on the issue of allowing government the authority to negotiate prices with drugmakers for federal programs like Medicare and Medicaid.

While some on Wall Street are adamant that Democrats will not garner enough votes to overturn certain Bush vetoes on drug pricing, Monk challenges the theory by raising the point that Democrats could always attach such legislation to a bill that the president would be pained to veto, or offer a compromise solution that would lead to some form of government negotiating power.

Even the attention a legislative battle would create is certain to place price pressures on the industry, Monk says.

[paula_w]

Good article Tena - and with each of those sale go treatments in development. One wonders what will become of their champions or their continuation. That's the way it is - one minute you've got hope; the next day it could be gone.

torcetrapib - the only thing funny about it is who the heck named it and why? That's a twister to pronounce.

paula