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Monday, November 06, 2006

Maybe Pfizer Can Move To China

Stocks: (PFE)(BMY)

With generics threatening revenue and margins at most of the Big Pharma companies, Novartis has decided to move a good portion of its R&D to China to tap the low-cost labor pool. If generics are going to eat into revenue, why not drop the future expenses of developing new drugs. Novartis will start with an initial investment of $100 million.

China is also a huge market for selling drugs. Pharmaceutical sales there rose 11% last year to $11.7 billion.

Over the last two years, the stocks in companies like Bristol-Myers and Pfizer have substantially underperformed the S&P 500. While the S&P is up 20% over that period, BMY shares are up less than 5% and PFE is off 10%. It may get worse before its gets better. Or, it may not get better at all.

Bristol-Myers says that it lost $600 million in revenue for its big-selling drug Plavix in the third quarter alone. The reason. Generics. The revenue attrition caused earnings to fall 65% for the quarter.

Faced with dropping revenue, Pfizer says that is will increase its cost cutting, but that will not entirely solve the problem.
Without sufficient new, patentable products in the pipeline, the threat of generics becomes more difficult each year.

Perhaps if Pfizer and Bristol-Myers move to China they can save enough money to weather the storm.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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