As Pharma Shrinks, So Will Its Suppliers
6 CommentsBy Ed Silverman // February 19th, 2008 // 5:05 pm
When Jim Foster gazes across Massachusetts, he sees a string of major companies supplying drugmakers with services and equipment. These include Millipore, Thermo-Fisher Scientific and Charles River Laboratories, where he’s the ceo.
But in the next few years, Foster tells The Boston Globe, the number will shrink. In a bid to cut costs, big drugmakers are trying to deal with fewer vendors, putting pressure on suppliers to merge. A senior executive at one large drugmaker told Foster it planned to cut the number of vendors it uses from 250 to 50 by the end of 2007, and then to 10 within the next few years.
“I think it’s inevitable the big drug companies are going to want to buy from a smaller number of players,” Foster tells the paper. If he is correct, it could be one of the next major trends to hurt Massachusetts’ life sciences industry, which boasts hundreds of companies and makes up a critical part of the New England economy, the Globe writes.
Consolidation has already become a hallmark of other segments of the life sciences industry, including medical devices and biotech. In Massachusetts, these include Hologic, Inverness Medical Innovations and Boston Scientific, which over the past few years beefed up their product lines with major acquisitions.
Some suppliers have already combined. Thermo Electron made headlines in 2006 when it bought Fisher Scientific International for $10.6 billion, creating one of the world’s largest suppliers of laboratory equipment. Now Foster and some other executives and analysts say more deals are inevitable. “The industry should consolidate,” John Sullivan, an analyst at Leerink Swann tells the Globe.
He cited a number of reasons: Small companies need to merge with bigger companies to gain access to a worldwide sales force and distribution. Large companies can expand their portfolio of products and services by joining forces. Indeed, Sullivan noted that drugmakers would rather buy an “A-” product from a well-known supplier instead of an “A+” product from an upstart they can’t count on to survive.
PerkinElmer ceo Robert Friel agreed with Foster. “I think that the large drug companies are looking for fewer suppliers,” he tells the Globe. “I think there is a natural evolution where there is consolidation and that will continue.” However, Greg Summe, Perkin Elmer’s chairman and former ceo, believes “it’s not a super rapid trend.” He says that many suppliers have starkly different businesses, making it more difficult to consolidate. And some prize independence.
Thermo Fisher Scientific, one of the biggest Massachusetts suppliers to pharma, has said it is looking for smaller companies to acquire. But in an interview late last year, the Globe notes, ceo Marijn Dekkers said there was no plan to make another multibillion-dollar acquisition anytime soon. He added that the company still needs another year to digest the combining of Thermo Electron and Fisher Scientific. And, Dekkers said at the time, it’s harder to find big deals that make sense, adding that “If the stars were aligned, we would consider it.”
Charles River, which dominates the market for providing lab rodents to drugmakers, says it has made 30 acquisitions since 1994. And Foster says it plans to continue making smaller acquisitions to maintain its position, adding new technologies and branching into new markets. For instance, Charles River has become increasingly reliant on revenue from services, such as testing drugs in rodents for companies - instead of simply selling the animals.
“We are continuously looking” at possible acquisitions, Foster says. And if he and others are right about the trend, Charles River won’t be alone.
Source: The Boston Globe
Nathan
It’s certainly clear that as pharma contracts and as things shift overseas we will definately need fewer vendors. But I can’t imagine what this person is talking about when he says that they will shrink “from 250 to 50 by the end of 2007, and then to 10 within the next few years.” That just doesn’t make any sense. What qualifies as a “vendor”? I can think of about 50 suppliers that I regularly order chemicals, reagents, equipment, and supplies from — just in my department! Shrinking to 10-50 for the ENTIRE COMPANY seems just absurd and nonsensicle. Maybe I’m missing something…
someone
Nathan, I do not think you are missing anything. In fact, it would be great if there were more smart people like you! The clue to this piece being a typical “smoke and mirrors” pharma piece is in the first paragraph. Foster has been given this info from a top executive in pharma. This is very much like the CME educational information pharma provides doctors and other healthcare workers. It is completely slanted to fit their own agenda.
Pharma like to scare congress into thinking that this will be true so that they can see the power Pharma has. It is very mafia like actually. The idea is to confuse us into thinking that we need to keep sick people ill (and create a few new diseases on the way), so that they can exploit the illness with the drugs they make that mask some of the symptoms, but never make the disease completely go away. This way they can say that they keep America working which helps circulate the money around - it isn’t about helping the sick at all.
In other words it is a threat of sorts, albeit a nicely veiled threat. “Don’t give us a hard time and we’ll keep people employed and do our part to help the national economy “.
It is quite pathetic actually.
There was a part in the movie “The Corporation” where they were talking about seeds needed for farmers and how one of the chemical/drug companies figured out how to engineer the seeds so that they would not “re-seed”, that meant that the farmers had to buy new seeds every year (at higher prices - someone had to pay for the ingenuity..). But imagine the “sick” mind that came up with the idea of finding a way to “Rob” farmers and have them indebted to a company for their crops?
Listen closely to the messages we are being sent, the people who come up with these are a bunch of pathos - maybe they should be force fed their own drugs? Just a thought!
Nathan
Someone says:
“The idea is to confuse us into thinking that we need to keep sick people ill (and create a few new diseases on the way), so that they can exploit the illness with the drugs they make that mask some of the symptoms, but never make the disease completely go away.”
This is a sick, sick idea that has been floating around for a long time. As someone employed by big pharma, those ideas absolutely disgust me and anger me beyond what I can write. I just posted something on this topic yesterday. Here it is:
It’s reprehensible that people suggest that the pharmaceutical industry has “cures” for diseases and refuses to market them because chronic treatments are more profitable. Do you have any idea how large of an organization that a pharma company is? Do you have any idea how many people would have to be in on a secret that big? My friends and family have mental illnesses, die of cancer, Alzheimer’s, and a variety of other ailments. That’s true of every other employee at these companies. Don’t you think they (the employees) have a strong emotional motive to release a cure for such diseases if they exist? Moreover, if there was a cure for mental illness (or other diseases) there would be a strong PROFIT motive to release the cure. If my company had a cure for depression, then suddenly the entire SSRI market would shift from 4 or 5 companies to my 1 company. That’s a STRONG motivation.
Bottom line: There is a strong profit motive to find genuine treatments for disease.
truthman
Bottom line: There is a strong profit motive to find genuine treatments for disease.
But there is a stronger motivation to create illness markets to sell drugs too…
Jack2
…And even if all of pharma (over a million employees?) agreed to get together and keep this secret it wouldn’t stop there. You’d also need every academic researcher and government researcher who may bumble onto the cure to also keep quiet.
And each company and individual would need to keep quiet despite the unbelievable personal fame and fortune the company/individual could bring upon themself.
Even if you assume the absolute worst of people - that people would sit on a cure for a disease (and if you do think that I actually feel sorry for you) - you also need to explain why these people would also forfeit money and fame (nobel prize? permanent positive place in history?).
I also doubt there’s a stronger profit motive to invent disease, (again, even if you assume the worst of people). If you can cure a disease you need only cure it. If you invent it you need to invent it and then cure it.
someone
Actually, there are many instances where drugs were not brought to market because the segment they could treat was deemed not profitable. I actually know of two cases as we speak - Truthman, you are not the only one in the industry..
I don’t think the pharma industry is “hiding” cures - it is much worse than that. The smoke screen being created by bogus research to academics (nicely disguised kick-backs actually)to keep fueling drugs that do not cure. All of this superfluous marketing activity keeps researchers and money away from getting to what they really need to do.
You should read the book Cell of Cells, the Global Race to Capture and Control the Stem Cell, Cynthia Fox
I think we are pretty much learning (via antibiotics, etc) that many of these disease arise through a series of multifactorial events. Pharma is only interested in one hit at a time. The end result is that you go on one drug and eventually wind up going on another. It seems they are very good at building better mousetraps…
Top researchers are busy working on ways to hit a broader spectrum of potential targets.
Inventing diseases? Absolutely by creating the “need”. How did all these kids develop ADD and need all that Ritalin? Was/is it something in the milk? No, we were sold a bill of goods. If the video games and other toys don’t work, you can always give them a little pill - but you certainly shouldn’t examine your parenting skills…
We’ve come full circle now - some parents realize that better diet, more attention and no pills leads to more “normal” (whatever that is) children. We were so busy being “marketed” to we had almost completely forgot!!!
I don’t think the worst of people. There are some really good people in the world and some of them do work in healthcare. I have been in the industry for a very long time.
As we have all pointed out many times on this site, it is about greed and greed makes us do funny things some times.
To the question of how is it that all these people keep a secret? They aren’t keeping any secrets - they actually believe that what they are doing is the right thing. More and more whistleblowers will help us un-ravel the mess.
At the end of the day the marketing department plans to capture the market and dominate it. This creates power to buy and own research for that disease segment. The stronger the monopoly on any disease segment the more potential for abuse. We’ve seen it time and time again.