Stepping Away From the Patent Cliff

In a bit of good news for pharma, Moody’s Investors Service has upgraded its outlook for the global pharmaceutical industry to stable. The Moody’s rating reflects expectations for fundamental business conditions in the industry over the next 12 to 18 months, and until now, the industry had been limping along under a negative outlook assigned back in October 2007. According to a statement from Moody’s, the change in status reflects the fact that worst of the revenue drops caused by blockbuster drugs falling off patent are over, and so earnings are expected to stabilize.

Moody’s announcement coincided with one from Sanofi-Aventis, detailing their plans to shrink their R&D presence in France by eliminating 900 jobs. Sanofi’s downsizing is the latest in such moves from large pharmaceutical companies. Announcement of large headcount reductions have occurred with depressing regularity over the past few years, with similar news from Roche and Merck KGaA appearing most recently (see here and here).

Is the industry stabilizing? While it may be true that the steepest parts of the patent cliff are behind us, Moody’s also points out that the industry still faces financial pressure from the rise in generic drug use and cost-containment efforts across the healthcare industry. I won’t believe the industry is stable until we stop seeing announcements of multi-hundred person drops in headcount.