Lex letter from London: Drugs, satellites and a riddle
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Excitement has reached fever pitch. Millions of Londoners are expected to watch England’s World Cup semi-final tonight, its first since 1990. The football might be nerve-racking but it is a welcome distraction from politics. Donald Trump’s first UK visit later this week is likely to be met with protests. His supporters have urged Londoners to take controversial utterances with a grain of salt.
Investors are already doing just that. When Mr Trump attacked Pfizer on Twitter this week for planning to raise drug prices, the US company’s share price only wobbled. A year ago, a similar tweet might have knocked billions of dollars off its market value.
Even so, Pfizer has agreed to postpone the price rises. The backlash over the soaring cost of medicines in the US is serious. It matters for investors, as well as for patients and workers. A back-of-the-envelope calculation suggests that the US accounts for at least two-thirds of global pharmaceutical profits. US drug price rises accounted for 80 per cent of the pharmaceutical industry’s earnings growth in 2017, according to Credit Suisse.
Nor is President Trump alone in complaining about European tight-fistedness on drugs spending. Vertex, a Nasdaq-quoted company, has appealed to UK prime minister Theresa May after price negotiations with the NHS over its cystic fibrosis drugs reached an impasse. Without improved patient access to innovative therapies, future biotech investment in the UK is at risk, it said.
Are the arguments over drug pricing a sign that the pharmaceuticals industry is entering a period of diminishing returns? As the sector matures, researchers have to focus on harder, less profitable problems. Costlier new therapies often offer only slight improvements on previous medicines. Some worry that an extraordinarily successful era could be coming to an end. Between 1930 and 2015 average annual returns exceeded those of other publicly traded companies by 3 per cent, according to US research.
Lex is more optimistic. Science is advancing and there are many areas where new treatments are desperately needed. One is Alzheimer’s disease, for which researchers have failed to come up with any new drugs for 15 years. A few days ago there was a rare glimmer of hope from promising clinical trial results. That added billions of dollars to the market capitalisations of developers Biogen of the US and Eisai of Japan.
Alzheimer’s affects tens of millions of people. But focusing on rare diseases can be a smart strategy, too. Tackling unmet needs makes it easier to gain approval and set high prices. London-listed Shire, a rare disease specialist, has agreed a £46m takeover from Takeda of Japan. This week it cleared a big hurdle to completing Japan’s largest-ever outbound acquisition when it won US regulatory approval. But it is still undergoing antitrust reviews in other big markets, such as China. And Takeda has to win approval from its own shareholders. Debt worries and concerns about competition to Shire’s lucrative haemophilia business remain.
In a week of hot weather in London, temperatures have risen even higher over Brexit. Boris Johnson quit as foreign secretary, saying the prime minister’s Brexit plan would land Britain with “the status of colony”. At least the heat has been taken out of one controversy, at least for now, after UK satellite company Inmarsat rejected a bid from US rival EchoStar. The attempt to take over Inmarsat raised questions of whether the UK company should be kept in British hands. In the end, the offer was too low to merit much debate. The mystery, Lex said, was why EchoStar thought its UK rival would accept such an earthbound bid. Even so, Inmarsat shares initially tumbled on news of the rejection.
Gravity has also taken a toll on TP ICAP, the London-listed interdealer broker. The shares fell more than a third after the ousting of chief executive John Phizackerley amid problems integrating the 2016 £1.3bn purchase of ICAP’s global broking business. The company pointed to higher than expected costs for 2019. It pinned much of the blame on Brexit but was studiously vague about the details. The problem is that no one knows what shape this business will be in once the UK leaves the EU. The Brexit riddle, Lex concluded, is as mad as ever.
Enjoy the rest of your week — and the rest of the World Cup,
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