At the Bristol-Myers Squibb year-end briefing December 5, CEO James Cornelius didn't try to distract analysts and investors
from BMS's flattening top line by chatting up its pipeline. Instead, he got right to the point, announcing that he was closing
half of the company's manufacturing plants, selling off its medical-imaging division, and perhaps putting its nondrug business
on the block later this year. The proceeds, which could top $15 billion, are meant as a bulwark against what Cornelius called
"a patent cliff"—when its turbo-seller, blood thinner Plavix, loses market exclusivity in 2011.
The patent cliff is not just a BMS problem. According to IMS Health, starting in 2010, the industry will lose $28 billion
a year in sales to generics, up 40 percent from current levels, and the bloodbath will continue for three years or more. Datamonitor
estimates that between 2011 and 2012, pharma revenues will fall—for the first time in four decades.
Murray Aitken, IMS Health
Pfizer's 2011 loss of Lipitor, the best-selling drug in history, has earned most of the ink, partly because the industry leader's
late-stage pipeline will come nowhere near making up the $13 billion-a-year shortfall. By 2012, Sanofi-Aventis will lose half
of its current revenue to generics, and Merck will wave good-bye to its three best-selling drugs—and 44 percent of its top
"There's very little that a CEO can do today or over the next year to significantly affect the top line, outside of big acquisitions,"
says Ernst & Young's Global Risk Advisory head Jeffrey Steinberg. "They'll work very hard to apply as many quick fixes as
possible on the cost side."
Most of those fixes will involve the three Rs—rationalizing, restructuring, and rightsizing—plus increased outsourcing and
offshoring, faster and cheaper R&D, sales force layoffs, and a steady diet of deals.
Oh, yes, and a lot of blunt talk from CEOs.
"The thing that has struck me most recently is how much more talk there is from the C-suites about the need for fundamental,
dramatic change," says Chuck Farkas, head of Bain & Co.'s North American Healthcare Practice.
Capgemini Life Sciences VP Omar Chane has also noted the new realism. "At the highest levels and among the younger leadership
there is a stark realization of the necessity for change," he says.
Says Ernst & Young's Steinberg: "For the first time, I'm hearing executives say things like, 'We're just never going to see
another $10 billion–plus drug like Lipitor.'"
Adelene Perkins, Infinity Pharmaceuticals
This new attitude strikes some analysts as an important change. "Many of these CEOs and CFOs are a younger generation," says
IMS Health Senior VP Murray Aitken. "They don't have all the baggage of 'I built this industry,' and they're in no denial
about the enormity and complexity of the challenges."
One of the harshest Cassandras isn't young or new. "The industry is doomed if we don't change," Lilly CEO Sidney Taurel told
the Wall Street Journal in a December 6 front-pager titled "Pharma Faces Grim Prognosis." And BMS's Cornelius supplied the perfect coda for the piece.
"I'm talking to you from the 44th floor of an office on Park Avenue," he said. "A year from now, I won't be...because we're
going to move downstairs out of these very expensive offices."