Even in this economy, larger drug makers are planning to spend money on research and development, according to a survey by Ernst & Young LLP.
But many local companies aren’t jumping on that bandwagon.
Ernst & Young surveyed 40 senior executives from 15 drug makers and found that 66% of the respondents said reinvigorating research and development was their top strategic initiative, compared with the 40% who said cost-cutting was a top priority.
Last year, a drug maker study done by Ernst & Young and the Economist found that 92% of drug executives ranked cost-containment as their top priority.
The survey mainly targeted large drug makers, including Johnson & Johnson, Pfizer Inc. and GlaxoSmithKline PLC.
Some midsize companies such as San Diego-based Amylin Pharmaceuticals Inc. and Cephalon Inc. of Frazer, Pa., also were interviewed.
A few local drug makers don’t think the survey is accurate.
“The premise is absolutely wrong,” said Rajesh Shrotriya, chief executive of Spectrum Pharmaceuticals Inc., an Irvine drug maker.
Controlling costs, Shrotriya said, is essential in “this financial meltdown” for drug makers, citing examples of several recent layoffs at companies like Pfizer, which has said it would eliminate 10,000 jobs.
“We are all being forced to do cost-cutting and manage cash more wisely,” he said.
Cost-cutting is important for Spectrum because it’s not profitable, Shrotriya said.
Spectrum lost $8.8 million on nominal revenue in the third quarter, and relies on partnerships to bring money into the company, including working with Irvine-based Allergan Inc. on bladder cancer treatments. Spectrum’s deal with Allergan could eventually bring it some $345.5 million.
As for Allergan itself, the county’s largest drug maker spent $187 million on research and development in the third quarter, up 13% from a year earlier. R & D; made up 17% of Allergan’s $1.1 billion in sales during the quarter.
At Tustin-based Peregrine Pharmaceuticals Inc., early development programs are on hold, said Chief Executive Steve King. Instead, Peregrine is spending money on its drug candidates that are in the clinical stage, including bavituximab, a breast cancer treatment.
Peregrine is “watching its pennies,” but isn’t considering layoffs, King said.
The company is looking to grow its revenue from grants and its Avid Biosciences contract manufacturing unit, according to King.
Ista Pharmaceuticals Inc., an Irvine eye drug maker, has prioritized research and development during the past few years.
Ista has launched three commercial drugs and just filed an application with the Food and Drug Administration for Bepreve, a drug to treat eye allergies.
Bepreve hits a potentially large market. Ista Chief Executive Vince Anido said it would compete with Alcon Inc.’s Patanol, which has annual sales of more than $500 million.
Ista is making some spending changes in 2009, but Anido said he wouldn’t characterize them as cost-cutting.
“Instead of moving additional drugs through the pipeline and spending $30 million-plus, we are going to take a little bit of a breather in ’09 and try to get these drugs that we’ve already filed out the door,” Anido said.
The study showed that analysts and investors believe that how a company’s future stock price performs will hinge on successful drug launches that boost revenue.
AMO Investor Quits Other Board
Jeffrey Ubben, managing partner of ValueAct Capital LP, a San Francisco hedge fund that owns about 14% of Santa Ana-based Advanced Medical Optics Inc., resigned from the board of Omnicare Inc. of Covington, Ky., late last month.
In a statement, Ubben said he left the pharmacy company’s board because of ValueAct’s reduced ownership stake in Omnicare. ValueAct owned 8% of Omnicare as of the end of September; Ubben had joined Omnicare’s board in February, when the hedge fund had a 9.7% stake in the company.
ValueAct took a stake in Advanced Medical in 2007 and immediately made its presence felt, raising objections to Advanced Medical’s $4.3 billion bid for rival Bausch & Lomb Inc. Advanced Medical eventually stepped away from Bausch, which was taken private for $3.7 billion by Warburg Pincus LLC.
Bits and Pieces:
PharmaGenoma Inc., an Irvine company, said its subsidiary, HairDX LLC, introduced a version of a genetic test for male pattern baldness Cardiogenesis Corp., an Irvine medical device maker, said it was launching a campaign to educate cardiologists about transmyocardial revascularization, a procedure used to treat angina, or chest pain. Cardiogenesis’ Pearl device can be used in the procedure ChromaDex Inc., an Irvine maker of research tools for dietary supplements and the food and beverage industries, said it will provide reference standards and research materials to Cargill Inc. of Wayzata, Minn. Cargill is going to use the tools to provide global quality control materials and standards for stevia, a sugar substitute.
