Drug firms CEOs say face toughest times ever

By Ben Hirschler

NEW YORK (Reuters) - The drugs sector, traditionally a safe haven for investors, is under pressure as never before from cheap generics, sliding prices and higher regulatory hurdles, according to top executives.

"The industry is going through its toughest environment ever," Schering-Plough Corp (SGP.N: Quote, Profile, Research, Stock Buzz) Chief Executive Fred Hassan told the Reuters Health Summit in New York on Tuesday.

"I think people will do many things to improve shareholder value. One of those could be financial-type approaches -- divesting assets, or having themselves sold. Others are going to work harder on better execution," he said.

Three years after its withdrawal from the market, Merck & Co Inc's (MRK.N: Quote, Profile, Research, Stock Buzz) doomed Vioxx drug continues to cast a long shadow over the global industry -- and big companies are still adjusting to the fallout and seeking new ways to do business.

New Jersey-based Merck agreed last week to pay $4.85 billion to settle most of the U.S. claims that the painkiller caused heart attacks and strokes in thousands of users, resolving a legal battle that had threatened to drag on for years.

But the legacy of Vioxx is a heightened focus on safety at the U.S. Food and Drug Administration that is delaying the approval of new products to the frustration of executives who had hoped to a return to business as usual by now.

"I'm a little surprised at the prolonged risk-averse climate after Vioxx," Hassan said.

The problems are most acute in primary care, historically the central plank of drug company revenues, where multiple blockbusters face patent expiry in the coming years, according to Franz Humer, CEO of Roche Holding AG (ROG.VX: Quote, Profile, Research, Stock Buzz).

Speaking to the Reuters Health Summit on Monday, he said the strains in the industry vindicated Roche's decision to focus on medicines prescribed by specialists rather than general practitioners.

"The primary care mass market product area is increasingly difficult to operate in -- from a pricing point of view, from a generic threat point of view, even from a simple cost point of view because many of these drugs are not sufficiently differentiated from each other," Humer said.

NEW WAYS TO BOOST MARGINS

In the face of these obstacles, conventional models of doing business are being challenged across the industry in a bid to boost margins.

For some companies, like AstraZeneca Plc (AZN.L: Quote, Profile, Research, Stock Buzz)(AZN.N: Quote, Profile, Research, Stock Buzz), that means outsourcing large chunks of manufacturing, acquiring pricey biotech drugs to rebuild the pipeline and cutting staff.

"Our sector is experiencing challenges on every front ... pricing challenges from payers, safety challenges from regulators, intellectual property challenges from the generic manufacturers," AstraZeneca's Chief Executive David Brennan said.

At GlaxoSmithKline Plc (GSK.L: Quote, Profile, Research, Stock Buzz)(GSK.N: Quote, Profile, Research, Stock Buzz), meanwhile, Chief Executive Jean-Pierre Garnier believes he can use smart selling to reduce some promotional activity without losing market share.  Continued...