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The New Jersey of the East

By Rob Fannon, editor Phase 1 Investor
Friday, January 11, 2008

The man who made the world's best selling drug just got canned.
 
So much for loyalty at Pfizer – the world's largest drug company. Rather than showering Dr. Bob Sliskovic with gratitude for his work on Lipitor, which has generated $80 billion in sales, the pharmaceutical giant just handed the 23-year lab veteran a pink slip.
 
Sliskovic is one of 2,100 employees fired from Pfizer's 177-acre research and development campus in Ann Arbor, Michigan. The company shut down operations on the heels of a five-year, $300 million expansion plan. The closing is part of new CEO Jeff Kindler's strategy for a radical makeover at Pfizer. When the shift is all said and done, Kindler expects to save $2 billion with some 10,000 fewer employees on the company's payroll.
 
Lipitor netted $13 billion last year. Yet, along with several other top-selling traditional drugs, Lipitor is racing headfirst off a patent cliff. In 2007, generic copycats erased $16 billion worth of brand-name drug sales. By 2010, the projected figures soar well north of $100 billion. So Pfizer's wise to start pinching pennies now.
 
Big Pharma's big moneysaving secret is that at least one-third of its research and development work isn't performed in-house – it's outsourced.
 
Of the $45 billion biotech and drug companies spent on R&D last year, 33% was outsourced. That number is slated to surpass 40% of research budgets by 2009. As domestic research budgets grow by 5%-6% a year, reserves earmarked for outsourced R&D continue to shoot up 15%-17% annually.
 
And where is that spending headed? Consider this...
 
On average, R&D work in India or China costs 40% less than here in the U.S.
 
Not surprisingly, research spending in China and India surpassed $2.2 billion in 2006, twice as much as the year before. Both countries offer educated workforces, diverse populations for clinical studies, and cheap labor.
 
If you were the CEO of XYZ Drug Company, where would you choose to build your next manufacturing plant, conduct your next massive clinical trial, or carry out your drug-discovery work?
 
New Jersey is home to half of the world's top pharmaceutical companies. Without a doubt, the Garden State hosts the highest percentage of big drug money per capita.
 
Right now, with billions of research dollars flowing abroad, China and India are fighting to gain similar status on the international level.
 
I've run out of space today, so I can't cover the details... But in Monday's edition, I'll tell you which country is set to emerge as the "New Jersey of the East" and the best ways to invest.
 
Until then... good investing,
 
Rob Fannon




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Market Watch
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52-Wk
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52-Wk
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Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
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S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
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52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
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Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
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Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
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Telecom 22.48 +1.1% +17.1%