RPT-Reuters Summit-Healthcare seeks new prescription for growth

By Lewis Krauskopf and Ben Hirschler NEW YORK, Nov 6 (Reuters) - A new era is fast approaching for the healthcare industry. The debate on overhauling the U.S. health system is reaching a fever pitch on Capitol Hill. Within months, efforts may be enacted that will broaden health insurance coverage and lead to new competition, fees and other significant changes that shake up the critical U.S. market. "It has the potential to really radically redefine the most important market for the majority of healthcare industries," Morningstar analyst Damien Conover said. Drugmakers are simultaneously confronting the biggest loss of patent protection in history, depriving them of exclusivity on some of the world's most famous and profitable medicines. Faced with losing billions of dollars in revenue to an increasingly important generics sector, the world's leading drug companies are striking major deals, diversifying and cutting costs. Yet investors are not convinced they have found the path to sustained profits beyond the patent cliff. Pharmaceutical stocks worldwide have underperformed the broader market in 2009 and are now trading at a 23 percent forward price-to-earnings discount to the wider market. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - For a graphic showing forward P/Es for pharma stocks, click on: http://graphics.thomsonreuters.com/119/GLB_PHMPE1109.gif - - - - - - - - - - - - - - - - - - - - - - - - - - - - - CHALLENGES Leaders of many of the world's largest drug groups -- Pfizer, GlaxoSmithKline, AstraZeneca, Merck, Eli Lilly, Novartis and Novo Nordisk -- will try to answer that market skepticism and address the industry's challenges at the Reuters Health Summit in New York from Nov. 9 to 12. The specter of a massive health overhaul has also clouded the prospects of health insurance companies. The chiefs of WellPoint and Humana will be on hand at the summit to offer their outlooks on the future of managed care. Other guests include the top executives at Edwards Lifesciences, Beckman Coulter and Tenet Healthcare, whose industries face changes from reform and have been pressured by the weak economy, and the commissioner of the U.S. Food and Drug Administration. Recently, there have been some glimmers of hope that research labs are starting to come up with more winners again, after a barren few years. But much of the new productivity is coming from biotech rather than Big Pharma and the harsh reality is that output of new drugs has fallen nearly 50 percent since 1998, despite sharply increased spending, according to CMR International, a Thomson Reuters subsidiary. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - For a graphic showing R&D spending and new drug output, click on: http://graphics.thomsonreuters.com/119/GLB_PHMRD1109.gif - - - - - - - - - - - - - - - - - - - - - - - - - - - - - COST CUTS The tough new climate has put costs at center-stage as never before. "We're seeing a lot of real thought going into how to reshape costs," said Chris Stirling of consultancy KPMG. "It is quite a challenge for pharmaceutical companies because they've never really had to think about costs and cash-flow in any serious way before because their margins have been so high." Johnson & Johnson was the latest to wield the axe, announcing plans on Nov. 3 to cut 7,000 to 8,000 jobs, or up to 7 percent of its workforce. Big job losses are also looming at Pfizer and Merck, following their recently completed deals to acquire Wyeth and Schering-Plough as part of a wave of mergers and acquisitions across the sector that some analysts believe has further to run. Business models are also under the microscope. A few large companies, like Roche, are sticking with a specialty focus. But many more are chasing diversification plays in over-the-counter medicines and even generics, while lifting their exposure to emerging markets and biotech -- a strategy that Glaxo Chief Executive Andrew Witty sums up as moving away from "white pills in Western markets." (For summit blog: http://blogs.reuters.com/summits/) (Reporting by Lewis Krauskopf and Ben Hirschler; Editing by Tim Dobbyn) Keywords: HEALTH SUMMIT/ ([e-mail]; Tel: [phone]; Reuters Messaging: [e-mail]; www.twitter.com/reutersBenHir) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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