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Biomedical sector takes steps to handle harsh financial realities

The financial crisis has not been kind to the pharmaceutical and biotechnology sectors, with prominent names such as Merck and DeCode Genetics taking recent blows.

From banks to biotech: The crisis spreads Credit: AFP Photo/Don Emmert

DeCode, the pioneering Icelandic genetics and genomics company, watched its share price plunge from a 52-week high of $4.39 last December to 34 cents at closing on 13 November. This month, the company is scheduled to ask a panel convened by the NASDAQ stock exchange not to delist it now that its market capitalization has fallen below $50 million, the minimum required to trade on the tech-heavy exchange.

Although deCode is perhaps the most visible biotech struggling to survive, it is hardly alone. The Washington DC-based Biotechnology Industry Organization reported last month that nearly 100 publicly traded biotech companies have less than six months of cash remaining.

The picture is not much prettier on the pharmaceutical side, where, by the end of October, the AMEX Pharmaceutical Index, a composite of widely held, big pharmaceutical companies, had plunged more than 21% for the year.

New Jersey–based Merck was among the companies taking drastic action to trim costs. In October, as it reported a 28% drop in profits for the third quarter, it announced it would cut 7,200 jobs—more than 10% its workforce.

“We will get past this,” says Mark McClellan, a former US Food and Drug Administration commissioner who now directs the Engelberg Center for Health Care Reform at the Brookings Institution, a Washington, DC think tank. But he predicts that in the long run the current economic setback, combined with the financial pressure resulting from the growth of mandatory spending programs such as Medicare and Medicaid, will mean growing scrutiny for biotech and pharmaceutical companies: “There will be increasing attention to the question: are these products truly valuable? Are they making a real difference in the health of Americans, given how much money we're spending on them?”

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Wadman, M. Biomedical sector takes steps to handle harsh financial realities. Nat Med 14, 1300 (2008).

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