One might think that in both pharma and the equity markets, reality usually prevails over hyperbole and wishful thinking. In pharma, outcomes data constitute the prime mover. Likewise on Wall Street, the business is premised on the notion that accepted measures of margins, growth and profitability will eventually determine the course of events. Perhaps the key concept here concerns the ambiguity of "eventually,” because until that occurs, vast fortunes can rise and fall from hyperbole.
Some of pharma's recent earnings reports provide a ready example. On Tuesday the blogosphere crowed about Pfizer's quarterly profit rising 25 percent even as the company's top-selling brand, Lipitor, lost patent protection. Pfizer's stock rose more than 2 percent on the news. Yet if one looks just slightly beyond the headline, the news is far from sanguine.
Much of Pfizer's gain came from cost cutting and divesting assets. Overhead costs fell 17 percent in the quarter, while research and development expenses declined by 24 percent. Pfizer is preparing to sell its nutrition unit to Nestle for $11.85 billion and divest its animal-health business through an IPO. At the same time, second-quarter revenue fell 15 percent below the comparable period last year, while new brands failed to make up the shortfall.
So why the rousing headlines from what is actually an uninspiring earnings report? Skeptics argue that Wall Street and certain sectors co-operate on a mutually profitable, implicit deal. Wall Street's sell side needs to tout various sectors to investors for the underwriters to earn their fees and the brokers their commissions.