At first sight, GlaxoSmithKline’s $13 a share offer for Human Genome Sciences (HGS) last week seemed a generous one – over 80% higher than the US company’s current share price. Moreover, HGS is loss-making and revenues have been declining for two years, suggesting it should be grateful for the bid from its research partner. Yet HGS has turned down the offer, which it says doesn’t reflect its true value. The company has now put itself up for sale to test that theory, and see whether it can get a higher offer out of GSK or anyone else.

There are some reasons to think that GSK is simply taking advantage of a downturn at HGS. Until recently, the US company’s share price was far higher, but it has tumbled sharply thanks largely to disappointing sales of its breakthrough drug Benlysta. In March 2011, Benlysta (belimumab) became the first new treatment for Lupus and other autoimmune illnesses to be approved by the FDA for 56 years. Though an estimated 5m people have Lupus worldwide, the treatment costs £35,000, a difficult price to justify when pharma budgets are so tight. As a result, initial predictions that the drug would bring in annual revenues of US$2.2bn have been rapidly downgraded. Its peak sales, in 2015 or thereabouts, now look likely to be around a third of that total.

Yet there are grounds for thinking that GSK has underestimated HGS’s value. The US company’s two late-stage pipeline drugs, for diabetes and cardiovascular disease, have potential in large, if crowded, markets if they get through final trials. Moreover, the synergies with GSK in particular are obvious, given their previous research work together,  offering a chance to reduce costs and maximise sales.

HGS may therefore talk GSK into offering more, though the precedent from Illumina’s failed attempt to bounce Switzerland’s Roche into upping its US$6.8bn bid is not encouraging. Moreover, if GSK (like Roche) in the end decides to walk away, then the UK company’s inside knowledge, as well as its 50% share in the Benlysta revenues, may make others wary of stepping in. So far that seems to be a risk HGS is prepared to take.

The EIU's Healthcare Briefing provides data and analysis for the world's most important healthcare and pharmaceuticals markets, along with five-year forecasts based on economic, political and demographic trends.

Despite the concerns about R&D productivity, most pharma companies continued to raise their research spending in 2011, at least in dollar terms (see chart). Top of the heap came Switzerland’s Novartis, which has pushed through double-digit hikes in spending in five of the past seven years. Last year, despite a decision to close a Basel lab and shift some of the work to Asia, its spending rose nearly 19% year-on-year to US$9.6bn. That’s the equivalent of over 16% of revenues.

Justification for Novartis’s spending came this week from the Financial Times which quoted data showing that Novartis also topped the list when it came to patent applications in 2009. According to IP law firm Withers & Rogers, the Swiss company’s tally of 368 filings was around twice as many as second-placed Sanofi. And it was over six times as many as Abbott and GSK, which shared the distinction of being the least productive of the top ten pharma companies.

More worryingly, the Withers & Rogers data showed that the overall numbers of patent filings has dropped sharply in recent years. Only 129 “patent families” of drugs in leading markets were sought by the top ten drug companies in 2009, down from 189 in 2007. Though the FT calls the numbers an “imperfect snapshot” of what is going on in the industry, they do once again suggest that pharma companies are finding it hard to convert their R&D spending into experimental drugs – let alone into drug approvals.

The EIU's Healthcare Briefing provides data and analysis for the world's most important healthcare and pharmaceuticals markets, along with five-year forecasts based on economic, political and demographic trends.

A wide-ranging new report from the OECD, an organisation that celebrates its 50th anniversary this year, features statistics on health spanning 50 years. Over the past five decades, the group’s mostly rich membership saw significant, and no doubt related, gains in both life expectancy and government health spending. At the same time, the nature of health risk factors has changed considerably.

As the risk of infectious diseases retreats, health in developed countries is now determined in large part by lifestyle choices such as tobacco smoking and alcohol consumption. Although smoking rates are well below the levels recorded in the 1960s, progress on alcohol consumption is mixed, while obesity rates are rising at an “alarming” pace, according to the OECD.

All of these factors are linked to the incidence of cancer. But thanks to earlier detection and better treatment, cancer survival rates are increasing. According to the latest data, the five-year survival rate of women diagnosed with breast cancer in 2004 was 83.5% in OECD countries, up from 78.7% for those diagnosed in 1997.

In spite of these gains, however, much work remains for developed countries to combat chronic illnesses as successfully as they have infectious diseases. A “comprehensive prevention strategy”, according to the OECD, spans “health promotion campaigns, government regulation and family doctor counselling”. It also costs US$10-30 per person, a seemingly modest outlay that, at scale, may nonetheless fail to find favour with austerity-minded governments across the developed world.

The EIU's Healthcare Briefing provides data and analysis for the world's most important healthcare and pharmaceuticals markets, along with five-year forecasts based on economic, political and demographic trends.