Business | Opinion
France loses edge, Pfizer gets the goods
- Financial Times
- Published: 00:00 February 5, 2010
France is getting used to the quiet life. It had a relatively gentle ride through the crisis, and now the hullabaloo over southern Europe's public finances is distracting attention from the eurozone's second biggest economy. Barely an eyelid was batted this week when France submitted its own deficit reduction plan to Brussels.
Yet France has some things in common with its southern neighbours. It too is losing competitiveness: Germany has kept unit labour costs flat over the last decade but France's have risen 17 per cent and Spain's 27 per cent. Unemployment is not as bad as down south but has reached double-digits.
Meanwhile, a structural deficit and the costs of crisis fighting have helped build a stonking debt pile: at about 85 per cent of gross domestic product it is more than Spain's and similar to Portugal's. Fitch reckons France will have to borrow about 450 billion euros (Dh628 billion) this year, more than any other European government in absolute terms.
There are important differences too. France started growing again last year, and GDP forecasts for 2010 have been doubled. Investors seem unfazed by its debt — French bond spreads over bunds are a quarter of Portugal's at around 25 basis points.
Prime minister Francois Fillon promised this week to reduce the deficit from 8.2 per cent of GDP to Maastricht's 3 per cent ceiling by 2013, providing GDP keeps growing at a decent clip. That requires limiting increases in public spending to 1 per cent a year, though details are lacking.
The world should start watching: aside from the implications for France, whether or not it meets its fiscal promises will provide a salutary lesson for southern Europe. France might have had a good war, but peacetime will be anything but peaceful.
Pfizer pfalters
When the world's largest drugmaker got even larger by buying Wyeth last year, investors understood that the key attraction was reducing overhead. Pfizer's somewhat disappointing new guidance for revenue in 2012, the year after its blockbuster cholesterol drug Lipitor loses exclusivity, puts a renewed urgency on cost-cutting.
The company projects pretax cost reductions of $7 billion by 2012, while sales are seen at $66 billion-$69 billion that year, some $1.5 billion-$4 billion lower than earlier predictions. Even before its looming patent cliff, growth is merely moderate. Stripping out the addition of Wyeth and currency effects, underlying pharmaceutical revenues rose only 4 per cent last year.
Weaker guidance aside, buying Wyeth is a template for what big pharma acquisitions should accomplish — paying a decent price, wringing out costs and making patent cliffs less steep. Pfizer learned its lesson after its two other deals this decade, Warner-Lambert in 2000 and Pharmacia in 2003, gave it access to blockbusters but destroyed shareholder value (particularly the latter, which brought in ill-starred pain drug Celebrex).
If product-specific concerns hit Pfizer, investors can expect less of a jolt. Following the merger, Lipitor fell just below a fifth of revenue from 26 per cent a year earlier. The company seeks to cut dependence on blockbusters with no single product above 10 per cent from 2012 onwards.
The result of a larger company making more modest bets is that revenue growth will resemble a consumer goods company more than one that lives and dies by billion-dollar molecules. The shares look attractive even on a post-Lipitor basis, at about eight times revised 2012 earnings guidance. As long as its managers continue to control costs, long-term investors should not be rattled by reduced revenues.
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