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quinpeung (34.68)

Vanishing drugs

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November 18, 2010 – Comments (0)

Pharma has been reinventing itself in recent years. Not too long ago, biomedical research at big pharma was viewed as cutting-edge and was largely admired by the masses.  But now, the most companies employ a new approach, either in-licensing new drugs, or acquiring majority interests or snapping up companies.  This strategy is designed to replace lost sales as companies products lose patent protection.

The current model takes advantage of the ambitions of small biotech companies, who in turn take advantage of the 3 F's - Family, Friends, and Fools - to fund their companies (pause here to reflect on your investment strategy.)  These companies assume the research costs and risks once held by big pharma.  Odds are long and the rewards are great, as big pharma uses it's large cash reserves to acquire the rare successes.  But how long can this last?  And more importantly, how long can small biotechs raise funding, in the face of the long odds of success?

Moody's Investors Service agrees. Moody's has a negative outlook for the pharma industry, saying that it's view "reflects the sector's increasing exposure to major patent expirations, peaking in 2011 and 2012, at a time when the quality of late-stage pipelines is on average insufficient to offset this trend."

While this current strategy that pharma is using to replenish it's pipeline is great for CROs, the other participants in drug development will certainly suffer.  New drug development will decline, probably for 10-20 years, as patents expire, funding sources for small biotechs decline, and margins for big pharma's existing drugs get squeezed by payeers.  Future opportunities will arise for those who can correctly predict how the industry will respond to these challenges.

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