Time for Your Pharmaceutical Stock to Change its Patent Crutch
It is time for a whole new prescription. Pharmaceutical majors have always promised new drugs to substitute patent expiries. The stock market tends to react rapidly to every US FDA decision. Pharmaceutical stock prices rocket when a clinical trial looks good. These stock prices plummet with equal force when a generic producer offers the medicine at a fractional price. Why has this stock model changed?
1. Even Presidential candidates have begun to question patented drug prices. Celebrities have proved that HIV/AIDS treatment can be affordable. The health insurance industry has not complained as yet about prices they pay for proprietary medicine. However, the money ultimately comes from the pockets of patients. Monopoly drug prices are likely to be regulated soon.
2. Product liability norms are being defined afresh. Class action suits are renewed threats for the pharmaceutical industry. They may escape with insurance the first time. However, insurance costs catch up quickly. The US FDA is under attack for its liberal views of drug trials. It has become even more expensive for pharmaceutical companies to cross regulatory hurdles. Even so, they are never free of threats of adverse reactions to and side-effects from their block-buster brands.
3. Biotechnology is not an oligopoly. Large numbers of smaller companies, and some based in places such as Cuba, will meet health care needs in new ways during the coming decades. Entry barriers and moats that have kept the pharmaceutical industry like a private club have begun to crumble and to dry up. We could see increasing instances of governments over-riding patents with compulsory licenses.
What should you do with these predictions? Shuffle your health care stocks. Pick management teams with street fighting skills. Prefer efficient generic producers who hit the market running the morning after patent expiries. This could mean an ADR from the new world rather than an American or European True Blue.