There has been extensive press coverage of proposed U.S. healthcare reforms. Although rapid, radical changes may have been contemplated during the recent election campaign, changes are likely to be staged and incremental. Whatever individual investors think about the proposed reforms and the massive lobbying efforts by the various industry groups, investor focus should be the potential impact of these changes on the revenues, earnings and share prices of healthcare companies.
The press coverage of healthcare reform may have obscured the fact that pharma’s biggest concern is still its pipeline problems - not enough near term product approvals to make up for the sales which will be lost on patent expiry for major products. Part of the response to this problem is rationalizing infrastructure and costs - look at the press releases and financial reports for any pharma company over the last two years to see what has happened. Another part of the response is the continuing acquisition of products and technologies - look at those same press releases and see how many licensing deals and acquisitions have been completed. For example, on October 1, 2009, sanofi-aventis announced both an agreement to acquire Fovea Pharmaceuticals, a privately held French company focused on ocular diseases, and a licensing agreement with Merrimack Pharmaceuticals for MM-121, a monoclonal antibody for the treatment of cancer which is currently in Phase 1 clinical testing.
The risk/reward profiles for individual therapeutics and small biotech companies have probably changed as a result of the changes happening in the pharma industry. Investors also have to consider the impact of changes at the FDA, including new limits on sales and marketing practices and higher safety hurdles. However, as long as the big pharma companies have pipeline problems, they need to license or acquire products that fill their pipeline gaps, creating demand, ultimately resulting in investment opportunities. If you manage a small biotech, your communications and investor relations efforts should focus on clearly highlighting how your products or technologies can effectively address this demand.
Tags: healthcare