Hank,
You are probably right about the biotech sector. I fear it will leave many companies dead and buried just like the .com fiasco did. The problem is that many of the larger companies are so big and powerful now that they can literally overtake any smaller competitor within months if they want to. If the smaller company has a lock on patents that prevents them from doing this, then they simply buy them out, take the products, and lay off the people.
How can a small biotech that is capitalized at only a couple hundred million dollars compete with somebody like Pfizer who is capitalized at 250 billion? They can't. Plain and simple.
I couldn't disagree more. The fact is that the big pharma are desperate for pipeline in the face of their existing patent expirations and generally disappointing internal pipes. The "terms of trade" between biotechs and pharma have radically changed over the last five years or so. It used to be that the pharma would license early stage products in exchange for a single digit royalty - these were really nothing more than options without much commitment to develop the product. Nowadays, 50/50 deals are much more common. The biotechs are holding onto their products longer, and the vast majority of biotechs are financially much more secure than they used to be.
Here's a sample post (one of many) on the Biotech Valuation thread I run that backs up this viewpoint:
Message 16008130
When there are acquisitions, they tend to be at a significant premium and way above the target's lows. The pharma's certainly don't fire the people at the companies they acquire - there's not been one example of this that I know of and I've been tracking all pharma acquisitions for quite a while.
BTW, we track merger activity on the Munch thread:
Subject 24574
Finally, in response to Bink's concern about multiple pathways producing competition, again look at history. If you can develop a successful drug, your primary risk is an unexpected side effect or patent expiration rather than competition. Even where better drugs emerge, the original, inferior drug continues to do pretty well. (Look at the statins - the BMY drug still does a billion a year). In general it's very hard to show superiority over an approved drug - mostly companies just try to show equivalence. The bad news in biotech investing is that it's so hard to get a drug approved. The good news for those that already have an approved drug is that it's so hard to get a drug approved.
Peter |
