Well there is certainly the hope that the timeline will compress some. But realistically, this is only going to effect the pre-clinical side much. We're still talking of the order of five years or more from entering the clinic to receiving approval. So I could see the overall timeline shortening from 10-12 years to say 8-10 years (perhaps a year or two less for some biologics), but that's still an awfully long time from a daytrader's perspective. <g>
Note that I do believe trials will get cheaper and less risky as pharmacogenomics and a better understanding of fundamental biological processes give us a better window into just what a drug is doing. But I still don't think this will have a dramatic effect on timelines of clinical trials and approval.
Of course for an individual biotech stock, the slow periods of little news are punctuated by exceedingly dramatic events (Fly-by-Genomics biotech is pleased to announce that it has regained all rights to ... <g>).
But of course the wondrous thing about biotech investing is that this long time period doesn't correspond to heightened risk in the same way it does for high-tech companies. This is where the naive DCF analyses break down for biotech.
If a high-tech company was to say to you "I have this great new project. It doesn't exist yet and it's going to take 5 years before I can launch it. What's it worth?", you'll say "Not very much." Technology is changing so fast that who knows what the competitive landscape is going to look like in 5 years, let alone whether the project is going to work or not.
By contrast, if say SEPR were to announce they have a new ICE clinical candidate that they expect to launch in 5 years if all goes well; that has real present value to me. Just because it's going to take a long time, it doesn't mean it's inherently risky. It's sort of like building a skyscraper - it's hard, it's expensive and it takes a long time, but very likely you'll have a building about when you said you would. Now drug development (even of an ICE) is always going to be much riskier than building a skyscraper, but particularly if you look at projects en masse the same principles apply. (So perhaps a better example than a SEPR ICE is to look at say MEDX or ABGX's portfolio of Mab projects - they'll take quite a while to prove themselves, but ultimately a substantial number will work).
To continue the analogy, how confident are you going to be that you can rent the skyscaper at decent rentals vs. sell a drug at decent margins? In the skyscraper case you can likely predict supply pretty well - other new buildings take a while to build as well. Demand a few years out, on the other hand, is a crapshoot.
Likewise on the pharmaceutical side, you have a pretty good idea what else is going to be on the market when you are. Drugs don't simply appear from nowhere. But unlike real estate, demand is pretty predictable. We have a pretty good idea of how many people will have a particular disease. Insurance/government reimbursement is indeed a new uncertainty here but all historical indications are that if you get a good drug on the market for a big indication you will do very well.
So bottom line is that biotech and pharma have a very long time horizon for new projects, but looked at as a group, they are actually pretty predictable for something that takes so long.
Peter |
