Really? Of the ones I listed, CEPH, for example, has both positive earnings (in fact a PE of 22) and positive cash flow. SEPR has positive earnings and a P/E of less than 4 (although it is facing a patent expiration of Lunesta, after which the P/E should be about 10). ILMN, AMRI, and MDCO also have positive earnings. VRTX has negative earnings, but their pipeline is in some therapeutic areas with a high unmet need.
Had Pfizer not made a play for Wyeth, it probably would have ended up with negative earnings within the next five years, and yet many analysts are touting it as a safe stock. Nearly all of the major pharma face the same hurdle during the next five to eight years. If they can make it to 2018-2020, most likely the second generation of biologics will start coming to market. But in the interim, there is a pipeline void at major pharma companies that can only be filled with acquisitions.
It is the pipeline that matters. Each molecule is, by itself, a negative cash flow business in the beginning due to the heavy cost of clinical research and registration trials. By your logic, why shouldn't a pharma company simply ditch these money losing businesses (i.e. their pipeline)?
Every company has negative cash flow in the beginning. The startup phase is especially long in biotech, because of the long time periods required for registration trials.
Disclosure: I used to do early-phase commercialization forecasting for a major pharma company. |
