Wednesday, February 11, 2015

High Plateau Drifter On the Pharma Bubble

The big problem for pharma is that we are only 5 to 7 years away from government price controls on new drugs under patent.

From a broad societal perspective this will be wonderful because this will stop the patent scamming with all of the "me too" drugs that might be 10% more effective than the one about to go off patent but that works on the same biological mechanism.

With lower prices per drug and less industry revenue, the biotech industry will have to concentrate on breakthrough drugs and especially those that work on new biological mechanisms.

More generics, fewer patent clones and more real innovation.

Even without Medicare Admin bargaining over reimbursements, the odds that the biotechs in the NASDAQ 100 (ALXN, AMGN, BIIB, CELG, GILD, REGN, and VRTX with PE ratios ranging from 40 to 150) could ever quadruple or quintuple their earnings to justify those lofty PEs with new drug discoveries is nill. They will be lucky to keep earnings flat over the next 10 to 15 years, and that is without govt price control.

The IBB, darling ETF of momentum investors is a screaming if somewhat cyclical short. It's long momentum phase is about over and it will disappoint for the next 10 years. Only a few companies within IBB will be able to identify acquire the few winners out of the 45 member biotech IPO class of 2014.
Here's the IBB parabola. Looks like a chart of bitcoin (or any other bubble) before the collapse.

1 comment:

CP said...

Hayman is using a newish process called “inter partes review.” If the United States Patent Office accepts the petition, one of Acorda’s patents may be disallowed within the next year for the obviousness of its technology. That’s possible, because the crucial molecule in its treatment was used for decades as bird poison. Acorda figured out how to modify the drug, and use it safely and effectively.