Biotechnology and pharmaceuticals companies are going through a period of some uncertainty due to political changes in the United States. Health care payment has changed in recent years, and this year during the presidential campaigns, there has reportedly been rhetoric that suggests drug pricing could come under more government scrutiny than in previous years, making this especially difficult for pharmaceuticals in the United States, which is considered by some analysts as the most important market for medical products in the world, even for companies that are based overseas.
The United States’ markup in prices versus Europe and other places is expected to diminish. Drug pricing in the United States has driven stocks down, and the consolidation strategy that has taken place has been negative for these companies, according to some analysts, who say the acquisition model isn’t as attractive to investors anymore, as some investors now think these companies have been built around easy access to credit and not necessarily around synergies in their products. Others say there is incremental innovation of older drugs, and that the market is still rewarding those companies. Analysts are looking for companies that are disruptive and will change clinical practice, and they say there have been some exciting emerging areas, although as a whole innovation seems to be lacking, according to some analysts, though there seems to be disagreement among analysts.
Specialty pharmaceuticals has been trading at levels below broader market multiples. Some of the more exciting areas, according to analysts, are gene therapy, stem cells and regenerative medicines that are less mature but have potential to replace damaged tissues. Oncology is evolving to be more tailored to the specific patient based on the disease. Analysts say that even though there are fewer approvals within a class, the approvals that are getting through are more differentiated, meaning they are more innovative rather than incremental improvements. They also mention an uptick in INDs.
Analysts are looking for innovation in the form of drug approvals, moving them through clinical development quickly or entering clinical trials. The need for innovation in pharmaceuticals is driven by many factors, such as demographics and the decrease in funds in health care. The FDA is beginning to look at smaller trials as acceptable and other study designs and information if there is no other reasonable way of doing things, as in the case of unmet needs, analysts say. They also say investors need to be more discriminating in terms of evaluating health care investments, saying it’s not only about what other investors are doing, but there have to be theses behind different drugs and different programs.
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