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  • Jonathan Poyer

Big Pharma is Flush with Cash and Looking to Fill Their R&D Pipelines

Returning to this WSJ article about Health executives hunting for M&A deals, we wanted to take a quick look at the biotech sector and see what is going for the index. From the article:

Lower-priced competitors are expected to cost big drugmakers large chunks of sales. The companies will lose 24% of their global sales, or about $110 billion, between 2023 and 2030 because of the loss of patent exclusivity, JPMorgan Chase & Co. estimated.”

It seems like biotech is starting to show signs of life following the longest and deepest pullback in its history:

What to be worried about when considering health sciences investments? Here are 4 considerations:

  1. Unlike in FAANGM or other market segments where the market leaders are obvious – it can be hard to figure out who are the best companies in life sciences.

  2. Fundamentals matter in life sciences / healthcare as only products that provide clear value to patients, physicians, and payors will achieve regulatory approval, reimbursement and commercial success.

  3. Analyzing the fundamentals is difficult due to scientific / technical complexity, expansive regulatory environment, evolving medical treatment landscape, intellectual property, manufacturing, etc.

  4. Development stage innovators' returns across the sector do not follow a normal distribution, but rather there are a handful of big winners while many life sciences companies destroy equity value over the long term.

Just remember, the importance of fundamentals in a bear market cannot be overstated - there are always buyers for high quality assets. Just ask Pfizer, Novartis, and Merck executives.

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