Daniel Hennessy

Expiring Patents Ignite Biotech Boom

I am going to have to agree with Point here. While there are some truths to this article, there are also some overgeneralizations and key points missing. It is true that big pharma is definitely facing major headwinds, and patent expiration will lead to large revenue losses for many big pharma players. This article indicates that the only way to replace these lost revenues is to buy biotechs. It should be noted that big pharma employs ~80,000 research scientists and spent $56.1 billion in R&D in 2007. Historical data indicates that return on invested R&D exceeds the cost of capital. The author makes a case for acquisitions of small biotechs to meet the external growth needs of big pharma, but entirely disregards the value of internal development. Big Pharma has maintained large R&D investments for decades; not all of them will be able to make up for revenue losses from patent expiration (such as Pfizer's Lipitor), but to dismiss the returns on tax-free R&D investments and to assume that the only path to growth is via external acquisitions of small biotechs greatly undervalues the potential of big pharma, and overvalues the potential for small biotech. The more gloom and doom I hear on the web about big pharma and its impending demise, the more I realize that there are tremendous values that arise from such sentiment.