David Fleishman

Merck (MRK) and AstraZeneca (AZN) plan to team up to test a new cancer drug cocktail still several years away from reaching the market.

The new Pharma business model will involve a further shift into partnerships in order to develop new and effective products while simultanteously hedging the risk involved with the launches of such products. Pharma cannot simply stand around and watch their key products lose exclusivity, but the fact that so many of these partnerships are being devised shows to tenuous nature of the business today. Investing in pharma can no longer be considered a true defensive strategy these days; it will take a signficant amount of work and hopefully some breakthrough products before Pharma becomes the stable business that it once was.

How Will Health Care Policy Changes Affect the Industry?

The exchange that Obama's administration aims to create may eventually lead to a single dominant payer within the US healthcare system. Today, MCOs continue to compete with one another for US lives, but once this exchange is launched and has some time to work out the "kinks," payers will have an extremely difficult time competing. Foremost, while the uninsured and self-employed will have the first stab at access to the exchange's resources, the lower Medicare-like reimbursements will appeal to current members of Commercial plans, who will eventually leave their current coverage and shift to the exchange. Thus, the government will become the primary competitor for UNH, HUM, etc. While this won't take place over the next year, I think that it clearly bodes trouble for the payer universe and I would be hesitant to buy, given the dark future outlook.