Drug Companies Have Rebounded From The Patent Cliff With Acquisitions Now On The Mind

by: Jonathan Yates

With the "Patent Cliff" proving to be every bit as overblown a threat to drug companies as the "Fiscal Cliff" was to the country, investors have returned back to the pharmaceutical sector in full force.

It was not that long ago that the patent cliff, the period when a slew of lucrative drug patents would expire, such as Lipitor for Pfizer (NYSE: PFE), led to Morgan Stanley (NYSE: MS) downgrading multinational pharmaceutical companies such as AstraZeneca (NYSE: AZN), Bayer, GlaxoSmithKline (NYSE: GSK), Novartis AG (NYSE: NVS), Novo Nordisk and Roche. In the report, "An Avalanche of Risk? Downgrading to Cautious," it was warned that "the operating environment for pharma is worsening rapidly."

But Big Pharma has recovered very nicely, despite the concerns of Morgan Stanley. Year to date, Pfizer is up more than 13%. Novatris AG is higher by 15.84% for 2013. Over the same period, GlaxoSmithKline has risen by 7.47% with AstraZeneca increasing 5.66%.

Even though these firms have rebounded, each is still facing strong competition from generic drug companies such as Teva (NYSE: TEVA). Large pharmaceutical companies continue to be pressured to produce a new pipeline of drugs, either through research & development or acquisitions. Based on activity in the market as it moves beyond the hollow specter of the patent cliff, there is a definite interest in buying up companies with promising efforts.

Firms making progress in the war against cancer such as Dendreon Corp. (NASDAQ: DNDN) and Advaxis (OTCQB: ADXS) always draw attention. Dendreon has its prostate cancer drug Provenge already approved by the Food and Drug Administration. Advaxis is developing the next generation of immunotherapies for cancer and infectious diseases.

Both of these companies have the potential that attracts the attention of individual investors and institutions. Sales of Provenge, an autologous cellular immunotherapy for the treatment of certain types of prostate cancer, are projected to increase by some analysts. Advaxis has more than 15 constructs in various stages of development that are not only distinct, but many are in strategic collaborations with such heavyweights as the National Cancer Institute, Cancer Research - UK, the Wistar Institute, the University of Pennsylvania, the University of British Columbia, the Karolinska Institute, and others.

Advaxis' lead construct, ADXS-HPV, was honored as the Best Therapeutic Vaccine (approved or in development) at the 5th Annual Vaccine Industry Excellence (ViE) Awards. Earlier this month, it was announced that Advaxis was nominated for the "Best Early-Stage Vaccine Biotech" Vaccine Industry Excellence (ViE) Award. Novartis Vaccines and Diagnostics created these awards to recognize the accomplishments and contributions for the previous year in the vaccine industry. The VIE Awards are selected by the medical journal, Expert Reviews of Vaccines.

While honors and awards light up a press release, investors only care about the glow from the bottom line. For the global market for immunotherapies from companies such as Advaxis and Dendreon, sales are estimated to be about $40 billion. For cancer vaccines, sales are projected to rise to $8 billion. As detailed in a previous article at Seeking Alpha, there are concerns about the financial stability of Dendreon, as Provenge is very expensive and costs need to be cut for the company to be viable for the future. In the future, Advaxis is protected by 77 issued and pending patents. For a Big Phama concern moving beyond its brush with the patent cliff, those are very compelling features.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.