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Is the patent cliff going to ruin my life?


This is the question a lot of clinical research professionals keep asking themselves. The bad news is clear: the most valuable set of drug patents in history will expire in 2013, major pharma will lose 90% of that revenue, and there are no new blockbuster drugs to fill in the gap. Meanwhile, clinical research is getting more complex and more expensive, and to top it all off the Affordable Care Act is anticipated to result in a short-term reduction of the remaining revenue of drugs under patent of around 10%.

So how about some good news:

• We are at least half-way through the patent cliff already.

• The long-term stock price may not be irrational. Because we are waiting for the sky to fall, it can seem like major pharma stock prices have not accounted for the patent cliff. But what if stock prices did account for it, just over the 20 year patent life instead of all at once? Go to Yahoo and run an all-history of the top four pharma and you will see the possibility.

• Pharmaceutical stocks have a comparatively low price-to-earnings ratio, making them attractive compared to other sectors.  This attractiveness is especially relevant in the case of an economic downturn sparking a flight to value.

• The largest pharmaceutical companies have enormous cash reserves- on the same scale as the total patent cliff.

• Pharmaceutical development remains an attractive bet. The investment pool and the people associated with it who already took their loss on pharma may not be back, but there is an endless line of people right after them. If you could take a flier on being a multi-billionaire, would you? So would a lot of other people.

It isn’t possible to predict the future, but as we try to assess the health of the industry we do well to remember that the “plus” column is not empty.