Drug giants’ recent attempts to buy big biotech firms have provoked a backlash

Interesting read!

A point also worth raising is that share-holders are only happiest when the industry is seen to be doing things. In this case buying biotechs. It makes them look like they are being innovative. The fact is many, in fact, most biotechs fail to deliver to expectation. The argument that mergers provided economies of scale which were meant to deliver more r@d innvoation have simply not mateirlaised and gobbling up biotechs is going to make the situation worse. Keep them small and let them get on with their distinctive creative cababilities. These somehow get lost in the large pharma institutions.

The biotech companies are unlikely to deliver the goods. I feel that less than half the acquisitions are justified, and that is purely big pharma's fault. Half their decisions are made within a complex bureaucratic and political culture; and this permeates every layer of management.

They cannot sit around doing nothing, so they convince themselves that a strategic blunder is actually a strategic goal! I think there's even a euphemism for this human trait...

I hope they don’t stop. I want to see the biotechs flourish. So as long as the money keeps coming, and the innovation culture isn't destroyed, bring it on!

@VisionScout - I agree, but I don't share your optimism about purchased biotechs being able to maintain their innovation culture under the umbrella of their bureaucratic new masters.I feel for investors in large pharma. They are frequently left with depressed shares after their companies lay out huge premiums for biotech firms - the same firms that these investors could have invested in themselves if they wanted exposure to the risks & benefits that these companies add to their portfolios. These acquisitions are too frequently pursued to keep the acquirer flush with new products, and not in the best interest of shareholders.

Having worked as a scientist in this industry, I can fully sympathise with opponents to pharma/biotech mergers who fear scientific restraints. This was partly the reason for my decision to leave an increasingly management dominated industry. I think a severe (but not impossible) consequence of rising M&A in this sector will be a dampening of scientific innovation which the pharmaceuticals are so desperately trying to nurture. Eventually, this will culminate in a series of disposals, as the combined entities attempt to reinvigorate the pipeline they have successfully managed to obstruct. By then the damage may be too great.

I think the article is a little off mark when it comments on Big Pharma - Biotech deals as a brand new phenomenon. The Merck-Serono deal ($ 12Bn ) which happened almost two years back was a Big Pharma - biotech tie upAlso, while it is true that Pharma majors lose billions of dollars upon patent expiry of blockbusters drugs, they do not lose it to Generics manufacturers . The market size for such drugs shrink to a fraction of the original size upon expiry (due to significant drop in prices), the natural corollary of the controlled high price during the period of a patent's validity

@SSRam

You wrote:
"...The market size for such drugs shrink.... due to significant drop in prices."

Could you clarify what you mean by this?
Why would the market shrink?
There is no "market for drugs", no "price / demand" curve. Doctors do not give a rip about what a drug costs. They purchase (prescribe) drugs with no consideration of cost. The doctor buys and the patient pays.

Further, pharma does not drop prices to compete with generics. One drug I am familiar with costs ($700/month) while the generic costs ($80/month).

In the USA, mentioning “market” and “pharma” in the same sentence is an oxymoron. This is part of why US healthcare is so messed-up.

I'm not questioning your opinion, I just need to learn more about this. thanks.

@Dave WWhen a drug goes off patent, approved generic version of the drug enter the market. In volume terms, sales shift significantly towards the generic version (due to lower prices). This results in the market size shrinking.Let us consider the case of the drug that you mention. Let us say 1 million people buy this drug every month. As long as the patent is valid, there is just one version of the drug sold at $ 700 /month. This gives us a market size of $ 700 Mn / month. Upon patent expiry, generics enter the market with an average price of say $ 150 / month but the innovator hold the price at $ 700/month. If we assume that 2/3rds of the patients shift to generic versions of the drug, the new market size is $ 333 Mn / month (2/3rd of $ 150 Mn 1/3rd of $ 700 Mn). Usually the drop in prices is more severe and market sizes of big drugs drop by more than 80%.I am not well versed with the way drug purchases work in the US, but my understanding was that doctors only prescribe the molecule and the patient decides whether to buy an expensive drug (from the innovator) or a generic version of the molecule (provided it is available). Is that not correct?

@SSRamy
Thank you. I understand your observation now.
My prejudices against healthcare made me miss your valid point. Given the smallest chance, I will irrationally lash-out and share my opinion.

/> ... my understanding was that doctors only prescribe the
/> molecule and the patient decides whether to buy an expensive
/> drug (from the innovator) or a generic version of the
/> molecule (provided it is available). Is that not correct.

fyi: This is 99.99% correct. Some doctors do not allow the substitution of the generic. The only reason could be quality control? kick-backs? No idea.

Another GOOD, Insightfull Article from the Economist.

Big-Pharma (Drug Giants), are one of the MAJOR Causes of the Annual Astronomical Rise in the COST of Healthcare.

A Modern Day Monopoly, that FEEDS off the Misery of the Sick & Elderly.

Peace, Love & Respect.