Financing the Future of Pharma - Pharmaceutical Executive


Financing the Future of Pharma
In pursuit of innovation, Pharma is increasingly practicing—and attempting to perfect—the science of doing deals. Pharm Exec asked a blue-chip panel of insiders to evaluate how well the experiment is working.

Pharmaceutical Executive

FRANK: There is no such thing as short-term and long-term. It's only shorter and shortest. I always say to CEOs, If I ran a major pharma company, I wouldn't report quarterly. With 10 to 12 years for product development, quarterly reporting is irrelevant. Now, biotechs can't do that because they need Wall Street. But the last time a Big Pharma did an equity offer was in 1975. So why do they pander? Because it's tied into the likely retirement status of the CEO.

TODD DAVIS (managing director, Cowen Healthcare Royalty Partners): But the massive majority of companies—maybe not in terms of market cap, but in terms of number—do need capital. It is very difficult for a company with a 10-year drug development cycle to raise money from a fund with a one-year lockup. But the private equity structures that are out there now actually match up much better with the development lifecycle of companies' products.

LES FUNTLEYDER (healthcare strategist, Miller Tabak): Hedge funds have also been growing in popularity, at least until recently. When you have to put up monthly returns, thinking of 10-year valuations approaches irrelevant. It's almost over-thinking.

From a short-term perspective, pharma has an ongoing news flow, and tend to be very liquid stocks. That is why you see sometimes volatile moves in even the bigger stocks. It didn't used to be that way for Big Pharma, which tended to drift around in price. That's a statement of where capital is now.

Barbara Ryan, Deutsche Bank
BARBARA RYAN (managing director, Deutsche Bank): In 1994, an investor may have thought, "Merck is a low-rate stock. It's not going to go bankrupt. They pay good dividends. What could go wrong?" And all of a sudden, Merck pulls Vioxx off the market, and the stock is cut by a third. The market says, "Wait a minute, if I want that, I can own a biotech stock." And by the way, if the biotech product works, it's a three-bagger, it's a five-bagger.

There's no shot for Merck to increase like that. It has investors questioning how impactful pharma's pipeline can be. Can a more robust pipeline make up for Lipitor's shortfall? I mean, Pfizer's exposure in terms of patent expiration as a percentage of revenue isn't really different than any of its peers.


CLINTON: High prices have been one way that industry makes drugs for smaller patient populations profitable. Do you think this will continue?

FUNTLEYDER: Price trends are unsustainable. Fundamentally, payers will not continue to pay for biologics or specialty compounds at the current prices unless there can be some way to demonstrate value. And in some cases, we may find that the industry may be undercharging.

FARINO: The industry has to start focusing on how it can contribute to driving down that global cost of healthcare. With the creation of innovative medicines, the industry can begin to shift the debate from price. It has to recognize that it is a key part of the healthcare-cost solution.

GRIMALDI: I don't think either biotech or pharma has formulated a coherent and consistent way to justify prices. If the industry doesn't take a proactive stance on why a certain pricing is justified, then others will do that for it.


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