About the author: Molly McGaughan He is Beyond’s Managing Director for North America.
For decades, investors have picked pharmaceutical stocks based on which companies are selling the biggest doses of drugs and vaccines, and savvy shareholders at those companies have tried to avoid the looming “patent cliff” when popular treatments lose exclusivity, generic versions become available, and prices fall. Barons “Big Pharma is essentially a series of lucrative exclusivity deals balanced with uncertainty about when their monopoly will end,” he noted earlier this year.
Investors will soon need to find an entirely new strategy: The system’s days as a dominant force in pharmaceutical stocks are numbered.
To understand why, let’s look at how drugs and other treatments are changing. Advanced therapies and personalized medicine are rapidly gaining popularity. Also known as precision medicine, this field allows healthcare professionals to prescribe specific treatments for each patient based on their unique genes and other factors.
Some of the most important advances in the field have to do with fighting specific cancers. Recently, at the annual meeting of the American Society of Clinical Oncology, leading cancer scientists held a number of sessions focused on personalized treatments.
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More than a third of new drugs approved by the Food and Drug Administration in each of the past four years have been personalized medicines, and growth is expected as the Biden administration invests in the sector.
Global competition is making the sector even more attractive to investors: the personalized medicine market is already valued at more than $500 billion worldwide and is projected to exceed $1 trillion by 2031.
However, when deciding where to invest, it would be a mistake to focus solely on the “patent cliff” model – i.e. which pharmaceutical companies are developing or announcing new promising personalized treatments – because patent law is less important in this field than it is for so-called panaceas.
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Many personalized therapies leverage different technologies available to different companies. As a result, when one company introduces a new personalized treatment, competitors may develop and offer treatments with similar effects. Concerns and questions about patent law and the potential for increased costs to patients and the healthcare system may lead to legal disputes in the coming years. For now, however, investors should not expect patents for these therapies to be a long-term profit driver.
Competition among pharmaceutical companies will be as fierce as ever, but what they’re competing for will be very different: service will be the new differentiator.
Although these new treatments show promise, getting them to patients in practice can be difficult.
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Because these treatments are often tailored to each patient, health care providers need genetic and other data about patients to determine who is eligible for the treatment, which means they need to invest in new technologies to collect that data and new systems to order and manage these medications.
Understanding how these new therapies work and how to administer them requires training and educational materials. As new personalized medicines are developed at a rapid pace, already busy doctors and nurses need easy-to-understand educational materials through video tutorials, written materials, site visits and face-to-face meetings.
This is just the beginning. Medical facilities will need to track and carefully schedule the administration of these treatments. Some treatments will need to be manufactured, then delivered and administered within a specified time. This creates a very complex world.
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Pharmaceutical companies must work together. The great companies will not only make great products, but will also differentiate themselves on the customer experience and services they provide. This is a fundamental and significant change for a company that has primarily manufactured products for decades.
The winning pharma stocks will be those that can deliver new and effective treatments and cures, as well as the best service and experience to healthcare professionals. These companies will win over customers and build long-term relationships. And in so doing, these pharmaceutical companies will be able to bring therapies to as many patients as possible and deliver on the promise of the era of personalized medicine.
Such guest commentaries are written by authors outside the editorial staff of Barron’s and MarketWatch. They reflect the views and opinions of the authors. Please send commentary suggestions or other feedback to ideas@barrons.com.
