Corante’s “Big Pharma’s Lost Stock Market Decade”

Take a look at the posting and discussions on Derek Lowe’s excellent blog:  

Industry underperformed others

  Another version of his chart is here, showing the last two years .vs. Lowe’s decade view.  It reveals the same result: the industry has underperformed the S&P 500.   Three firms have increased about half as much:  Merck, Pfizer and Bristol-Myers.   Is this pipeline-driven?  Stock price reflects many other factors beyond R&D performance.  The stock market is a forward-looking entity, which gives benefits to “more transparent” industries whose R&D returns follow closely on the heels of investments (like Apple.) 

Rewards of Process Improvements

Less transparency in Life Science firms translates to higher perceived risk and lower P/E’s.  So stock prices may not reflect improvements in risk, process or operational performance (“OP”).   Firms are also subject to external influences (increasingly conservative FDA, healthcare policy, …)  But if R&D drives success in this industry, have any recent R&D improvements had an impact?  How can we tell?     

Previous analyses suggest BioPharma firms can improve their performance by focusing on process and operations.  One example is this graphic derived from a Tufts Center for the Study of Drug Development analysis.  Here, firms showing better “OP”  also outperform  the industry average with greater commercial effectiveness (“rewards”).*   Many up to that time would call this a coincidence.  While not proving causality, the correlation is too high to ignore.   I am working to recreate this model for succeeding time periods to answer questions raised in the prev. paragraph.  I will post that here, if viewers ask for it.    

What might we hope to see?  Five years ago, halfway into this “lost decade”, Pharma’s began to recognize and (really) act upon their lack of performance.  They made diverse (and for some, very large) investments into new technology, shifts to biotech, OP initiatives… – all targeted to improve returns on R&D efforts.   Such changes are dramatic, but since BioPharma R&D has a long product cycle,  results of those investments have yet to become obvious (in terms of approved new drugs.)  Hoped-for improvements may begin to appear this year for some firms, after several years of work.   Firms seldom publish shorter term metrics like number of new candidates per unit of work or staff or approved products per such measures.  But other measures might reveal in some ways how operations have created their promised value.   Improved attrition, marketplace information, and decision processes may take even longer to prove out by better rewards from the marketplace.  How are you measuring short-term progress on improvement initiatives?    

*(Dimasi, Drug Information Journal 34(4):1169-94.)

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