Epoch 7: Decoding Signals That Move Big Pharma Stocks
Business Model Shifts, MegaBlockbuster Products, Growth Forecasts
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Hello Avatar! Welcome back for another week of biotech analysis. As a reminder, we refer to our Sunday newsletters as the Building Biotech Series and focus on strategy topics. This week we will be looking at how pharma stocks move. Given the size of their market caps, these companies are often less sensitive to individual data readouts and approval decisions as compared to smaller biotech companies. So how exactly do these stocks move? Today we are going to get into all of that. We will start with an analysis of the challenges of the business model, we then shift to current trend shifts in the business model before moving to analysis on what specifically moves these stocks. Finally we will wrap up on the go-forward implications of these trends and what the pharma model may evolve to in the near future.
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Enough shilling for the day, lots to cover this week, let's get started!
A SEISMIC SHIFT HAS BEEN UNDERWAY IN BIG PHARMA’S LANDSCAPE
If you have been following us it should be no surprise that we see the pharma business model at a crossroads. It appears that these companies have become too big as growth off a $30B+ topline appears challenging to consistently deliver via the blockbuster model. As a result we have seen just about every pharma deliver massive cost saving cuts across the board which include scaling back jobs and drug programs.
The next leg of the search for growth journey appears to be a shift in focus toward mega-blockbuster products. This is clear from the recent success of Lilly and Novo from GLP-1s. Merck is another recent example with Keytruda, and Pfizer with the COVID vaccine (unfortunately for them the life cycle of that mega blockbuster is extremely truncated). As you will see today, companies with mega-blockbuster products unsurprisingly also hold high topline growth projections with consensus from the street. This is driving their stock prices UP!
After we demonstrate how pharma focus has shifted to megablockbusters, and prove how growth is linked to this target product profile (TPP), we will shift the discussion to what comes next? There is likely another 10-20 years of CAGR from megablockbuster left to sustain the pharma model as we know it.
However, over the next 2 decades we are sure to see incredible breakthroughs from genetic medicine - potentially even curative. What is to come from these once highly valued platform companies if their revenues are not sufficient to move pharma toplines? Will they need to build their own commercial capability? We will cover this topic today as well.
Finally, this is not a new topic for us. If you missed our previous writings on the evolving pharma business model we encourage you to check them out:
CURRENT CHALLENGES TO THE PHARMA BUSINESS MODEL
Below is a figure from a recent study from Numerof & Associates outlines key challenges to the big pharma business model.
Numerof captures 9 challenges where pharma interfaces with different industry stakeholders. All of these contribute to complexity in delivering innovation, and ultimately CAGR.
The topics below are more commercially focused, an area we often do not touch on at BowtiedBiotech. However, if one truly wants to understand the challenges in delivering CAGR one must understand the commercial model. Despite the belief of the scientific community, innovative medicines do not sell themselves. Competition and government regulation is incredibly challenging to navigate. We summarize these issues below in bullet format:
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