Tuesday 6 June 2017

Biotechnology Stock Value: Uncertainty the New Normal or Just the Same Old Deal?

In a recent article in the Wall Street Journal, What's Behind the Biotech Sector's Rebound: Biotech ETFs are Getting Hearts Pumping Again, Gerrard Cowen discusses the swings in the value of biotechnology stocks.  Last year was a relatively poor year for biotech stocks—perhaps attributed to the election campaign rhetoric about reforming drug prices.  This year biotech stocks are looking up, and why?  The article discusses several reasons provided by experts: 1) Trump was elected and he’s likely to treat the sector more favorably than Clinton despite his rhetoric; 2) merger and acquisition activity is likely to increase in the coming year because of likely Trump tax changes; 3) Trump may streamline FDA regulations; and 4) biotech companies were undervalued last year.  The article also outlines risks to the sector which mostly revolve around problems with uncertain politics and difficulty in valuation. 

Interestingly, the article notes that despite difficulty with valuation one helpful baseline, so to speak, is “patent protection.”  I can understand why the author points to the exclusivity of patents—supposedly hugely important to the industry—as a “steadying” factor especially when compared to other industries where perhaps patent protection may not protect a market as well as in biopharmaceuticals.  However, patent protection in the U.S. has been anything but stable.  Indeed, as one example, patent eligible subject matter is a mess and efforts to “clean it up” are moving through the U.S. Congress championed by American Intellectual Property Law Association and the Intellectual Property Owners Association.  If those proposals are enacted, it will be interesting to see how the U.S. Supreme Court interprets those provisions.  And, what of the future of trade agreements?  The basic point is that patent law is ever evolving and despite that change the belief in its ability to protect a market continues—and thus draws capital for hopefully socially productive uses.  The belief may align well with reality for the biopharmaceutical industry.  For more on belief and patents, see Professor Mark Lemley’s article Faith-Based Intellectual Property

And, for more on politics and patents, what about the security of patents (and trade secrets)?  Will things change substantially in the coming years?  One article I find particularly interesting is Professor Richard Epstein’s The Constitutional Protection of Trade Secrets and Patents Under the Biologics and Price Competition Act of 2009 

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