Biotech Values

[DewDiligence]

Why have Big Pharma outperformed the market recently? Well, for one thing, investors and analysts are slowly but surely figuring out that the future of the pharma industry is growth in emerging markets consequent to The Global Demographic Tailwind (#board-15427).

There may never be another drug that sells as much as Lipitor did at its peak, but that’s nothing to worry about unduly. Demand for high-quality branded generics made by trustworthy multinational companies will grow strongly for decades to come thanks to the burgeoning middle classes in countries where prescription medicines used to be affordable for only the rich.

The valuations of most Big Pharma companies have been dirt cheap because investors and analysts were focused almost entirely on the companies’ patent cliffs and clinical failures in developed markets, while factoring in almost nothing for the surefire long-term growth described in the above paragraphs. The valuations of most Big Pharma are still too cheap, IMO, but they are becoming less so as the business model becomes better understood.