About the author: Molly McGaughan is managing director for North America at Beyond.
For decades, investors have chosen pharma stocks based largely on which companies have drugs and vaccines being sold to large numbers of people. Savvy shareholders in these companies have worked to avoid looming “patent cliffs”—the moments when exclusivity on popular therapies runs out, generics become available, and prices go down. As Barron’s noted earlier this year, “Big Pharma is essentially a series of lucrative exclusives balanced by angst over when those monopolies run out.”
Investors will soon need to find a whole new strategy. The era of this system as the dominant force in pharma stocks is closing.
To understand why, look at how drugs and other therapies are changing. Advanced therapies and personalized medicines are quickly coming to the forefront. Also known as precision medicine, this field allows healthcare providers to order specific therapies for each patient based on their unique genetics and other factors.
Some of the most important developments in the field involve the battle against certain cancers. In recent days, at the American Society of Clinical Oncology annual meeting, leading cancer scientists held numerous sessions focused on personalized treatments.
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Each year for the past four years, more than one-third of the new drugs approved by the Food and Drug Administration have been personalized medicines. Further growth is expected. The Biden administration has also been investing in the sector.
There’s global competition underway, which makes the field even more enticing to investors. Already valued at more than half a trillion dollars worldwide, the personalized medicine market is predicted to exceed $1 trillion by 2031.
But in deciding where to invest, it would be a mistake to use a “patent cliff” model—that is, to keep an eye only on which pharma company is developing or coming out with new, promising personalized therapies. That’s because patent laws aren’t nearly as consequential for this field as they are for so-called one-size-fits-all medicines.
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Many personalized therapies leverage a range of technologies accessible to various companies. As a result, once one company introduces a new personalized therapy, competitors can develop and offer treatments with similar efficacy. Concerns and questions over patent laws and the potential for rising costs to patients and the healthcare system could lead to legal disputes in the years ahead. But for now, investors cannot count on patents for these therapies as long-term drivers of profits.
Competition among pharma companies will be as fierce as ever. But what they’re competing over will be very different. Service will be the new differentiator.
As promising as these new treatments are, actually getting them to patients will be a challenge.
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Because these therapies are often uniquely tailored to each patient, healthcare providers need genetic information and other data about a patient to determine who is eligible. That means providers need to invest in new technologies to gather that data, and new systems to order and manage these medicines.
They need training and educational materials to understand how these new treatments work and how to administer them. Since new personalized medicines are being developed rapidly, already overworked doctors and nurses need easily understandable materials to provide this education—through video tutorials, written materials, site visits, in-person meetings and more.
That’s only the beginning. Medical facilities need to track and carefully schedule the administration of these therapies—some of which have to be delivered and administered within a specified time after production. This opens up a world of complexity.
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Pharmaceutical companies will have to help. The companies that excel will be those that not only create good products but that differentiate themselves in the customer experiences and the services they’re providing. It’s a profound, fundamental change for companies that were, for decades, predominantly product manufacturers.
The winning pharma stocks will be the companies that can provide the best service and experience to healthcare providers, in addition to new effective therapies and treatments. They’ll win over these customers and build long-term relationships. And in doing so, these same pharma companies will be the ones to get their therapies to as many patients as possible, delivering on the promise of the personalized medicine era.
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