Success in the biotech industry is measured incrementally, not in big steps. It’s a cash-and-time intensive industry where success is painstaking, rare and, because of Obamacare and other regulatory burdens from the administration, likely to become even rarer, as the Valeant, Allergan battle shows.
According to Plunkett Research, Ltd in 2010 it cost $1.2 billion to develop each and every biologic drug. That’s because while the government currently tracks 124,932 trials for new drug application in 179 foreign countries, only a tiny fraction of those drugs will ever see the marketplace.
In the United States, for example, there were only about 114 FDA approvals for new drugs last year.That’s a success rate of 0.091256. If that were a batting average for a baseball player, it would belong to a player who would never see the minor leagues, yet alone the Biggies.
"That means that enormous fortunes are going to be made in the sector," Jonathon Lach, CEO of BlueStar Capital Management, a biotech hedge fund headquartered in Westport, Connecticut told me in 2006. He pointed out, however, that the industry’s staggering failure rate makes some other long-odds stock market sectors look like safe bets in comparison. "Conversely, that means that enormous fortunes will also be lost in the sector."
But under the greatest capital markets in the history of the world, biotechnology has thrived. despite the long odds, because the enormous profit potential has attracted quite a bit of capital over the last 25 years.
That might be changing however.
In wake of the Allergan deal, some worry that it’s an indication that the pipeline of new drug discoveries is drying up.