Health Care Sector Innovation: How Biopharma Scientists Save Lives Globally

In today’s world of disruptive innovations, biotechnology is entering the most transformative phase our health care analysts have seen in 25 years. Since mapping out the human genome in 2003, drugs using new treatment paradigms—like gene and cellular therapies—have jumped out of laboratories and into the marketplace to tackle humanity’s most vexing diseases.

In this excerpt from the latest “Franklin Templeton Thinks: Equity Markets,” we examine how technology is transforming health care, how research and development drive innovation, and how drug patent expirations impact companies.

The newest medicines can sound like science fiction; for patients, the results are quite real.

Consider children suffering from late-stage leukemia. In 2017, a newly approved treatment gave leukemia patients the ability to have their own immune cells reprogrammed to recognize and attack their cancer. For cancer patients and their families, this treatment is life-altering and priceless.

For biotechnology scientists, it’s the start of a new chapter in our understanding of human biological pathways and how we can disrupt diseases.

As investors, our focus for this discussion is large biopharma; most of the market capitalization in the health care sector resides here, and large players are better equipped to commercialize new medicines. Small firms often can’t pull this off by themselves.

Biopharma Revenues Have Built-in Expirations

If there’s one event our analysts agree impacts biopharma market valuations more than others, it is drug patent expirations. Expirations are part and parcel of the revenue lifecycle of every drug and form the backbone of our analyst cash flow models. Why? Without patent protection, cheaper generics swoop in and drive down drug prices.

Revenues can drop with hair-raising speed when a drug reaches the “patent cliff.” It’s for this reason that new medicines—drugs a decade from patent expiration that command premium prices—are top of mind for every biopharma CEO and for our health care analysts. Without a well-stocked pipeline of drugs constantly under development, a drug maker’s prospects can look rather grim.

To illustrate this point, let’s look at a new cancer drug: Vitrakvi (pronounced: vı-tr˘ak-vee). The first treatment of its kind, Vitrakvi targets tumors with a specific genetic mutation and is opening the door to a genetics-based approach to conquering cancer. With the precision of a heat-seeking missile, Vitrakvi has shown great success in clinal trials.