An investor seeking to diversify their portfolio would do well to review the potential of looking for investment opportunities in the pharmaceutical landscape.
Despite its high-risk designation, which can put off the markets, long-term investing in pharmaceutical stocks and the possibility of patented entry into new areas of treatments create a compelling argument for investors to look into those companies.
Evolving diseases and our understanding of these drive forward our need for new medicaments. With researchers and medical officers working years to develop new candidates that, after multiple rounds of rigorous testing, could bring a significant impact into the battle against serious ailments like diabetes, Zika or Parkinson’s disease.
As with most life science stocks, pharmaceutical companies can still prove to be a high-risk investment. When it comes to investing in pharmaceutical stocks, investors should keep a close eye on the shifts on a company and the stage of their clinical trials. These often make or break opportunities for companies and their products, while successful results can lead to big gains in the market, trial failures or the lack to show any significant advancement to another drug already on the market can send a company down.
Here, the Investing News Network (INN) looks at regulation changes in the pharma sector and the biggest treatments available to better answer, “why consider investing in pharmaceutical stocks?”
Investing in pharmaceutical stocks: upcoming regulation changes
Scott Gottlieb, the US Food and Drug Administration (FDA) commissioner has put the agency on a path to bring change into the pharmaceutical world through emphasis on generic drugs and streamlining the approval process in the sector.
One of Gottlieb’s first moves came in the publication of a list of drugs in need of generic counterparts. This list was shared in the attempt to encourage drug makers to look into developing cheaper alternatives to the branded drugs dominating the market. US President Donald Trump has repeatedly said he wants to bring down the costs of drugs as a whole.
Research has also been strong in 2017, even with the turbulent first few months a presidency under Donald Trump. For example, Trump suggested and even requested to cut down medical research funding for the National Institutes of Health.
According to Statista, pharmaceutical revenues worldwide amounted to over one trillion dollars in 2015, with heavy boosting from the American industry and its large-scale production supply.
What’s more, a study released in May 2017 from the Antiretroviral Therapy Cohort Collaboration (ART-CC) found that patients with HIV could match their life expectancy to the one of those without the virus, thanks to a combination of three or more antiretroviral therapy (ART).
“ART-CC estimates that a 20-year-old patient who began treatment with ART between 2008 and 2010 could now live to age 78 – the same life expectancy for the general U.S. population,” the Pharmaceutical Research and Manufacturers of America (PhRMA) stated.
“We’re just getting better at what we do….We have better drugs… People are adhering better because they know these drugs really work,” Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases said about the study.
Biggest treatment areas in pharma
The 2015 report from Statista also reveals some of the biggest cash cows for the sector, with oncology pharma taking the lead on an indicated value in sales of $78.9 billion. The report also placed pain therapies and anti-diabetics as the other major money makers, with a $56 billion and $71 billion revenue margin respectively.
Companies want to be able to grab as much of that revenue as possible, with multiple drug candidates and many different attempts at entering a specific market or one that may have an unmet medical need in a niche area of a major disease or a rare one.
A report by the European Federation of Pharmaceutical Industries and Associations released a report on the pharmaceutical industry. In this report, it was revealed Europe accounted for 22.2 percent of all pharmaceutical sales of 2015, while the US took 48.7 percent of the margin.
It was also revealed emerging economies on this sector are growing in their market and research environments, such as Brazil, China, and India.
On a global scale, in 2016 the pharmaceutical market totaled roughly $1.1 trillion, with the US being the largest pharmaceutical market. According to data from Statista, the US accounted for $450 billion, followed by Europe which totaled $200 billion.
Japan, Canada and Australia followed behind, while emerging markets included China, Russia, Brazil and India. In fact, Statista reports that the latter four markets show the fastest increase in pharmaceutical sales.
This is an updated version of an article originally published in 2015.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.