Warning: Navigating Economic Uncertainty In Life Sciences
By Rob Wright
Recent conversations around the 2012 United States Presidential election discuss how during uncertain times, when faced with choosing between two alternatives, one being a known commodity and the other an unknown, most people opt for the known. Why? Because it is more secure and provides for less risk. Uncertainty results in a cautious approach. Political unrest in the Middle East, the European debt crisis, and a variety of other factors have created global economic uncertainty, and its impact on the life sciences is evident. For instance, in our October issue Cindy Dubin painted a very bleak picture, noting how life sciences venture funding dropped to its lowest level since the third quarter of 2002 (see “Life Science Venture Funding Drops”).
Traditionally, pharma stocks have been a safe haven for investors during an economic storm. Many analysts argue that this is no longer the case, citing pharma’s dependence on sales from developed countries, governments seeking to cut costs, generic incursion, death of the blockbuster, and so on. In my opinion, however, the time is right to be looking at life sciences companies for investment. Consider that, at this writing, the Dow Jones Industrial Average (DJIA) is within 650 points of its all-time closing high of 14,164.53 (10/09/2007), and we remain in a recession. Three of the 30 companies which make up the DJIA are pharmas — J&J, Merck, and Pfizer, while many others have either strong ties to life sciences, or life sciences business units. With regard to these three, the last to have a stock split was J&J in 2001.
Another reason I feel good about the financial state of life sciences companies is based on demographic insight provided by Ken Gronbach, author of The Age Curve. In the book he points out that the two largest-ever U.S. generations will be spending heavily on healthcare. Baby Boomers, born between 1945 and 1964, will be buying lots of pharmaceutical products, hip and knee replacements — anything to stay young. The second-largest generation, Generation Y (people born between 1985 and 2010), has entered peak childbearing age (20-35), which will continue for 20+ years. Children require lots of healthcare. Global healthcare demands will continue to rise as well. For example, China already has more than 123 million people over the age of 65.
They say optimism breeds success. This is why we recently added the feature, “Companies to Watch” (page 10). Each month, contributing editor Wayne Koberstein takes a look into some lesser known life sciences companies, providing insight into how they were funded, what partnerships they’ve established, and what drugs they have in development. Though we continue to navigate in economic uncertainty, wellmanaged life sciences companies are poised to capitalize on opportunity. Are you poised to capitalize on life sciences?