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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

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« Come Back Thiophene; All Is Forgiven | Main | Science Fiction Gets the Upper Hand »

July 20, 2012

Does Anyone Want to Invest in Pharma?

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Posted by Derek

Does anyone want to put money into the pharma/biotech industry? Let's widen that question: does anyone want to put money into R&D-driven industries in general? That question, which on first glance seems ludicrous, becomes more worryingly believable the longer you think about it. Consider this exchange between Eric Schmidt of Google and Peter Thiel. Thiel makes a pretty provocative statement about what Google is doing with its money:

PETER THIEL: …Google is a great company. It has 30,000 people, or 20,000, whatever the number is. They have pretty safe jobs. On the other hand, Google also has 30, 40, 50 billion in cash. It has no idea how to invest that money in technology effectively. So, it prefers getting zero percent interest from Mr. Bernanke, effectively the cash sort of gets burned away over time through inflation, because there are no ideas that Google has how to spend money.

That apparently didn't get answered to the moderator's satisfaction, so it came up again:

ADAM LASHINSKY: You have $50 billion at Google, why don’t you spend it on doing more in tech, or are you out of ideas? And I think Google does more than most companies. You’re trying to do things with self-driving cars and supposedly with asteroid mining, although maybe that’s just part of the propaganda ministry. And you’re doing more than Microsoft, or Apple, or a lot of these other companies. Amazon is the only one, in my mind, of the big tech companies that’s actually reinvesting all its money, that has enough of a vision of the future that they’re actually able to reinvest all their profits.

ERIC SCHMIDT: They make less profit than Google does.

PETER THIEL: But, if we’re living in an accelerating technological world, and you have zero percent interest rates in the background, you should be able to invest all of your money in things that will return it many times over, and the fact that you’re out of ideas, maybe it’s a political problem, the government has outlawed things. But, it still is a problem.

ADAM LASHINSKY: I’m going to go to the audience very soon, but I want you to have the opportunity to address your quality of investments, Eric.

ERIC SCHMIDT: I think I’ll just let his statement stand.

ADAM LASHINSKY: You don’t want to address the cash horde that your company does not have the creativity to spend, to invest?

ERIC SCHMIDT: What you discover in running these companies is that there are limits that are not cash. There are limits of recruiting, limits of real estate, regulatory limits as Peter points out. There are many, many such limits. And anything that we can do to reduce those limits is a good idea.

PETER THIEL: But, then the intellectually honest thing to do would be to say that Google is no longer a technology company, that it’s basically ‑‑ it’s a search engine. The search technology was developed a decade ago. It’s a bet that there will be no one else who will come up with a better search technology. So, you invest in Google, because you’re betting against technological innovation in search. And it’s like a bank that generates enormous cash flows every year, but you can’t issue a dividend, because the day you take that $30 billion and send it back to people you’re admitting that you’re no longer a technology company. That’s why Microsoft can’t return its money. That’s why all these companies are building up hordes of cash, because they don’t know what to do with it, but they don’t want to admit they’re no longer tech companies. . .

I agree with Alex Tabarrok; this sort of thing is disturbing food for thought. As his point about the reveal preferences of technology leaders, some possible bright exceptions are people like Elon Musk, who seems quite serious about his space program (and good for him). And I very much hope that Google's Schmidt and others are serious about thing like their asteroid-mining venture, and that it's not just the "propanganda ministry".

Closer to home, I got to thinking that if there were any sort of robust returns to be earned in biotech or pharma, that Google, Microsoft et al. would have probably taken a spare billion or so and funded some ventures in these areas. But they haven't. Keep in mind, these folks have money well in excess of what they seem to need to continue investing in their own business. They're presumably looking for something to do with it all, and the point about not being able to return it to the shareholders is a valid one, because (rightly or not) that's seen as an admission that they don't have any particularly good new ideas. (Of course, the fact that they're letting the cash pile up might also be interpreted that way, but issuing a dividend really nails it down).

There are many similarities between this situation and the discussion/argument we had around here about pharma companies buying back their own stock. The likes of Apple can plausibly claim that hey, their business is going so well that they really don't have to spend all those revenues on running it; their current spend is plenty to keep the good times rolling. But what drug company can say that? Everyone in this business is on a frantic treadmill, thanks to patent expirations above all. You'd think that taking money that could be spent on R&D (yours or someone else's) and using it to prop up the share price would be an unaffordable luxury. I know, I know - a public company has obligations to its shareholders. But in this business, perhaps one of those obligations is to explain to your current (and potential) shareholders just what sort of business this is, and what it requires. In a better world, you might end up with a better-informed and more realistic group of people holding your stock.

Unless - and I can't rule this out - the belief is that a completely honest look at the way things are in this business would scare off too many people from investing in it at all. It seems to have scared off Big Tech, with their massive piles of fallow cash. It's not like they have to become experts to invest over here; expertise can be hired. What if they went to some of the existing investment groups over here and asked them what they would be able to do with a billion dollars? Are there even a billion dollars worth of ideas out there right now?

Comments (48) + TrackBacks (0) | Category: Business and Markets


COMMENTS

1. weirdo on July 20, 2012 9:52 AM writes...

Peter Thiel seems somehow concerned that a business is so good and profitable that there are not enough good ideas to spend all the ready cash?

Sounds like a wonderful business to me.

Whether Google shells out a dividend or invests in biotech, the result could be interpreted the same way: they are really becoming an investment fund, albeit funded by ads rather than VC. And they are not ready to do that.

They will have to, eventually.

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2. Hap on July 20, 2012 9:54 AM writes...

If we (as the US) have no new ideas, then what exactly good are we? Outsourcing has been justified by saying that we need to ship expensive work that doesn't create value elsewhere (and now that we need to ship out expensive work that does create value). If we are no longer able to create value at all (or if it no longer pays, either for the thinkers, the doers, or the capital), then at best we're Paris Hilton (or any other wealthy inheritor) spending our grandparents' money and spawning, and at worst we've written our own suicide note and are just waiting for the voices in our subconscious to tell us when to do it.

Two generations from "The Greatest Generation" to this. I can't think that my grandparents would have been in this situation, but I can't think we've gotten dumb and lazy in sixty years, either.

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3. Janne on July 20, 2012 10:09 AM writes...

One point Eric Schmidt did not bring up (and perhaps for good reason) is that a cash hoard is a weapon. Defensive or offensive, but it is a potent weapon against other companies in your field. It is weight to throw around, a ready asset to buy up or buy out disruptive new competitors, and a buffer against takeover bids or other attempts to disrupt your business in turn.

I suspect at least part of the reason tech companies in particular like to hoard their money is that the heads are all of a similar age. They saw what happened to heavily leveraged businesses in the 1980's; companies with perfectly viable ongoing business operations but with insufficient ready funds that were gutted and sold for scrap by corporate raiders.

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4. Student on July 20, 2012 10:23 AM writes...

You have TONS of young (read: creative) PhDs wanting to do what they love but can't find jobs to support themselves. If anyone was in a position to a create a modern day Bell Labs, it would be Google. However, Google itself is a relatively young company, so health isn't on the mind of it's founders or staff.

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5. Lynn Hanessian on July 20, 2012 10:24 AM writes...

Big Tech put a toe in the health world a number of years ago to no avail. More recently, the HIT sector overall is beginning to thrive. I think that is because those in the life science industry are seeing opportunities for a range of digital transformations or, frankly, need to increase efficiency and lower cost (such as clinical trial operations) to remain competitive. But, you need to know the sector to do it well.

To the larger point of investing in pharma, compared to other sectors, the ROI is just lower and the future uncertainty still high. As was said during a BIO2012 panel, proof of relevance has replaced proof of concept. The bar for market success is much higher and innovation is not successful unless it is "affordable." Along the way, we have to ensure all stakeholders understand "value," something that is very much subject to the eye of the beholder.

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6. Mayur on July 20, 2012 10:32 AM writes...

Google though not directly but indirectly has invested the money in pharma R&D. Sergey Bin one of the Google founders has invested $ 3.9 million in the gene mapping biotech company23and Me. In addition to that Sergey Bin has also given $1 million for a project which which aim to map the DNA of 800 Alzheimer's patients to find the root cause of the disease. Though the amount may sound meager but Mr Bin has put his hands in searching the root cause for a disease where traditional pharma has no luck so far.

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7. gwern on July 20, 2012 10:34 AM writes...

> Peter Thiel seems somehow concerned that a business is so good and profitable that there are not enough good ideas to spend all the ready cash? Sounds like a wonderful business to me.

Sounds like someone missing the point.

> One point Eric Schmidt did not bring up (and perhaps for good reason) is that a cash hoard is a weapon. Defensive or offensive, but it is a potent weapon against other companies in your field.

An economist would weep. Money is fungible; if they can raise money at low interest rates (eg. bonds), that's as good as having cash in the bank. Better, actually, since you don't need to raise the money unless you actually intend to use it, and you can spend the cash on investments with a higher return than 0% Treasuries. Probably save money on taxes. And of course, if Microsoft or Apple or Google ever floated bonds, the markets would snap them up *instantly* as they have sterling credit ratings and great future revenue prospects, and debt markets have been largely denied access to tech giants in the past; we saw this recently with Samsung's bonds.

Which is, of course, Thiel's point: Google and Apple's revealed beliefs are that there are no better investments.

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8. David Formerly Known as a Chemist on July 20, 2012 11:15 AM writes...

Derek, it really wouldn't be proper for companies such as Google or Microsoft to invest in a biotech or pharma company, even it such companies represented incredibly attractive investments. Google's and Microsoft's cash belongs to the shareholders, and those shareholders invested in Google's or Microsoft's businesses, not a pharma business. If the shareholders wanted to invest in a pharma or biotech, they could do it themselves. Google or Microsoft (or any other company) that has nothing core to their business to invest in, or new ideas that could develop new markets for themselves, should return the cash to their shareholders in the form of a dividend or stock buyback. These companies aren't investment firms and shouldn't be playing portfolio manager with shareholder's money. I don't think the lack of tech investment in the pharma industry says anything about the pharma industry.

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9. NJBiologist on July 20, 2012 12:04 PM writes...

@11--I absolutely agree. If I owned shares in an internet/computer hardware/software company and saw them opening a venture fund in pharma/biotech, I'd be pretty upset. And I'd probably invoke Andy Grove and Raymond Kurzweil as justifications for my belief that such a move could turn out very, very badly.

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10. Anonymous on July 20, 2012 12:49 PM writes...

When people talk about the shortage of scientists, what they are really talking about is the shortage of scientific investment. The hope is that by creating more scientists, more investment will come. But this isn't Bull Durahm, this is reality. It is difficult to see a path forward here, and I suspect it will get a lot worse.

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11. PharmaHeretic on July 20, 2012 1:18 PM writes...

An interesting fact about the Colorado shooter. I wonder if this has any connection with his rampage?

http://www.huffingtonpost.com/2012/07/20/james-holmes-aurora-shooting-medical-student_n_1689794.html

"Holmes was studying neuroscience in a Ph.D. program at the University of Colorado-Denver, university spokeswoman Jacque Montgomery said. Holmes enrolled a year ago and was in the process of withdrawing at the time of the shootings, Montgomery said."

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12. UpNorth on July 20, 2012 1:25 PM writes...

Man, we don't need more STEM people. We need more STEM jobs... This would reduce the unemployed numbers and (if there's a lot of new jobs) it would make STEM majors "commercially interesting" which will attract more students.

Those interested in the field will always be there, just like there seem to be a number of Old English grad students, etc.

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13. Validated Target on July 20, 2012 1:25 PM writes...

The website of Commenter #5 says, "Every brand tells a story. And scientifically-based brands and industries are no exception. These brands need structured stories too. At DJE Science, we structure these science stories around brands to shape communication strategy. This is known as science engagement. Science engagement informs the creation of communication strategies shaped to fit our clients’ business model, philosophy, market drivers and portfolio."

Many researchers (employed and unemployed, alike) posting to Pipeline have told THEIR stories of their biotech and pharma experiences: TOO MUCH STORY and NOT ENOUGH SCIENCE.

Maybe that's why it's tough to find biotech / pharma investors. They're sick of the stories and the hype.

(Maybe fighting that has made me a Validated Target.)

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14. noname on July 20, 2012 1:25 PM writes...

@13: I think you mean Field of Dreams. Easy to get those Kevin Costner movies all mixed up.

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15. DN on July 20, 2012 1:27 PM writes...

Andy Grove tried to help and was laughed off the stage. Pharmaceutical chemists are simply not ready to join the automation revolution. A chemist spends the day scraping tar out of his rotavap and thinks he has done a good job, while the tech head weeps that the chemist did not send instructions to 1,000 synthesis robots and let them run overnight.

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16. DN on July 20, 2012 1:28 PM writes...

Andy Grove tried to help and was laughed off the stage. Pharmaceutical chemists are simply not ready to join the automation revolution. A chemist spends the day scraping tar out of his rotavap and thinks he has done a good job, while the tech head weeps that the chemist did not send instructions to 1,000 synthesis robots and let them run overnight.

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17. drug_hunter on July 20, 2012 1:34 PM writes...

Analogous to Brin's personal investment in 23 and me, Bill Gates has started to make some personal investments in healthcare, e.g.

www.boston.com/business/technology/innoeco/2011/03/atlas_venture_bill_gates_co-in.html

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18. Validated Target on July 20, 2012 1:37 PM writes...

Google, Microsoft, Apple and other software and internet companies know how to get a product out the door and worry about whether it works or not AFTER the fact. If Amazon sells a defective toaster, you get your money back. I don't think these companies have the mindset or the toolset to handle the rigors of drug discovery, even as an investment. I do think that those idle billions could do a lot of good if put to proper use. Your definition of "proper" might not agree with mine. :-)

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19. anon2 on July 20, 2012 1:41 PM writes...

As compelling as it might seem on the surface, the question and concept is, in many ways, simply naive and silly. #11's response is certainly one legitimate perspective in response.

Another way to look a this is the relative cost, time and approval for starting-up with a legitimate, new idea through to its public launch in the worlds of Google and Microsoft compared to the pharma footprints of J&J, Merck, BMS, GSK, etc. Software, web based, social networking concepts can begin with a few programmers (even part time, if needed), some computers and servers, bandwitdth, without need for regulatory review and approval, and can be turned around in a few months. Not quite like that for starting up through to just "proof of concept" in man, which could cost upwards of tens of millions of dollars, take years to get to this key milestone, and requiring regulatory reveiws and approvals to acheive. In other words, the risk/reward ratios between the two universes simply don't compare, and is not favorable for pharma and biotech.

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20. watcher on July 20, 2012 1:50 PM writes...

Hey, while the focus may not be in all the traditional pharma R&D areas intended by the question, it's not possible to forget the levels of funding and commitment that Bill and Melinda Gates have been putting into focussed areas of real, identified needs such as treatment and prevention of malaria in developing countries. From this, millions of dollars in "Microsoft money" (and including Berkshire Hathoway money) is flowing into pharma and biotech, big time.

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21. Doug Steinman on July 20, 2012 1:57 PM writes...

One could, perhaps, develop a valid argument for Google investing in a Google Research Institute. The research areas to be studied could focus on information technology which could include areas useful to pharmaceutical R&D such as better search engines targeted to drug development and design. This "Bell Labs" of information technology would seem to be a reasonable investment for Google although it wouldn't do much in terms of providing jobs in pharmaceutical R&D. Those jobs need to come from someone with the resources and the stones to invest heavily in something in which they firmly believe and I don't think that person is living among us at this time. Manufacturing jobs in the U.S. are currently increasing and maybe research jobs in the pharmaceutical industry will, at some point, increase as well. If I live long enough to see that happen I will celebrate it appropriately. I fear, though, that things will get much worse before they begin to get better.

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22. Electrochemist on July 20, 2012 2:00 PM writes...

@ #21 - True, but the money from the Gates Foundation is Bill's own, not that of Microsoft share holders. The point #8 (was #11) made is spot on - Google cannot (ethically) use their excess revenue to invest like VC outside of their tech domain.

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23. Anonymous on July 20, 2012 2:25 PM writes...

What about Google Ventures (http://www.googleventures.com/companies)? They have invested in Adimab, 23andMe, iPierian, Foundation Medicine, and DNAnexus etc., all early-stage exciting biotechs.

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24. Hap on July 20, 2012 3:50 PM writes...

It's not really Google's job to invest in pharma - that's pharma's job, isn't it? Since they don't see any point to it, I don't know why Google or MS would expect to see one, either. It's better to give that back to their investors and let them invest it.

Computer companies do invest some in their own R+D, but it's still sort of disturbing that there aren't enough good investments in their own technology or in related fields that make more sense than keeping bags of money. At least in pharma, I thought bags of money for a company were like Rolex watches on pedestrians in bad neighborhoods - signs that someone is ready to be relieved of their spare cash by someone else, since the cash pile makes a nice cushion for hostile investors to pillage after they're done. That would seem to mitigate some of the mass advantages of having lots of money handy.

There were lots of good reasons why Andy Grove was laughed off the stage - many of them were posted right here.

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25. Gerry Atrickseeker on July 20, 2012 4:04 PM writes...

Since our ultra-free market economic system seems to be failing to invest in innovation maybe we need a new (old) approach. It has been much discussed that the countries that are practicing some sort of centrally organized industrial policy (China, Singapore etc)are beating the pants off the USA in terms of infrastructure and technology development. Maybe we could actually learn something from them, but I guess that would be un-american!

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26. BOB on July 20, 2012 4:13 PM writes...

Maybe GOOG should set up its own hedge fund using the cash it is hoarding. If you guys are so smart, why can't you do better than a 2% return on bonds?

I read in their annual statement that they can expect a 1B loss for every 1% rise in interest rates. I realize interest rates going up may be a bit far fetched, but come on there must be some place better to put that kind of money.

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27. hn on July 20, 2012 4:33 PM writes...

Personally, as a scientist, I never buy stocks in biotech (too risky) or pharma (poor returns). If I won't do it, why should I expect anyone else?

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28. Gordon on July 20, 2012 5:01 PM writes...

It is indeed astounding that Google or Facebook have not done anything in the area of biotech. After all, these are the companies that have expertise in data mining, pattern recognition, parallel algorithms, techniques that one needs to make sense of genomic data.

At my university a fellow who is interested in parallel algorithms sequentially approached the guys in the biology department, because only biologists can generate the amount of data that he needs.

What's up?

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29. Rick Wobbe on July 20, 2012 9:17 PM writes...

Anyone else find it ironic that these guys are saying the same things Xerox said in the 1970s? Wow. Just Wow.

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30. RB Woodweird on July 20, 2012 10:46 PM writes...

Google won't come out and say it, but that big wad of cash is their war chest for the coming battle between content providers and content deliverers. AT&T and Comcast are betting that they can buy the political assassination of net neutrality so they can put the squeeze on companies like Netflix and Google by setting up tollgates on the pipes that go to the consumer. Google is stashing away cash to buy political clout and build some infrastructure if necessary. The nuclear option is for Google to build out enough network to enough of the population to be able to cut off some of the big cable companies revenues. Imagine that Googlenet moves into a metropolitan area where Comcast, say, has a virtual monopoly and starts to offer service priced just to break even, just as a conduit to ensure that Google is available.

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31. Anonymous on July 20, 2012 10:56 PM writes...

Those arguing that Gogle or MSFT cannot reasonably invest in BioPharma or Healthcare (BP/HC) have blinders on. The goal of a business is to leverage its assets towards growth, returns and long-term viability. Much of what is needed in BP/HC is better understanding of the information in living systems and their frailties. To create things our world would spend (plenty of) money for, such as longer healthier lives.

If you lower healthcare costs through efficiency or innovation, or you extend productive leves of citizens, those returns on investment would be better than 90% of other "tech" companies than the big 2-3 that have the cash and core (information-into-solutions) skills.

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32. gippgig on July 21, 2012 1:51 AM writes...

I think the investment opportunity is in industrial biotech, which seems to be largely ignored.
There was a major article in the July 20 Washington Post on anemia drugs (www.washingtonpost.com/business/economy/anemia-drug-made-billions-but-at-what-cost/2012/07/19/gJQAX5yqwW_story.html).

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33. Matt D on July 21, 2012 10:43 AM writes...

Although I get Thiel's point, he is focusing on short-term profits and minimizing the temporal dimension. If/when Google hits on The Next Big Thing, they have $30 billion to invest, right now.

Essentially they've placed their bets, and when one pays off it gets the big pot of gold. That may not be the real reason they're sitting on piles of cash, but it's a plausible one.

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34. Philip on July 21, 2012 1:41 PM writes...

I agree with the other posters that state that Google should invest in its own development, and not become a venture capital firm.

Health Care Information Technology (HCIT) is a fast growing business. Those who work with Electronic Health Records (EHR) systems know that all of them are expensive, time consuming and in the end just plain suck. If I were Google this is where I would be putting my in house research/investment dollars.

Also remember that Apple, Oracle and Google all seem to be trying to commit suicide by patent lawyer. That takes a big bank account.

As for the now rich founders of high tech, investing in small pharma is a real crap shoot. Look at Arena and Vivus. Both have newly approved weight loss drugs and their stocks are trading below their pre-approval levels (Arena closed at $11.68 six days before PDUFA and $9.52 Friday, Vivus closed at $29.93 a couple of weeks before their PDUFA and just $24.15 on Friday). Investing in small pharma is a good way to turn a large fortune into a small fortune.

Part of the problem for all individual investors is that the rules for the stock market are stacked against them. High frequency trading can be used to drive stock prices down. Naked shorts, or really any shorts can also drive the stock price down. Lazy analysts cause problems. Stock brokers who's fiduciary duty is not to the investor, is a big problem. In other words the stock market rules need to be changed to make the markets fairer to the small investor and the SEC need a much bigger bite to keep the Wall Street class in line.

Sorry this turned into a political ramble.

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35. BOB on July 21, 2012 10:08 PM writes...

@Phillip

I've never understood the idea that HFT stacks the deck against the small investor. My understanding of it, which is pretty limited, is that it is more of a problem for large institutional investors who get their orders front run. Negative news has always been priced in very quickly, if you are concerned about HFT the solution is to trade infrequently. If analysts are lazy do your own analysis or just buy an index fund.

In general people are just frustrated with the market because it hasn't gone anywhere in a while. Be patient, it was super overpriced 12 years ago and has almost gotten back to an historically average price. If history is any guide only 2-3 more lousy years to go, think positive.

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36. petros on July 22, 2012 8:11 AM writes...

Perhaps this sort of research using computerised printers (!) to prepare drugs might appeal to Google

http://www.guardian.co.uk/science/2012/jul/21/chemputer-that-prints-out-drugs

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37. Big Freddie on July 22, 2012 10:05 AM writes...

@43..yep. This classic from the New York Times:
http://www.nytimes.com/2006/04/04/technology/04iht-biotech.html
Love Art Levinson's quote..."The cummulative loss by this industry from its inception in 1976 is approaching $100 billion"...Cough..exelixis...cough...just from my own adventure in speculation...although that one might shockingly stick the landing...I hope :-)

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38. Philip on July 22, 2012 10:15 AM writes...

@Bob, I do my own research and I am an investor not a trader. At least most of the time.

The lazy analysts cause problems because much of what they say is wrong. This leaves a company in the position of having to fight the perception that the analysts cause.

HFT can be used to walk, make that run the price of a stock down in a hurry on no news. Google "Bear Raid" for more information.

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39. MIMD on July 22, 2012 8:44 PM writes...

#5. Lynn Hanessian

More recently, the HIT (healthcare IT) sector overall is beginning to thrive.

Only through extraordinary special regulatory accommodation that would make pharmas blush in envy.

Does the technology help? Who knows, the literature is contradictory. Can it be harmful? Yes, but magnitude is unknown. Does it undergo RCT's? No. Is there postmarket surveillance or any meaningful regulation? No. Is there accountability? No. And so on.

Drug companies could make TONS of money if they were operating under the special accommodations afforded health IT - they could release new drugs daily.

See this post for hyperlinks to source on these assertions and others:

Vermont: Despite $70 million investment, health IT systems a long way from prime time - "Problems are appropriate"

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40. Noogler on July 22, 2012 10:48 PM writes...

Google, like many of the cash-rich tech companies, is simply sitting on its cash hoards mostly as unrepatriated foreigj profits post-washing it through tax dodges such as the Double Irish. They are making a reasonably medium-term bet that they can convince either this or the next US administration to give them another tax holiday, as it has in the past, and get their hands on the cash without paying US corporate income tax.

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41. Philip on July 22, 2012 11:23 PM writes...

@MIMD (47), I just want to second your post about HIT or HCIT. I am a computer geek. Some of my income over the last few years has come from making HCIT useful to doctors (ophthalmologists). The standard EHR systems are built to meet "Meaningful Use", so they can collect government reimbursement, not to make health care better for the patient, the doctor, the insurance coordinators or anyone.

Next time you have the chance ask a private practice office manager the following:

If there was no government carrot or stick what would you pay for any of the current EHR systems?

An honest answer would be that they would not want one even if it was free.

I do think it is possible to build a good EHR system, but it has yet to be done. At least with my image collection/viewing software, the doctors like it at least as well as paper.

Maybe Google could be the company that does build a useful EHR system.

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42. Anonymous on July 22, 2012 11:25 PM writes...

Compared with computers, there are heaps more unknowns. That and the current business models don't strongly support strategies aimed at delayed payoffs, which would probably be a superior strategy in terms of long term good/gains.

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43. WB on July 23, 2012 1:23 AM writes...

Unfortunately, Eric is right. There is heaps of things they can do with their cash, but there is a 99% possibility the regulators will go after them and most of the money will get burned up in lawyer fees. Android, anyone?

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44. dearieme on July 23, 2012 8:07 AM writes...

In their days airlines were seen as an exciting, high tech investment. Nuff said?

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45. exGlaxoid on July 23, 2012 10:17 AM writes...

16. DN on July 20, 2012 1:28 PM writes...

"Andy Grove tried to help and was laughed off the stage. Pharmaceutical chemists are simply not ready to join the automation revolution. A chemist spends the day scraping tar out of his rotavap and thinks he has done a good job, while the tech head weeps that the chemist did not send instructions to 1,000 synthesis robots and let them run overnight."

GSK tried to build automated R & D labs in two sites, at a cost of over $100 Million each. Both are now closed, as they realized that robots don't handle reagents crystallizing in tubes, gummy reagents, unpredictable reaction rates, and many other issues well at all. They had million dollar systems that were to make 1000's of compounds a month, most of which broke within days of implementation and had to be repaired constantly. The simple workstation approach of very specific and simple task oriented devices which chemists use as tools has proven much more reliable and cost effective. Unfortunately, those useful tools were also mostly abandoned when companies spent too much much on chemistry robots that failed spectacularly.

The other issue is that those types of automation require simple, repeatable chemistry that generates 1000 amides, biphenyls, or peptides. Most of those have already been made, tested, and patented, so they are not much help. I'll give a million dollars to the person who can have a robot synthesize 1000 novel compounds with challenging chemistry. It won't happen for a long time. The successful automation of DNA sequencing and Moore's law are very applicable to processes that generate/process information, but not much to manufacturing and synthesizing novel chemicals.

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46. MIMD on July 23, 2012 12:01 PM writes...

@41 Philip

EHR's (that's an anachronistic and narrow term; clinical enterprise resource planning and management systems are really what is meant by "EHR") may be incompatible with the time and pay allotted for docs to actually see patients in the real world.

Maybe Google could be the company that does build a useful EHR system.

I suggested that possibility some time ago, but even there, there are some real conceptual gaps (as in this post).

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47. troggy on July 24, 2012 10:12 AM writes...

Pharma companies' R&D staff accounts for ~10-20 percent of their staffing (e.g. Pfizer @ 10%, GSK @14%).

Perhaps they would be better served acquiring marketing, management, and financial robots as this accounts for a much larger percentage of their staff. Also, unwanted crystallization foiling the robots would no longer be a problem.

In all seriousness, I don't think R and D salaries are really the major problem - making robots a pretty irrelevant solution.

If the compounds being synthesized/tested were providing treatments/cures, the cost of making them would be trivial. But, as long as we continue having trouble inventing new drugs and treatment ideas, any cost to make them is too much.

Besides, robots for low volume items are remarkably difficult to implement. For example, McDonalds has many more people than pharma, doing an absurdly easy job to automate, but volume for any individual robot is low. R&D is similar. Pharma does use automation in it's production lines, where it belongs.

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48. Shonkin on July 24, 2012 11:55 AM writes...

Four points I haven't seen in any comments so far:
(1) Google may be in the same position now that IBM occupied in the Sixties. IBM got hit with antitrust judgements and couldn't expand its market share without getting prosecuted again. It had to sit on its profits. (Of course, interest rates were good and inflation was low in those days, so it worked out.) Eventually IBM started buying companies in related industries, such as Lotus Development, and that money came in handy. N.B.: They were related industries, not a random collection of unrelated companies.
(2) Also back in the Sixties, companies started buying large numbers of other companies in UNRELATED industries. The resulting chimeras were known as "conglomerates." An aircraft company (LTV) bought a steel company. A building materials company (Kaiser) bought a string of TV stations. A phone company (ITT) bought bakeries and a hotel chain. All of these chimeras fell apart during the Seventies, because there was no synergy or added value in combining unrelated companies. (No, Google shouldn't buy Pharma companies!)
(3) A company sitting on a hoard of cash for which it can't figure out a use is a TAKEOVER TARGET. It's worth more dead and dismembered than it is alive. (Study your history of 1980's leveraged buyouts.)
(4) The previous major slump for pharma R&D came during the Nineties as a result of Hillarycare. The specter of tight price controls on drugs stifled innovation. Now it's worse, because the "Affordable Health Care Act" emphasizes health care rationing and death counseling rather than cures for diseases. Obamacare will have to go before there is any hope for a pharmaceutical R&D comeback. Until then I won't invest in the field.

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