Should ground-breaking pharmaceutical companies be listed?

For everyone successful pharmaceutical company there is likely to be hundreds if not thousands which tread water and eventually fade away. Many start with ground-breaking technology and innovative medicines only to suffer the same fate as many entrepreneurial groups. Stock markets around the world have an unhealthy obsession with short-term profitability which is fine with many sectors. However, when you bear in mind that commercialisation of a ground-breaking medical treatment could take a decade or more to fulfil, are pharmaceutical companies suitable for stock market listings?

Short-term pressure

The vast majority of investors by definition are looking for short-term increases in the value of their assets. They are quite happy to jump onto a bandwagon when a company is doing well and then bank a profit when the company starts to run out of steam. This causes significant volatility in share prices, often impacting the ability to raise much-needed funds to finish innovative research.

Should ground-breaking pharmaceutical companies be listed?
Should ground-breaking pharmaceutical companies be listed?

Is profitability the ultimate goal?

There is a very fine balancing act for the pharmaceutical sector when it comes to saving lives and banking profits. We can only guess at the number of treatments which have not made it to market because they were “too expensive”. We regularly hear noises from the anti-smoking lobby amid suggestions that various treatments to end smoking have been bought up by the tobacco giants and taken out of action. Whether true or not is open to debate, but, were it not for short-term profitability pressures how many lives could have been saved?

There is an argument that relatively early stage pharmaceutical companies should be private entities. This would allow them the space and time to grow and then further down the line consider a stock market float.

Do investors understand early-stage pharmaceuticals?

If you think about it, if you want your car fixed then you will go to see a mechanic. Therefore, is it helpful and indeed even appropriate for investors to buy into, and sometimes pressurise, early stage pharmaceutical companies? We see the headlines, the potentially enormous markets and the game changing returns. However, for those investing in early-stage pharmaceutical companies do they really understand the product and the potential?

There are more than enough early-stage investment funds with a greater understanding of the pharmaceutical sector and the risk/reward ratio. Indeed, in years gone by we have seen governments investing directly into potentially ground-breaking treatments in the hope of ultimately reducing their own healthcare costs. However, even these early-stage investors will at some point come under pressure to cash in their chips and bank a profit. That’s capitalism for you!

Investment roulette

As we touched on above, for everyone successful pharmaceutical company there will likely be hundreds if not thousands who have fallen by the wayside. There is a saying in the world of pharmaceuticals; the majors “bury their dead at night”. In essence this means that unsuccessful trials and treatments are removed from the limelight at the earliest opportunity and left to fade away. Investing in large established pharmaceutical companies involves a degree of “investment roulette” but this is multiplied many times when looking at start-up pharmaceutical companies. There is the chance to bank a return which for many investors will be life changing but in reality these opportunities are few and far between.

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