Drug investors turn more to lawyers for help
Investors in pharmaceutical companies are becoming increasingly reliant on lawyers to help decipher complex patent litigation and safety-related lawsuits, experts say.
The withdrawal of Merck & Co. Inc.'s (MRK.N: Quote, Profile, Research) painkiller Vioxx and subsequent deluge of lawsuits from people claiming to have been hurt by it, together with patent challenges to several top-selling drugs, have led investors to embrace legal experts as never before.
"Legal issues are now involved in a much larger percentage of the valuation swings in the pharmaceutical industry," said David Webster, a consultant at Webster Consulting Group. "Good lawyers are seeing a dramatic increase in business.
Pfizer Inc.'s (PFE.N: Quote, Profile, Research) shares jumped 10 percent on Monday after it won a U.S. court victory blocking a threat from a generic drugmaker to its biggest-selling drug, the cholesterol-fighter Lipitor.
The ruling came as a surprise to many investors and a relief even to those who had bet on the victory, boosting drug stocks in general amid optimism that other patent challenges too would be similarly defeated.
While drug companies have always faced legal battles, and investors have always turned to lawyers for advice, the stakes within the pharmaceutical industry are rising as they no longer have such a rich supply of new drugs waiting to fill the place of those losing patent protection.
A record number of drugs, representing combined U.S. sales of about $61 billion -- or 27 percent of the entire U.S. retail pharmaceutical market -- are set to lose patent protection or market exclusivity by 2009, according to a recent report by SG Cowen & Co.
At the same time many industry experts say U.S. regulators have become more cautious about approving new drugs following criticism that they responded inadequately in the Vioxx affair, raising the stakes for drugmakers even further.
"Investment processes that involve legal experts are becoming more frequent and savvy investors are doing very diligent work with legal consultants," said Shaojing Tong, an analyst at Mehta Partners.
With Lipitor out of the way, investors are now focusing on the outcome of a patent challenge to Bristol-Myers Squibb Co.'s (BMY.N: Quote, Profile, Research) biggest-selling drug, blood-thinner Plavix.
"Even though the patents and patent law issues are different, the Lipitor victory may hearten investors concerned about the upcoming Plavix litigation," said Chris Shibutani, an analyst at J.P. Morgan in a research report.
Still, no amount of legal advice can eliminate the investment risk entirely and lawyers can rarely predict an outcome with certainty. Some can't predict it at all.
"Our capacity to do things like predict outcomes, let alone predict damages in situations where there are thousands of lawsuits, is very limited," said Jeffrey Rudman, a lawyer at Hale and Dorr. "A lot of times its horseback opinion and has to be heavily discounted."
The withdrawal of Merck & Co. Inc.'s (MRK.N: Quote, Profile, Research) painkiller Vioxx and subsequent deluge of lawsuits from people claiming to have been hurt by it, together with patent challenges to several top-selling drugs, have led investors to embrace legal experts as never before.
"Legal issues are now involved in a much larger percentage of the valuation swings in the pharmaceutical industry," said David Webster, a consultant at Webster Consulting Group. "Good lawyers are seeing a dramatic increase in business.
Pfizer Inc.'s (PFE.N: Quote, Profile, Research) shares jumped 10 percent on Monday after it won a U.S. court victory blocking a threat from a generic drugmaker to its biggest-selling drug, the cholesterol-fighter Lipitor.
The ruling came as a surprise to many investors and a relief even to those who had bet on the victory, boosting drug stocks in general amid optimism that other patent challenges too would be similarly defeated.
While drug companies have always faced legal battles, and investors have always turned to lawyers for advice, the stakes within the pharmaceutical industry are rising as they no longer have such a rich supply of new drugs waiting to fill the place of those losing patent protection.
A record number of drugs, representing combined U.S. sales of about $61 billion -- or 27 percent of the entire U.S. retail pharmaceutical market -- are set to lose patent protection or market exclusivity by 2009, according to a recent report by SG Cowen & Co.
At the same time many industry experts say U.S. regulators have become more cautious about approving new drugs following criticism that they responded inadequately in the Vioxx affair, raising the stakes for drugmakers even further.
"Investment processes that involve legal experts are becoming more frequent and savvy investors are doing very diligent work with legal consultants," said Shaojing Tong, an analyst at Mehta Partners.
With Lipitor out of the way, investors are now focusing on the outcome of a patent challenge to Bristol-Myers Squibb Co.'s (BMY.N: Quote, Profile, Research) biggest-selling drug, blood-thinner Plavix.
"Even though the patents and patent law issues are different, the Lipitor victory may hearten investors concerned about the upcoming Plavix litigation," said Chris Shibutani, an analyst at J.P. Morgan in a research report.
Still, no amount of legal advice can eliminate the investment risk entirely and lawyers can rarely predict an outcome with certainty. Some can't predict it at all.
"Our capacity to do things like predict outcomes, let alone predict damages in situations where there are thousands of lawsuits, is very limited," said Jeffrey Rudman, a lawyer at Hale and Dorr. "A lot of times its horseback opinion and has to be heavily discounted."
posted by Chris Placitella at 8:22 AM
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