Weight-loss drugs, and how to think about a blockbuster
A pharma moat has an expiry date printed on it. The question is never how good the drug is, it is what happens the year the patent ends.
Value a drug company without falling in love with the science.
How Weight-loss drugs works, in one picture
The same argument as the text, as a chain. Each step is what makes the next one possible.
The divergence that precedes most disasters
Reported profit climbing while the cash it supposedly generated goes nowhere. Either customers are not paying, or the sales were never really made.
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The moat is a patent, and a patent is a countdown
For its protected life, a successful drug is close to a licence to print money: high price, low marginal cost, no competition. Then the patent expires, generics arrive, and the price can fall by 80% or more almost overnight. This is not a risk, it is a scheduled event.
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So the valuation is a race against a clock
The entire question is how much cash the drug generates before the cliff, and what the company does with it. A pharma company is really an engine that converts one expiring monopoly into the next one. If the pipeline fails, you own a melting ice cube with excellent margins.
Look at the pipeline, not the current blockbuster. The blockbuster's cash flows are already largely in the price.
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Manufacturing capacity is the near-term constraint
For an injectable at this scale, the binding limit has been the ability to physically make and fill the thing. That means the near-term earnings are a manufacturing story, not a demand story, and capacity is being built furiously by everyone.
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And watch the second-order effects
A drug that changes what a large population eats has consequences for food companies, for dialysis providers, for sleep apnoea devices, for airlines' fuel bills. Some of those trades are real and some are journalists having fun. Be strict about which.
You can state the patent expiry date of the drug that drives the valuation.
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A pharma moat has an expiry date printed on it. The question is never how good the drug is, it is what happens the year the patent ends.
Every one shows its exact method, and the circumstances in which it is wrong. Free, and no account to look.