Over the last five years, the shares of Genentech (DNA) have risen about 275%. Shares in Amgen (AMGN) are not up as much but they have performed about as well as the Dow.
Is it any wonder? Genentech’s revenue in 2000 was $1.376 billion. For the most recent trailing twelve months that figure was up to $8.462 billion. Over the same period, Amgen’s revenue has gone from $3.629 billion to $13.704 billion.
The two companies have had significant success developing treatment for a range of diseases from certain cancers to osteoporosis. Morningstar estimates that Amgen has five blockbuster drugs in late stage trials.
The company’s have such strong margins and pipelines that they trade at significant premiums to Big Pharma companies like Pfizer (PFE) and Merck (MRK).
But, the US government may be stepping in to do what competition could not–open the door to generic competition more quickly. Hillary Clinton is proposing legislation to allow generics firms to make cheaper versions of products from the biotech companies.
Biotech firms argue that their treatments are complex and cannot be, in most cases, replicated by generics companies without lengthy clinical trials. The generics firms claim that the drugs are not so complex and that they need faster approval of their versions by the FDA.
As the pressure for lower health care costs mounts, the large biotech firms could face an increasing squeeze on their remarkable revenue growth. Something that their competitors were unable to do.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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