Myriad Genetics, Inc. (MYGN): Big Pharma’s Intellectual Property Blues

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Although India did not grant Novartis a patent for its cancer medication imatinib, South Africa granted the company an initial patent in 1993 that only expired last month. However, South Africa granted Novartis second patents to extend the company’s monopoly on cancer treatments to 2022. MSF forecasts that the Novartis patent increases treatment costs for cancer patients in South Africa to $34,000 per year, 259 times the cost of using a comparable Indian generic drug.

Therefore, a comparison of India and South Africa highlights the dramatic cost difference between name brand and patented treatments, and raises some serious ethical questions for Big Pharma – should companies like Pfizer Inc. (NYSE:PFE) and Novartis work with local governments to reach more patients at lower margins, or continue fighting to preserve their patents?

The Foolish bottom line

I’m not a big fan of investing in the biotech industry. Biotech companies are more dependent on big blockbuster drugs, clinical trial approvals, and patent extensions than solid fundamentals. In that respect, biotech stocks can be a big gamble – the classic case of a high-risk and high-reward bet. Companies such as Novartis and Pfizer Inc. (NYSE:PFE) have big enough portfolios to withstand a few patent setbacks, but companies like Myriad Genetics, Inc. (NASDAQ:MYGN) are too exposed to a single market.

Even though Big Pharma is often portrayed as a richly capitalized, invulnerable industry, it is highly vulnerable to compulsory licensing in emerging markets. Therefore, this is a Catch-22 – if the countries across the world want Big Pharma to continue developing cutting edge tests and treatments for life-threatening diseases, then they have to generate enough revenue to fund their massive R&D operations. I believe that this contradiction and struggle will continue for the foreseeable future, and could throttle Big Pharma’s plans for rapid global expansion.

Leo Sun has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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