Science plays an important role in the XXIst century. In other sectors of the economy, the science behind any product is increasingly important. In biotech and medical devices, science is even more important, in fact, here science is the business. This might scare some venture capital firms that are generalists (non specialized in life sciences). Educating the non-specialized venture investors is therefore essential to gain more “visibility”.
The administration has tried for a long time to reduce prices on older drugs (generics). They have been successful indeed in cutting prices on the old drugs, but never on the innovative drugs (their cost-effectiveness is usually very well documented). The classical supply-demand law does not apply in this sector. This means a new drug can potentially achieve margins of more than 90%, and even drugs targeting reduced communities of patients (rare diseases) can create a multimillion business.
Barriers to entry are enormous. Know-how and investments create indeed big barriers to entry, and the 20 year protection from patents and the Orphan Drug legislation usually give new drug developers a monopolistic market to exploit.
Biotech companies selling drugs have access to markets that are clearly defined by physicians and by patient registers in hospitals. The demand structure is therefore highly predictable, which is rare in other sectors where markets need to be created.
Unlike other markets, drug sales are stable on not subject to sudden loss of consumer appetite.
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