Big Pharma Suffers Multibillion-Dollar Losses After Multiple States Legalized, New Study Says
The pharmaceutical industry takes a serious economic hit after states legalize marijuana, with an average market loss to drugmakers of nearly $10 billion for each legalization event, according to an unpublished study.
The peer-reviewed research article, published Wednesday in the journal PLoS ONE, examined data on stock market returns and prescription drug sales of 556 pharmaceutical companies from 1996 to 2019, analyzing market trends before and after the enactment of laws legalizing medical and adult cannabis at the state level. .
Stock market returns were "1,5 to 2% lower 10 days after legalization", note the authors of the study. “Returns have declined in response to medical and recreational legalization, for generic and brand-name drug makers. Investors predict that a single legalization event will reduce drugmakers' annual sales by an average of $3 billion. »
“Our results show that cannabis legalization is associated with lower stock market returns for pharmaceutical companies. »
Many anecdotal reports, data-based studies, and observational analyzes have reported that some people use cannabis as an alternative to traditional pharmaceutical medications such as opioid-based painkillers and sleep medications.
Earlier this year, for example, a research paper analyzing Medicaid data on prescription drugs found that legalizing marijuana for adult use is associated with "significant reductions" in drug use on prescription for the treatment of several conditions.
But the conclusion of this study that "the entry of cannabis into the market decrease profits from generic and brand-name drug manufacturers is new,” said the researchers from California Polytechnic State University and the University of New Mexico.
“By expanding access and, therefore, consumption, legalization could allow cannabis to compete with conventional pharmaceuticals. Largely unpatentable, cannabis could act as a new generic following medical legalization, leading some individuals to turn away from other drugs towards cannabis. However, unlike a conventional new generic drug, the use of cannabis is not limited to a single or restricted set of conditions. This means that cannabis acts as a new entrant in many different drug markets simultaneously. »
While a 1,5-2% decline in drug company returns may not seem like much to the lucrative pharmaceutical industry, the authors said the difference is “statistically significant and persists for 20 business days after” legalization.
"We find that the average change in a company's market value per legalization event is $63 million, with a total impact on the market value of companies per event of $9,8 billion," the report says. study.
It's not that the pharmaceutical industry is losing money overall. As the study shows, yields still rose at a steady pace in the weeks after states lifted the ban, but not at the pace analysts and investors had initially expected. It is this difference between expected and actual returns, in addition to the decline in drug sales, that appears to be partly attributable to legalization.
It's also worth noting that, for brand-name drug makers, the returns "deviate later from the control [after legalization], the difference is smaller, and it disappears a few days after the event." The story is different for generic drug makers, where investor reaction to marijuana reform "is more significant and persistent."
The study also took into account the evolution of drug sales after legalization. “Using the historical price-to-sales ratio of drugmakers for the year associated with each legalization event, this implies a change in annual sales of all drugmakers of $3 billion per event,” the report says. study.
Taking these results one step further, the researchers also estimated that “predicted annual prescription drug spending would have been $2014 billion lower in 30 if the 2014 states without legal medical cannabis in XNUMX had legalized medical cannabis. »
"In addition to accounting for more drugs, more conditions, and all payers, our estimate may be larger also because, unlike [researchers in a previous study], who take prices drugs as donated, our estimate takes into account the competitive pricing pressure that cannabis places on branded and generic drugmakers for both prescription and over-the-counter drugs,” it read.
However, the study has limitations that the authors describe.
“The economic significance of an estimated $9,8 billion loss in business market value per cannabis legalization event is extremely large, but our results should be interpreted with caution. One of the main limitations is that we model investors as rational, which may overestimate the economic significance of our results. Second, we are limited to listed companies and past legalization events. Third, we note that the estimates may be sensitive to our choice to use 150-50 days before legalization.
“For private and public drugmakers, we expect the response to legalization to include investment and marketing,” the study concludes, citing the fact that Pfizer has spent billions to acquire a “biotechnology company which focuses on cannabinoid-like therapies”.
“Pharmaceutical companies have devoted significant lobbying efforts and dollars to fighting the legalization of cannabis,” the study continues. “These are signs that the pharmaceutical industry from a marketing perspective, cannabis currently remains far from a therapeutic equivalent approved by the [Food and Drug Administration], and this could explain why pharmaceutical companies have spent less Efforts to Detail Physician Visits. »
"Beyond the effects for different stakeholder populations, our study suggests that cannabis could be a useful tool for increasing competition in US drug markets," the authors said.