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Old 05-06-2008, 02:45 PM
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Default Do Drug Companiesí Patent Filings Hint at Stock Moves?

Health Blog : Do Drug Companies' Patent Filings Hint at Stock Moves?
Posted by Sarah Rubenstein

Drug companiesí shares have been pretty volatile in recent years, some climbing on deal speculation while others have plunged on controversies over drug safety or efficacy.

How then to gauge the true measure of a drugmaker over the long haul? Some say check out the research labs, and one way to take their temperature is by totaling up patents. Take a look at this chart, which tracks patent filings by drug companiesí and their performance in the stock market.




Itís a bit dizzying, we concede, but hereís how Thomson Reuters crunched the numbers: Each point on the blue line shows the number of patents filed that month by the 10 largest drugmakers (measured by market cap), relative to the same month in the prior year. So at the top of that spike around the beginning of 2000, the companies filed about twice as many patents that month as they did a year earlier. Meantime, the red line shows how the sectorís stock prices moved as a group over the next 12 months. So for that same point around early 2000, the shares would go up about 35% over the next year.

What Thomsonís trying to explore is what effect, if any, patent filings have on stock prices. The logicís pretty intuitive. A patent filing is a sign of a potential new drug a company will be selling in the future. More filings mean more opportunities for that big blockbuster to come along. Investors like blockbusters. (Disclosure: Thomson owns a big patent database, so the company has reason to want folks to be interested.)

There does seem to be a correlation on chunks of the chart, though nothing too dramatic. In any event, correlation doesnít prove causation. ďIt canít be that this is the sole driver, by any means,Ē Mike Thompson, a managing director at Thomson Reuters, tells the Health Blog. Patent filings are ďprobably one influencing agent,Ē he says.

Thompson adds that patentsí impact on stock prices may not be immediate. For instance, it can be years before a patent gets translated into an actual product thatís understood by investors and the public.
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