Analyst Note
| Damien Conover, CFA |The majority of the large-cap biopharma firms have moats, but almost all the drugs currently sold by the group will face generic competition over the next two decades, making successful capital allocation (evaluated by our capital allocation methodology) critically important in securing the current strong moat ratings within the group. We believe the patent life of drugs (typically 20 years, but with many years used during development) makes the biopharma group particularly reliant on successful redeployment of capital because of the need to constantly reinvent drug portfolios. We view a key part of successful capital allocation at big biopharma companies as a combination of (1) sound internal research and development (both in magnitude of investment and strategically focused in innovative therapeutic areas) and (2) successful external acquisitions and partnerships. The combination of successful internal development and external deals allows the big biopharma industry to consistently reinvent product portfolios and secure economic moats, protecting high returns on invested capital.