Investors in a highly regulated industry like drug development need to be conscious of what the regulators, the Food and Drug Administration in this case, are up to. Usually we're worried about the companies we invest in getting their drugs approved, but lately investors have had to worry about companies keeping their drugs on the market.
Two weeks ago, the agency told Matrixx Initiatives to stop marketing its Zicam Cold Remedy products. Last week it sent U.S. marshals to seize drug products manufactured by generic-drug maker Caraco Pharmaceutical Laboratories
The FDA said Caraco had repeatedly failed to comply with good manufacturing practice requirements and the seizure was made to keep Caraco from distributing drugs manufactured at one site until it resolves the issue. In total, the seized drugs may have been worth $15 million to $20 million -- a considerable sum for a company that had inventory of just $80 million at the end of the fiscal year that ended in March.
The seizures may help the competition -- generic-drug makers like Teva Pharmaceuticals
Unfortunately, the average investor can't see these things coming, but there's a simple way to deal with the risk of losing products: diversify. Drug investors can accomplish that by investing in a large pharmaceutical company -- although many are still quite dependent on a single drug -- or by investing in multiple smaller companies.
Just like diversifying to get multiple shots on goal for drug approvals, diversifying to get revenue streams from multiple approved drugs seems like a prudent move in this regulatory environment.
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