Monday, August 17, 2009, 8/17/2009 10:13:00 AM

Biopharma Company's Competitive Advantage Lies in Trade Secrets, Not Patents

By Todd

Cumberland Pharmaceuticals' IPO last week fell a little flat. But in a piece this morning in The Wall Street Journal, the company's product offerings and competitive advantages are touted to include trade secret advantages and marketing advantages not available to other competitors:

"Cumberland's product portfolio makes the rich multiple all the more impressive. Its biggest current product, Acetadote, is an intravenous version of a drug treating Tylenol overdoses. The oral form of the drug is generically available. According to the prospectus, protection from competition comes not from patents, but from "trade secrets and proprietary know-how" as well as marketing exclusivity, granted by the U.S. Food and Drug Administration, that expires in 2011."

The piece reports that: "The key point is that, prior to the Cumberland IPO, the most successful recent capital-raisings in the sector have been by companies developing drugs for deadly diseases with extremely robust intellectual property."

In other words, trade secret advantages and marketing exclusivity advantages, like those allegedly held by Cumberland, are NOT like those traditionally held by patent holders in the competitive marketplace. Bets on stocks in Cumberland-type companies are bets that their business succeed, or fail, not because the drug they are offering is different - bets on stocks in these types of companies will succeed, or fail, because their drug offerings are offered more efficiently or strategically.

Our take on this piece is that trade secret advantages are still recognized by business writers as having a real-world impact on valuation. Trade secrets matter.


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