Monday, April 13, 2009
Health Care reforms - cuts in R&D budget?
We are entering a very interesting phase in the history of governance in America. The democratic federal government is all set to usher in health care reforms - the core of which is offering a public option for insurance and playing an increased role in setting price limits for various medical services ala the NHS of the UK or the services in Japan. How will all this affect the flow of dollars to R&D grants for small companies? I believe that small companies will have to compete harder to get government grants and will have to operate under significantly reduced R&D budgets to achieve even break even revenue models. Generally speaking, despite active price controls in the Switzerland, their drug companies still lead the world in innovation. But, this was largely financed by revenues from markets such as the US. Will we see an outsourcing of R&D to places outside of the US and more outsourcing of clinical studies to outside the country? Time will tell but all indications are that a public option for health insurance will put a serious dent in the R&D budgets of the small drug discovery and biomedical devices companies. We for one will increase the discount rates when valuing such companies as there is a greater risk of achieving break even cash flows.