Immuno-oncology is a key area for biological drug development and activity has exploded over the past decade. Today, IO therapies represent a third of the biologics pipeline, and antibody development remains the focus.

Alkermes' success in creating a commercial product out of Genentech's growth hormone has taken it across a fundamental credibility gap all new drug delivery companies face. One result: an extraordinarily high valuation that has permitted it to raise plenty of cash. And it's using these assets--credibility, cash and valuation--to invest in programs which can bring it nearer term revenues and higher margins, in terms of new, accelerated, or risk-sharing deals. Indeed, it's even treating its current net-loss position as an asset, spending heavily now--which its profitable competitors can't, given their valuation-sensitive earnings constraints--and even signing complex deals to take its partners' expenses onto its own P&L, reimbursing itself with equity and downstream milestones. Moreover, it's shown itself, as in its acquisition of Advanced Inhalation Research, willing to dramatically expand its portfolio of technologies with work done on the outside. Alkermes also wants to develop products for its own account, though its strategy for commercializing them, while maintaining a strong delivery technology base, is unclear.

FASB and the SEC, anxious to harmonize US accounting practices and clarify corporate earnings filings, are proposing reporting changes which will further beleaguer already desperate medical start-ups and rock large company growth plans. They're already tightening the rules on write-offs for in-process R&D following acquisitions and they've proposed eliminating both pooling of interest mergers and off-P&L financing techniques, like SWORDs and SPARCs.

Although times are heady for the pharmaceutical industry, Morgan Stanley Dean Witter analyst Paul Brooke doesn't think the boom will continue. Industry growth will be stymied by genericization and the introduction of fewer big new products. At the same time, the industry faces restraints on its pricing flexibility, one of the keys to its recent success.