Forget the Hubs--When it Comes to the Drug Industry's Fortunes, it's Pure Vegas, Baby!

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Reported by Annette Kreuger, Industrial Info Resources (Sugar Land, Texas)--What city would best exemplify the Pharmaceutical-Biotech Industry? Typically, Boston, San Diego, or Research Triangle would come to mind. For a moment, forget the traditional manufacturing hubs and focus on one that truly epitomizes the very nature of the industry. That would be Las Vegas.

Yes, Las Vegas fits the bill, as the drug industry is a high-stakes gambler of the highest magnitude, with bets worth hundreds of millions of dollars. The long, treacherous road from initial studies to a new drug gaining U.S. Food and Drug Administration (FDA) approval resembles nothing so much as a billion-dollar ride on the roulette wheel. Companies (large and small) that have field years of development and buckets of cash, are all in hopes of gaining that coveted nod from the FDA.

Just when the ball is circling that sweet spot a moment away from the jackpot, it can suddenly veer right off the edge thanks to a failed crucial clinical trial, or a nay from the FDA--taking a seemingly sure bet and morphing it into a financial disaster. The loss multiplies exponentially when you factor in the lost hopes for those patients seeking an effective treatment.

Falling under the classification of "knowing when to fold 'em," Elan Corporation (NYSE:ELN) watched its fortunes plummet earlier this week after its once-promising Alzheimer's drug bapineuzumab was stopped dead in its tracks following failure to deliver in late stage trials. Had it been a success, the company's fortunes, along with those for development partners Johnson & Johnson (NYSE:JNJ) and Pfizer (NYSE:PFE), would have soared thanks to society's clamoring demand for a successful Alzheimer's treatment. Instead, along with Elan taking a $117 million hit this quarter, the rumor mill has raised the spectre of the company possibly being put up for sale.

If logical wisdom considers it a sure bet to profits once a drug does make it through the approval process to market, think again. Dendreon (NASDAQ:DNDN) is a dramatic example of the winds of fortune pushing a company from stunning financials to being "on tilt." The machine is flashing, the bells are ringing, and the player keeps betting and betting. And losing.

Dendreon's $93,000 prostate cancer vaccine Provenge made its way through FDA approval in 2010, with projections of sales hitting $400 million in 2011. Instead, for a multitude of reasons, including competing drugs being approved at the same time and complex reimbursement procedures, the drug only delivered $213 million.

The company has lost 88% of its market value since April 2010, when it first gained regulatory approval for Provenge. This followed an intense capital expansion program, topping $200 million across North America over the last couple of years. Dendreon wanted to ensure that the drug would be readily available for distribution and built a new 165,000-square-foot plant in Atlanta, upgraded its plant in Morris Plains, New Jersey, added a plant in Seal Beach, California, and leased out new research space in Seattle.

Despite the recent $50 million investment to beef up production capacity in Morris Plains, new Dendreon CEO John Johnson announced some sobering news during a conference call for the second quarter of 2012. The Morris Plains site is to be closed and the company will rely on Atlanta and Seal Beach for manufacturing. An estimated 600 employees will lose their jobs. Johnson replaced former CEO Mitch Gold in February 2012. Johnson is no stranger to adversity in the drug industry, having helped clean up in the wake of the ImClone troubles with Erbitux several years ago. ImClone is a subsidiary of a subsidiary of Eli Lilly and Company (NYSE:LLY).

A look at some other facts surrounding the industry may clear up just why the risk is worth it. A recent report by IMS Health revealed the Global Pharmaceutical Market was valued at more than $900 billion in 2011, and is on track to top $1 trillion by 2016. While the drug game is not for the faint of heart, with numbers like these, it is definitely worth the wager.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.