Pharma

[biaggio]

http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2010/06/02/the-ultimate-hedge-in-economic-crisis.aspx

"The Ultimate Hedge in Economic Crisis"

interesting article from Patrick Cox (never read any of his previous stuff). Unconventional opinion. May be worth considering.

[Viking]

After reviewing the sector my top pick is Abbott Labs (ABT): well respected, good management, excellent long term track record, good capital allocators, very profitable (should earn over $4.00 in 2010 and over $4.50 in 2011), cheap (trading at a 2010 PE=11). What really separates them from the pack is their growth prospects (low double digit). Their business is also fairly diversified and they do not appear to be facing the patent cliff that others are, such as Pfizer.

My second pick is JNJ. I could say much of the same as ABT. The big difference is JNJ will likely grow mid to high single digits (due to its size).

My more speculative purchases are BAX, Pfizer and GILD. Bax has had some recent issues but I like its growth prospects looking out. Pfizer is cheap, facing a patent cliff and I am hoping it has something in its pipeline (stock price is saying no). Gilead is cheap, has no patent cliff issues and looks to be buying back lots of stock at current prices.

ABT, JNJ, BAX & GILD all have lots of cash and low debt.

Should the markets continue to sell off I will look to grow my position in ABT.   
 

[RRJ]

Sharper,

I did a sector play here recently -- bought 4 of the majors, a little of each, simply because (1) I'm not smart enough to figure out which of them will outperform, (2) I'm not sure anyone can predict that when you're dealing with essentially a patent portfolio (though I do like that cost and distribution advantages of the larger players), (3) but the high margins (though somewhat less going forward due to generic competition), "need to have" status of products, favorable demographics (as boomers age), and growth of the middle classes in emerging markets creating new markets, all bode well for the sector as a whole.  So I bought a small diversified (4 stocks) basket. 

But, I've always suspected that even this diversification is basically going to mimic a drug sector fund.  This might be okay, but I'm wondering how you might figure out your winner in this sector.  I've tried, and just can't get any special insights.  Any help is appreciated. 

Keep in mind that you're really making 3 bets here;

The euro players include an FX bet that the Euro will be stronger on repatriation than it is today: ie, a great return on Sanofi could turn into a loss if the Euro materially worsened. If you dont want this risk its US makers only.

It makes more sense to allocate > 5% to the sector, & 1 name; a long term warrant, option, convertible that limits the $ investment or reduces the risk. Your premise is that the entire sector will improve; to get a bad result, the individual maker has to perform materially below the average for the group. Somewhat unlikely.

5% spread over 2-3 names is minimally different to the typical index fund. To make it worthwhile you need to do materially better than the indexer to cover your additional cost; if you just do the same as the indexer that is highly unlikely.

SD

[SharperDingaan]

Assess if pharma is within our competency. If 'no', we'd reduce our sector risk by staying domestic.
Do we have all the major 'names'? Are there hybrid securities - convertibles, warrants, options, etc.   
What fits within our risk tolerance & time horizon, & why.
Is an alternate low fee index fund available.

We would benchmark against a 5% weighting to the index fund. If we invested directly via a hybrid we'd want a minimum 3-5x the index return. If we could do it via a convertible we'd use margin to neutralize our positive carry, & weight higher.

When it's not within your competency, the individual 'name' is pretty irrelevant.

SD

[biaggio]

re FRX

http://www.sec.gov/Archives/edgar/data/38074/000003807411000024/forest8kjune7.htm

"Pursuant to the ASR Contract, Forest paid $500 million to Morgan Stanley on June 3, 2011, and 9,839,752 shares were delivered to Forest on the same day"

It appears that FRX buying back almost 10 million shares for almost $51 per share (~ 35% premium). The shares are currently selling for $37.95.

Has this ever happened to anyone? i.e it appears that company is buying shares at a substantial premium.

I would consider selling for $50 (but I wont have a chance anytime soon)

Is this a way of FRX buying a large block of shares?

Why not just buy at the market?

Do folks think this is a wise capital allocation?

The market seems to like it, as it is hitting new highs.

[biaggio]

http://www.sec.gov/Archives/edgar/data/38074/000095012311058734/y91669defa14a.htm

"Today we issued a press release announcing that the Company has received notice from investor Carl Icahn (and his affiliates) that he owns options and stock representing approximately 6.5% of our outstanding shares, and that he intends to nominate four individuals for election to our Board at this year’s Annual Meeting. The press release is attached.
Our company has always welcomed constructive input from shareholders, and our board will evaluate these nominees in due course. Prior to our annual meeting, the board will make a recommendation regarding who it believes are the directors most qualified to serve on the board. In the interim, we expect to meet with Mr. Icahn and his colleagues — as we would with any investor — to discuss this matter and hear his thoughts about how best to continue building value at the Company..."

Any ideas what Mr Icahn is up to?

My guess is that he would like them to allocate the ~$12 per share net cash they have on the balance sheet.

[eclecticvalue]

re FRX

http://www.sec.gov/Archives/edgar/data/38074/000003807411000024/forest8kjune7.htm

"Pursuant to the ASR Contract, Forest paid $500 million to Morgan Stanley on June 3, 2011, and 9,839,752 shares were delivered to Forest on the same day"

It appears that FRX buying back almost 10 million shares for almost $51 per share (~ 35% premium). The shares are currently selling for $37.95.

Has this ever happened to anyone? i.e it appears that company is buying shares at a substantial premium.

I would consider selling for $50 (but I wont have a chance anytime soon)

Is this a way of FRX buying a large block of shares?

Why not just buy at the market?

Do folks think this is a wise capital allocation?

The market seems to like it, as it is hitting new highs.

Hey, you missed the fact there are more shares to be delivered and depending on the share price it will be in between 96% to 110% of the current share price.

[biaggio]

Thanks.

Is your understanding that further shares will be delivered so that the average price is between 96 and 110 % of the average price during a set period of time ie further shares will be delivered but no further cash will need to be given by FRX??

I am not sure what my brain was processing when I first read it.

[eclecticvalue]

NP, Right they will not have to pay any more cash to acquire shares. Depending on the price they will try to get it delivered at an average discount between 96% to 110% before March 31st 2012.

[Spekulatius]

Maybe time to visit this thread about Pharma in the middle of the epidemic? I am looking specifically at MRK right now. It’s a pretty understated drug company and what caught my eye is that they are very strong in vaccines. MRNA with their fancy tech and a couple of Phase 1 drugs is worth ~$28B and MRK with a bunch of vaccine (including one for Ebola) is worth $220B EV. Doesn’t seem right. Plus you get the whole drug company and pipeline with a monster like Keytruda with it. MRK also has a COVID-19 vaccine in the pipeline, but they don’t talk much about it. MRK generally only issues news about Phase 2 or higher drugs/vaccines.

Trades at 15x reset Y2020 earnings which seems about fair. Bought a few for my wife’s coffee can portfolio today and thinking about going more in. So far I like what I see, it wouldn’t call myself an expert in drug pipeline matters.