A Sector You Should Consider

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Everyone falls sick. It is something you really can’t avoid, so you head to the doctor and he prescribes you your medicines and you go home, consume them, and then you get better. Demand for these medications exists pretty much all the time.

There’s also going to be a soaring demand for medicine courtesy of the aging out of the “Baby Boomers,” the first set of which crossed the 60 year old benchmark around 2005. This phase is expected to last until 2024. Clearly there will be some long term opportunities in the pharmaceutical sector, so let’s take a good look at some companies in this industry and how they’re positioned.

Bristol-Myers Squibb (NYSE: BMY) declared its third quarter results on Oct. 24. The global biopharmaceutical company reported  revenues of $3.74 billion, down 30% on the year and short of analyst expectations, which were at $3.96 billion. One of the main reasons for the sub-standard performance was the fact that the company took a $1.18 billion non-cash impairment charge for the discontinuation of the development of BMS-986094, which was in Phase II development. It is a nucleotide polymerase which was expected to aid the treatment of Hepatitis C. Consequently, net losses came in at $0.43 per share compared to a profit of $0.56 a share last year.

Pfizer (NYSE: PFE) also released its third quarter results recently, results that had been postponed due to the impact of hurricane Sandy. The company reported revenues of $14 billion for the quarter, down 16% on the year. The loss of exclusivity of its key drug Lipitor was the main cause behind the fall in revenues, which analysts expected to be at $15.5 billion. Segment wise, primary care revenue fell by 39% to $3.61 billion.

The loss of exclusivity of Liptor in the US, Europe and Japan reduced revenues by $2.4 billion. Specialty care revenues fell to $3.41 billion thanks to the decline of Prevnar/Prevenar. Generic product launches helped the established products division increase operational revenue by 11%. Emerging markets also showed good results, with a 6% operation revenue growth thanks to China, Mexico, and Russia.

Merck (NYSE: MRK) also recently posted its third quarter results. Earninigs per share were at $0.95. Revenue fell to $11.488 billion thanks to the Singulair (an oral medicine for the treatment of chronic asthma) patent expiry and the currency rate. Sales for the drug shrank by 55% to $602 million. Global overall sales were at $11.5 billion for the year, a decrease of 4% from the same quarter in the previous year. 

The company’s pipeline also looks good, with drugs such as the insomnia drug Suvorexent, for which late stage results in June revealed that the therapy helped patients fall and then stay asleep. According to estimates, 70-80 million people in the States suffer from insomnia and only about 20% of them take sleeping pills. The company has announced plans to file applications for vorapaxar, an investigational anti-thrombotic medicine, by 2013. Add to this the fact that the company has entered into an exclusive worldwide licensing agreement for AiCuris’ late-stage antiviral candidate for the treatment and prevention of human cytomegalovirus infection in transplant recipients.

Out of these three, Merck is particularly interesting. The company has strong financials, and while the P/E is on the higher side at 20.83, the company has a pretty strong pipeline of about 20 drugs in late stage trials.The company has seen the challenge from the expiry of Singulair and has in turn focused on key products in certain geographies to offset that challenge, as can be seen by their third quarter performance. The company is also entering high growth markets such as Japan. If you’re looking to invest in this sector, I’d recommend Merck. 


ceciljohn2002 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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