More twilight zone material: progress from the Pinto case stalled at the mercy of the "Too Big To Fail" doctrine. Undoubtedly backed by the misguided "rational human economic model." In the Pinto case, punitive damages were awarded to prevent future corporate decisions to measure cost/benefits by putting a price tag on tag on human life…. Ilene
Before the Ford experts left Washington to return to drafting tables in Dearborn they did one other thing. They managed to informally reach an agreement with the major public servants who would be making auto safety decisions. This agreement was that "cost-benefit" would be an acceptable mode of analysis by Detroit and its new regulators. And, as we shall see, cost-benefit analysis quickly became the basis of Ford’s argument against safer car design.
Cost-benefit analysis was used only occasionally in government until President Kennedy appointed Ford Motor Company president Robert McNamara to be Secretary of Defense. McNamara, originally an accountant, preached cost-benefit with all the force of a Biblical zealot. Stated in its simplest terms, cost-benefit analysis says that if the cost is greater than the benefit, the project is not worth it—no matter what the benefit. Examine the cost of every action, decision, contract part or change, the doctrine says, then carefully evaluate the benefits (in dollars) to be certain that they exceed the cost before you begin a program or—and this is the crucial part for our story—pass a regulation.
As a management tool in a business in which profits matter over everything else, cost-benefit analysis makes a certain amount of sense. Serious problems come, however, when public officials who ought to have more than corporate profits at heart apply cost-benefit analysis to every conceivable decision. The inevitable result is that they must place a dollar value on human life.
This is a brief article of where the pharmaceutical industry has been, and where it could be headed in the near future. In contrast to past articles where I focused on the pipelines of GSK, LLY, MRK, BMY and ‘biotechs’ GENZ, GILD, and others, this is a summary of the industry. The overall market continues its grind up and I am gun-shy of its continued direction, but with the passage of the health care bill, biotechs that serve niche markets will be well positioned to see a rise both in stock price and potential M&A activity. In addition, as noted on Friday, March 19th on the laggers/leaders of the past month or so, Telecom and Healthcare were at the bottom of the pile. For the review of Big Pharma and some biotech picks at the end, generic companies are excluded from most data (Merck KGaA, Mylan, Teva and Watson).
From 2002 to 2009, the top pharmaceutical companies by sales had growth rates greater than 12% (compounded annually). Unfortunately, this growth is not sustainable and should move towards flat to nominal growth by 2014. The growth decline will challenge these companies to seek more profitable routes, including licensing and acquisitions. Picking the right companies based upon the science is at the forefront of good investing. Not they will all succeed because the science is sound, but understanding the molecule, target, and the disease helps guide smart decisions. Good management helps as well!
Let's start with a summary of potential acquirers. Table 1 is a list of the 15 largest pharmaceutical and biotech companies ranked by healthcare revenue. Some companies (e.g., Bayer and Johnson) have additional revenue which is not included the sales data.
I understand why investors don’t want to own Pfizer (PFE); there is little excitement in the stock:
It is down significantly from the Viagra-high it reached in 1998. Yes, Pfizer is the maker of Viagra, the drug that spawned a slew of commercials that made TV unwatchable (especially if you have little kids who ask you if they or you need this medicine that makes people on TV hug each other, or ask you “What is reptile dysfunction?”).
Pfizer’s earnings have not gone anywhere for years.
As with almost anything medical-related, Pfizer is exposed to the political risks of Washington DC.
Finally, it is facing patent expirations of its major blockbuster drugs like Lipitor ($12 billion of sales) and a few others that will hinder PFE’s future growth for years.
There is not much one can do about TV commercials except cancel cable or watch less TV (I did both). Nor there is not much one can do about the stock-price decline over the last ten years – maybe the only thing to do is learn not to buy hype; after all, Pfizer was trading at over 50 times earnings in the late ’90s.
I don’t want to dismiss the political risk, but it seems that due to extensive lobbying efforts by pharmaceutical companies, political risk has turned into only a slight inconvenience. Pharma companies have agreed to $80 billion of price concessions over the next ten years, but at the same time they’ll benefit from a larger customer base, as more people will have access to health insurance.
Instead of being mesmerized by huge drug expirations, we can do the value-investor kind of thing – estimate the impact of drug expirations on PFE’s cash flows and value the stock using discounted cash-flow analysis based on these assumptions.
So let’s value Pfizer:
No New Drugs Scenario: At the end of 2009 Pfizer acquired Wyeth (WYE), a large pharmaceutical company. I’ll address this very important acquisition in a bit, but first, let’s look at Pfizer on a pre-Wyeth basis. The fewer optimistic assumptions we use, the less likely the future will disappoint us. Applying this logic, let’s assume that soon after a drug-patent expiration, as the generic version hits the market, revenue…
All treatments have risks and side effects, and here we have a treatment for a normal biological change in women, a natural part of aging. So my one question, in response to the ending of this article, is what is the evidence that bio-identical hormone replacement has a profile of greater good than harm? I’d like to see those studies. Haven’t yet. – Ilene
Even though female readership on this blog is only eight percent, on behalf of that eight percent, inquiring minds find themselves pondering a rather unusual question: Is Horse Estrogen For Women A Good Idea?
What brings this question to light of day is the marketing efforts of Wyeth (now owned by Pfizer via a merger this year), to promote hormonal treatments Prempro, a combination of aptly named Premarin, an estrogen drug produced from the urine of pregnant mares, and an additional hormone, progestin.
As one might suspect simply from the sound of it, various complications, problems, and lawsuits have arisen.
MILLIONS of American women in the 1990s were told they could help their bodies ward off major illness by taking menopausal hormone drugs. Some medical associations said so. Many gynecologists and physicians said so. Respected medical journals said so, too.
Along the way, television commercials positioned hormone drugs as treatments for more than hot flashes and night sweats — just two of the better-known symptoms of menopause.
One commercial about estrogen loss by the drug maker Wyeth featured a character named Dr. Heartman in a white coat discussing research into connections between menopause and heart disease, Alzheimer’s disease and blindness.
“When considering menopause, consider the entire body of evidence,” Dr. Heartman said. “Speak to your doctor about what you can do to help protect your health during and after menopause.”
Connie Barton, then a medical office assistant in Peoria, Ill., was one woman who responded to such messages. She says she took Prempro, from 1997, when she was 53, until 2002, when she received a diagnosis of breast cancer. As part of her cancer treatment, she had a mastectomy to remove her left breast.
I have friends who work as pharmaceutical sales reps and quite frankly, I’ve never gotten a good answer as to why the pharma industry is even allowed to push drugs on doctors or the general public at large, either with gifts, dinners or television commercials.
I am by no means anti the drug industry, I just get very uncomfortable with the possibility that a doctor may be prescribing a drug for reasons other than that it is the best possible drug for the patient.
Anyway, the Obama administration’s Justice Department has just fired a signal flare over the entire industry with its massive, record-breaking criminal fine against Pfizer (PFE) over it’s marketing activities. I’d be surprised if the rest of the drugmakers don’t make big adjustments as a result of it.
From the AP via Yahoo Finance:
WASHINGTON (AP) — Federal prosecutors hit Pfizer Inc. with a record-breaking $2.3 billion in fines Wednesday and called the world’s largest drugmaker a repeating corporate cheat for illegal drug promotions that plied doctors with free golf, massages, and resort junkets.
Announcing the penalty as a warning to all drug manufacturers, Justice Department officials said the overall settlement is the largest ever paid by a drug company for alleged violations of federal drug rules, and the $1.2 billion criminal fine is the largest ever in any U.S. criminal case. The total includes $1 billion in civil penalties and a $100 million criminal forfeiture.
If we were to judge degrees of criminality by the size of the fine levied, then we’d have to conclude that Pfizer is the largest criminal entity in the history of the United States. Now of course that isn’t true (AIG is).
What is true is that Pfizer has settled a marketing corruption case 4 times this decade, is a repeat offender, and is so large that only a massive fine like this would actually have the power to act as a true deterrent. Anything less may have just been chalked up by the industry as “a cost of doing business”.
$2.3 billion is no joke.
Now as far as the whole television commercial thing, can someone explain to
Moments ago, US equity futures tumbled to their lowest level in the overnight session, down 22 points or 1.1% to 1924, following both Europe (Eurostoxx 600 -1.8%, giving up more than half of yesterday's gains, led by the banking sector) and Japan (Nikkei -2.2%), and pretty much across the board as DM bonds are bid, EM assets are all weaker, oil and commodities are lower in what is shaping up to be another EM driven "risk off" day. Only this time one can't blame the usual scapegoat China whose market is shut for the long weekend.
As Bloomberg's Richard Breslow points out, "yesterday, China being closed was a source of calm for the markets. This morning their being closed is seen as...
The stakes couldn't be higher for the August employment report, even though the month has typically been cursed by disappointment.
For Federal Reserve officials, who are trying to gauge the U.S. economy's prospects as they consider raising interest rates in less than two weeks, have already been thrown a curve ball — global economic malaise and reeling financial markets.
Traders hadn't forgotten the events of last week and were quick to sell their positions in the face of tomorrow's NFP data.
Today's close in the S&P left a bearish inverse doji (gravestone doji), marking supply above 1,950. Bears will feel confident heading into tomorrow's data, assuming Thursday's 1,975 high is not breached. The downside target is a retest of 1,867. A move higher will set up a challenge of 2,044.
The Nasdaq had a quieter day. It didn't suffer the same wide range as the S&P, but today's close finished with a bearish 'cloud cover' over yesterday's trading. Shorts will be liking the risk:reward for a ret...
Can you believe that its a really big deal to some if an index is down 9.9% from it highs (non correction territory) or if its down 10.1% (correction territory). Does .2% constitute that we make a different allocation decision? Are you kidding me?
Do you find yourself agreeing more with the person on the left or right? I am in the camp with Lou on the right. Should we make investment decisions based upon a term (correction)? Not me
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The dark veil around China is creating a little too much uncertainty for investors, with the usual fear mongers piling on and sending the vast buy-the-dip crowd running for the sidelines until the smoke clears. Furthermore, Sabrient’s fundamentals-based SectorCast rankings have been flashing near-term defensive signals. The end result is a long overdue capitulation event that has left no market segment unscathed in its mass carnage. The historically long technical consolidation finally came to the point of having to break one way or the other, and it decided to break hard to the downside, actually testing the lows from last ...
With the VIX index jumping 120 percent on a weekly basis, the most in its history, and with the index measuring volatility or "fear" up near 47 percent on the day, one might think professional investors might be concerned. While the sell off did surprise some, certain hedge fund managers have started to dip their toes in the water to buy stocks they have on their accumulation list, while other algorithmic strategies are actually prospering in this volatile but generally consistently trending market.
Stock market sell off surprises some while others were prepared and are hedged prospering
Naysyers are warning that the recent plunge in Bitcoin prices - from almost $318 at its peak during the Greek crisis, to $221 yesterday - is due to growing power struggle over the future of the cryptocurrency that is dividing its lead developers. On Saturday, a rival version of the current software was released by two bitcoin big guns. As Reuters reports, Bitcoin XT would increase the block size to 8 megabytes enabling more transactions to be processed every second. Those who oppose Bitcoin XT say the bigger block size jeopardizes the vision of a decentralized payments system that bitcoin is built on with some believing ...
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Baxter Int. (BAX) is splitting off its BioSciences division into a new company called Baxalta. Shares of Baxalta will be given as a tax-free dividend, in the ratio of one to one, to BAX holders on record on June 17, 2015. That means, if you want to receive the Baxalta dividend, you need to buy the stock this week (on or before June 12).
Back in December, I wrote a post on my blog where I compared the performances of various ETFs related to the oil industry. I was looking for the best possible proxy to match the moves of oil prices if you didn't want to play with futures. At the time, I concluded that for medium term trades, USO and the leveraged ETFs UCO and SCO were the most promising. Longer term, broader ETFs like OIH and XLE might make better investment if oil prices do recover to more profitable prices since ETF linked to futures like USO, UCO and SCO do suffer from decay. It also seemed that DIG and DUG could be promising if OIH could recover as it should with the price of oil, but that they don't make a good proxy for the price of oil itself.
Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene
The replay is now available on BNN's website. For the three part series, click on the links below.
Part 1 is here (discussing the macro outlook for the markets)
Part 2 is here. (discussing our main trading strategies)
Part 3 is here. (reviewing our pick of th...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at email@example.com with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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