A few years ago, I was very fond of the pharma industry. I thought it was the best sector in which an investor could put money. I was sure about that because health was to me the only sector which couldn't be affected by new technologies and Amazon, and all that revolution that's happening.
Time has passed, and once again, my opinion has changed. Even if they're much easier to analyze than bank stocks, I now believe that pharmas are on the same level than banks: unpredictable. There are some exceptions, but, most of them could hit an Iceberg tomorrow because of regulation, patent expiration, failure of some new drug, etc.
It's not like Dollarama, for instance. If Dollarama or TJX builds one more shop, they'll sell more stuff. But if Merck builds one more factory, people won't go there to buy more drugs. That's as simple as that.
Let's take a look at the market performance of 12 of the biggest pharmas/healthcare stocks over the last 5 years:
Johnson and Johnson: 33%
Eli Lilly: 81%
Average return for the 12 biggest pharma companies: 17,25% over the last 5 years
TSX/S&P500 return: 9,3% over the last 5 years
Even if they've beaten the market as a group, these 12 stocks only achieved a 17,25% performance over 5 years. That's less than 3% per year. Would you really be happy with such a performance?
If we take a look at some of other pharmas which are smaller, but big nonetheless, the results are much less interesting. I won't even talk about Valeant (-75%) and Concordia (-99%):
Jazz Pharma: -9%
United Therapeutics: -14%
My opinion was negative. These numbers confirm my opinion.