lundi 8 juillet 2019

A review of pharma/healthcare

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%
Roche: -7%
Pfizer: 46%
Novartis: 15%
Merck: 47%
GlaxoSmithKline: -23%
Sanofi: -16%
AbbVie: 31%
Bayer: -51%
Eli Lilly: 81%
Amgen: 55%
Bristol-Myers-Squibb: -4%

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%):

Celgene: 9%
Jazz Pharma: -9%
United Therapeutics: -14%
Biogen: -20%
Perrigo: -66%
Teva: -82%
Mallinkrodt: -89%

My opinion was negative. These numbers confirm my opinion.

4 commentaires:

  1. I bougth some TEVA, maybe it is a mistake, we ll see in 2-3 years

  2. I now have a negative opinion of these stocks as well. After "x" number of years, your competition can produce your drug and sell it for less than you do in generic form. Your new drugs in the pipeline may or may not be approved. The American medical insurance companies may choose to pay for your drug or make their customers go through hoops or refuse to pay (prove to us you tried a generic version of a competitor's drug). The competition can also come up with something similar or better.
    To add that something extra to the mix. Trump is on the record as saying that drug prices in America are way too high and he is going to do something about it. He wants Americans to pay the same for drugs as the rest of the world (which would result in way less profits for drug companies if he got his way). The sector has been beaten down lately. There might be value. But this is not without risks. There's way more risk here than banking. You can compare it to mining stocks. Too many variables. Too many things can go wrong.

  3. i bought ABBvie at 69. 5 year plus hold.