One point on TEVA. You WERE SPOT ON in terms on them slapping a label on a bottle and sending to you nearest Walgreens! What is even better for a company like TEVA is that the sales force is virtually 0 compared to Lilly, GSK, and Pfizer and the marketing is the same as once a product goes generic- the presence and marketing go generic as well. This was a great catch on your part as usual!

And by the way- I’d like to comment on Rene and her thoughts on Pfizer. Every company has had blockbusters (Lipitor and Viagra are great and you missed Zoloft). But look at the future pipeline for Pfizer- not just the $$$ being placed in to see what their future looks like- their is a reason they have had some serious layoffs— the future may not be as bright as the past

Joe: I completely understand. Reading Fisher as a supplement could be the reason Buffet says he is 85% Graham and 15% fisher.

Great site, by the way.

Indeed, things are improving for the medical industrial complex, due to increasing life expectancy and the conversion of an increasing number of diagnoses from mortal conditions to chronic %u2013 %u201Ccan’t cure it but it won’t kill you%u201D maladies. We have already seen this with the number one killer of American’s, cardiac conditions of every variety and stripe, and an increasing number of the second most prominent cause of death, cancer. In fact, it wasn’t long ago that John McCain’s melanoma would have ended his presidential prospects via the mortician’s primary … a la Paul Tsongas.

Add this to life expectancies that have grown from 47 years to 79 years since 1900 ( projected to approach to nearly 100 during the current lifetimes for boomers) and you have two realizations. First, the government will have no choice but to fund treatment (can’t convert healthcare into a means lottery, where the wealthy live 30-to-40 years more than the poor), and, second, government will have no choice but to insure that medical science remains sufficiently profitable to provide a respectable and R&D-risk-adjusted return on the investor’s capital — even if the retirement age is extended to accomplish this.

I believe, as well, that government will have no choice but to extend the period of patent exclusivity for novel (new) therapeutics, rather than reducing it, as was done during the first term of this President Bush. The effect of reducing the marketable life of developed products shortens the time during which new medications earn a return on investment, making each new product more expensive before it graduates to generic status. This shorter product life also urges quicker churning of new, patent-protected products in to the market, which similarly increases costs to the consumer and, more importantly, the institutional payer (i.e., insurance, the most prominent of which is Medicare).

Thanks,

Robert

PS. Joe, hope all is well with you, your bride, and the kids.

I do think Pfizer is somewhat (but not way) underpriced right now relative to its value if the company’s pipeline produces some promising results. If not, Pfizer may be underpriced today, but its value will drop as the sales (and cash flows) drop when Lipitor expires.

Here’s the question, to which I do not have an answer yet: What will Pfizer do to keep its value up when that patent expires. Generating some $10 billion in owner earnings today, what will it do to preserve the value down the road. If it will generate less — say, $6 billion in 2012 — the value will plummet if the company does not buy back 40% or so of its shares from now til then.

It has the cash flow to do so assuming it cuts its dividend. Generating about $1.48 a share in owner earnings, if it keeps the dividend at $1.10, it won’t be able to do much of a buyback without assuming some debt.

Pfizer’s options?

1. Get something promising out of the pipeline and into the market, and/or
2. Cut the dividend and start buying back shares.

Not sure which way this will play out? Check out one of the other 10,000 opportunities Mr. Market is dying to sell you!

OpenMinded: Fisher should be read as a supplement to other books that discuss valuations. Without Fisher’s (or similar) points, people would look solely to the past results to judge the future of a business, with potentially devastating consequences.

I wish Fisher would have talked more about valuation; still, I don’t think people should skip the book simply because he doesn’t.

My two cents.

I have a hard time reading Fisher. My big reason is that he doesn’t incorporate price enough in the investment decision making process. In none of his 15 points does he mention it. I’m skeptical of any investment philosophy where the message is “any price is ok”.

My opinion is if one was given this one book to be their investment bedrock, speculation and not investment would be the likely outcome.

I would enjoy feedback.

Thank You.

I work on the fringe of the industry (an American CRO) and we serve mostly biotech with a small % of work for Big Pharma. As a new investor, I feel this is a very speculative industry and I am leery of putting my money into it. Your points on Teva are spot on – it does seem to be one of the few players that are not speculative.

Great work as always,

Aaron

So from ROA and ROE point of view, WYE is a well run company, PFE is worst. If you look back history, GSK is best run company, followed by WYE and LLY. Although FreeCash/Sale is mostly around 20% in 2007 for these companys as shown above, PFE is the only one shows the ability to consistently convert 20-25% into free cash ? Also the dividend yield is highest for pfe, 7%

Having said all those nice things though, the numbers are still not quite right and there are several worrisome issues that keep me from pulling the trigger just yet. The Democrats will be reversing some of that industries sweetheart deals like the “no price negotiation” clause with medicare and the absurd restrictions on importation from places like Canada and the E.U. and the company will take a hit if it either cuts the dividend or repatriates dollars to pay said dividend, it has to do one or the other…unless it hits some kind of R&D jackpot soon.

Paul