This week, I’ll be finishing my commentary on Andrew Bary’s recent cover story in Barron’s (The article is available online only for subscribers, a short preview is available at http://online.barrons.com/article/SB50001424052970203296004575320891909686872.html .) about the future prospects for drug stocks.
I started this series of blogs because after reading the article for the first time I was astonished at the lack of analysis of what simply appeared to be regurgitations of pharmaceuticals’ public relations flacks. The other interesting aspect of the article is the long term view that I takes. When the dates that Andrew is writing about finally come around no one’s going to remember either this article or him. I wish I could get writing gigs like that.
Last time I left off just as Andrew was about to tackle Roche. He quotes unnamed “bulls” as saying that this company has the best potential of the nine companies he’s writing about. He assumes the stock could rise 30% simply from earnings growth in the next several years. OK, why? Or, better yet, given all that we know that is out there working against this industry why should we expect earnings to simply “increase”? Especially since maybe $1 billion in annual revenues could be at risk if the FDA reconsiders its previous approval of the breast cancer drug Avastin. Check out the Bloomberg Businessweek article for more details (http://www.businessweek.com/news/2010-07-16/roche-avastin-trials-not-as-good-as-early-tests.html ).
Next up, Andrew tackles GlaxoSmithKline. This one is going to be easy. (You can tell that I’m enjoying this can’t you?) Now, Andrew couldn’t have known that the Avandia story (http://www.cbsnews.com/8301-504763_162-20010767-10391704.html ) would have broken so soon after he wrote his article. In fairness, his comments about the drug are probably his most insightful in the entire article. But, once again, he misses the obvious to follow lemming-like the unnamed bulls that he appears to be so enamored with. What gives here?
Andrew reviews three more companies in his article, Lilly, Bristol Meyers Squibb, and Astra-Zeneca. I won’t prolong the torture by going through these one by one. But, the same themes are there. A long term look at 2015, the current dividends are good, or yeah, there’re problems but there’s always tomorrow. (I’m expecting Annie to get some credits here.) Can this guy really believe all this?
I think Barron’s and Andrew really missed an opportunity here. I’m also disappointed with Barron’s, they typically run tougher pieces that challenge the conventional thinking.
It’s not like this hasn’t happened before in the U.S. economy. The auto and banking industries are good current examples. The personal computer industry is a slightly older example and the mainframe computer industry in the Sixties is another good example. How many of you out there remember Snow White and the Seven Dwarves? (Larry will tell you, I’m a serious student of history.)
One more thing, I’ll take a look back on this article in 2015 and see just well Andrew called this one.
As always, we welcome your feedback. Please contact us at larryrothmansblog@gmail.com. We look forward to hearing from you.
Contributed by Guy de Lastin
Showing posts with label Big Auto. Show all posts
Showing posts with label Big Auto. Show all posts
Monday, July 19, 2010
Thursday, February 26, 2009
Abbott Labs – Back to the Future
When I blogged recently about Abbott Laboratories (NYSE: ABT), I hadn’t expected to come back for a while. But, as I’m learning in the Blogosphere, things change.
Abbott is increasing its quarterly dividend 11%, its thirty-seventh annual increase (www.smartmoney.com/news/on/?story=ON-20090220-000734-1120 ). This was an opportunity to return and blog some more. Miles D. White, Abbott’s CEO, was upholding Guy’s Eighth Rule of Being a CEO, when in trouble, talk about the dividend, better yet, increase it.
The old saw about those who do not remember the lessons of history being doomed to repeat will really come into play here. What we’re seeing here is another of the large pharmaceuticals (does Abbott really even qualify as Big Pharma?) trying to keep up the pretense that it’s business as usual. Unfortunately, I’m only reminded of those recently unemployed who struggle to maintain their standard of living in order to convince their families and neighbors that everything is alright. One has to ask are they only really kidding themselves.
Monies that will be needed in the future are being dispensed today to keep the shareholders complacent. I still don’t see any reasons why Abbott Labs, along with several other pharmaceutical companies, won’t be traipsing up to the Hill in Washington in a few years looking for a bailout. Finding someone to blame other than themselves could be hard, especially by then. Big Auto blamed the banks. The banks blamed their borrowers. Giving that the drug industry will looking to the government for help, I suspect that they won’t be blaming Washington. But, hey, dumber things have happened.
I keep harping on companies like Abbott and Pfizer and issues like acquisitions (i.e., Wyeth), pursuit of the next “blockbuster” drug, and dividend increases because these are all busted strategies. Other industries like Big Auto and financial services have tried some or all of these and have come to naught. Why should things be any different this time?
A friend of mine (contrary to what Larry says, I do have some) once said that the definition of insanity was doing the same thing over and over expecting a different result. Get the picture. I know that I’m using up my quota of clichés in this blog but isn’t that what they’re for, right?
We’re looking at an industry that’s on the cusp of changes that will be seismic in nature. There will be winners and losers. So far, I’ve been focusing on the behaviors that will signify the losers. Shortly, I’ll begin to blog about the characteristics of the winners. This is an industry in transition and we won’t be lacking things to blog about.
As always, we welcome your feedback. Please contact us at larryrothmansblog@gmail.com. We look forward to hearing from you.
Contributed by Guy de Lastin
Abbott is increasing its quarterly dividend 11%, its thirty-seventh annual increase (www.smartmoney.com/news/on/?story=ON-20090220-000734-1120 ). This was an opportunity to return and blog some more. Miles D. White, Abbott’s CEO, was upholding Guy’s Eighth Rule of Being a CEO, when in trouble, talk about the dividend, better yet, increase it.
The old saw about those who do not remember the lessons of history being doomed to repeat will really come into play here. What we’re seeing here is another of the large pharmaceuticals (does Abbott really even qualify as Big Pharma?) trying to keep up the pretense that it’s business as usual. Unfortunately, I’m only reminded of those recently unemployed who struggle to maintain their standard of living in order to convince their families and neighbors that everything is alright. One has to ask are they only really kidding themselves.
Monies that will be needed in the future are being dispensed today to keep the shareholders complacent. I still don’t see any reasons why Abbott Labs, along with several other pharmaceutical companies, won’t be traipsing up to the Hill in Washington in a few years looking for a bailout. Finding someone to blame other than themselves could be hard, especially by then. Big Auto blamed the banks. The banks blamed their borrowers. Giving that the drug industry will looking to the government for help, I suspect that they won’t be blaming Washington. But, hey, dumber things have happened.
I keep harping on companies like Abbott and Pfizer and issues like acquisitions (i.e., Wyeth), pursuit of the next “blockbuster” drug, and dividend increases because these are all busted strategies. Other industries like Big Auto and financial services have tried some or all of these and have come to naught. Why should things be any different this time?
A friend of mine (contrary to what Larry says, I do have some) once said that the definition of insanity was doing the same thing over and over expecting a different result. Get the picture. I know that I’m using up my quota of clichés in this blog but isn’t that what they’re for, right?
We’re looking at an industry that’s on the cusp of changes that will be seismic in nature. There will be winners and losers. So far, I’ve been focusing on the behaviors that will signify the losers. Shortly, I’ll begin to blog about the characteristics of the winners. This is an industry in transition and we won’t be lacking things to blog about.
As always, we welcome your feedback. Please contact us at larryrothmansblog@gmail.com. We look forward to hearing from you.
Contributed by Guy de Lastin
Tuesday, February 24, 2009
Pharmacaeutical Outsourcing - Another Shot Across the Bow
I admit freely that I have been fascinated by the topic of outsourcing in the life sciences sector, especially the pharmaceutical group. (Larry actually thinks it’s unhealthy, but, I think he worries too much.) So, when the New York Times (NYT) recently published a report (http://www.nytimes.com/2009/02/19/business/19clinic.html?emc=eta1 ) discussing an article (http://content.nejm.org/cgi/content/full/360/8/816 ) in the latest issue of The New England Journal of Medicine (NEJM) about the outsourcing of clinical trials offshore and the issues that are raised by this.
The NEJM and the NYT focus more on the ethical and safety concerns raised by these practices. I won’t rehash what they wrote, Natasha Singer’s article in the latter is an excellent piece of reporting and when you have the time, read the original NEJM article. Despite being written by several medical academics at Duke University, it’s a very readable article for the layperson. (I offer myself as proof.)
I want to focus on the economic and business aspects of this practice. (OK, I admit it, I’m a capitalist.) While there are some questions about the statistics used, there is definitely a trend to move clinical trials offshore. Despite protests to the contrary, I suspect that pharmaceutical companies feel that there is less FDA oversight and other forms of government regulation when they move offshore. Also, some of the countries selected may prove to be somewhat less litigious than American trial lawyers tend to be.
Lower costs, the perennial reason for outsourcing and offshoring is certainly another good reason for doing so.
But, what are the long term implications for the US pharmaceutical industry? Once again, we see a key US business differentiator that contributed to past American supremacy in the global drug industry being packed up and sent offshore. Besides the jobs lost, the early access to innovative treatments lost to Americans and the potential to enhance these differentiators are gone.
The major long term consequence is that US pharmaceutical manufacturers are assisting in the development of future competitors. The FDA should also stop and think about this for a bit. Once the genie is out of the bottle and new drugs are being developed, tested, and marketed abroad in a big way, the FDA is not going to be able to control policy as they have in the past.
In my recent blogs, I’ve been talking about changes in the life sciences sector and their long term implications. In particular, I’ve been hammering Big Pharma about the similarities to Big Auto. We’re seeing more evidence with this NEJM article. By itself, it’s not earth shattering. But, taken with everything else that’s going on, the future doesn’t look good for Big Pharma.
As always, we welcome your feedback. Please contact us at larryrothmansblog@gmail.com. We look forward to hearing from you.
Contributed by Guy de Lastin
The NEJM and the NYT focus more on the ethical and safety concerns raised by these practices. I won’t rehash what they wrote, Natasha Singer’s article in the latter is an excellent piece of reporting and when you have the time, read the original NEJM article. Despite being written by several medical academics at Duke University, it’s a very readable article for the layperson. (I offer myself as proof.)
I want to focus on the economic and business aspects of this practice. (OK, I admit it, I’m a capitalist.) While there are some questions about the statistics used, there is definitely a trend to move clinical trials offshore. Despite protests to the contrary, I suspect that pharmaceutical companies feel that there is less FDA oversight and other forms of government regulation when they move offshore. Also, some of the countries selected may prove to be somewhat less litigious than American trial lawyers tend to be.
Lower costs, the perennial reason for outsourcing and offshoring is certainly another good reason for doing so.
But, what are the long term implications for the US pharmaceutical industry? Once again, we see a key US business differentiator that contributed to past American supremacy in the global drug industry being packed up and sent offshore. Besides the jobs lost, the early access to innovative treatments lost to Americans and the potential to enhance these differentiators are gone.
The major long term consequence is that US pharmaceutical manufacturers are assisting in the development of future competitors. The FDA should also stop and think about this for a bit. Once the genie is out of the bottle and new drugs are being developed, tested, and marketed abroad in a big way, the FDA is not going to be able to control policy as they have in the past.
In my recent blogs, I’ve been talking about changes in the life sciences sector and their long term implications. In particular, I’ve been hammering Big Pharma about the similarities to Big Auto. We’re seeing more evidence with this NEJM article. By itself, it’s not earth shattering. But, taken with everything else that’s going on, the future doesn’t look good for Big Pharma.
As always, we welcome your feedback. Please contact us at larryrothmansblog@gmail.com. We look forward to hearing from you.
Contributed by Guy de Lastin
Monday, January 19, 2009
President Obama and US Jobs – What Happens Next?
We have a new President, Barack Obama. “Things” have changed and will continue to do so. What I want to blog about today is what this could mean for US jobs, in particular, in the life sciences sector.
Big Pharma has been offshoring the jobs of its employees for years now. Sometimes, to third party vendors, sometimes through the fiction of captive centers. Either way, jobs have left the country. Also, let’s not forget all the cash that some of them keep offshore to avoid US taxes. A lot of investment and jobs could be funded with it.
President Obama ran and was elected on keeping and creating jobs in America. The details still need to be worked out, but, I suspect that some combination of tax policy and government spending will be used. Other less formal methods of persuasion may be used as well. For example, how much longer will President Obama continue to meet the CEO’s of large corporations who are sending jobs overseas and laying off Americans here at home. I’ll wager that Democrats in both Houses will be raising the same point themselves soon.
The continuing global recession will impact the life sciences sector as well as the rest of the economy. Unfortunately, for life sciences, it’s going to get involved in government policy and funding just like the auto and financial services sectors. (Please see my earlier blogs comparing life sciences to Big Auto.) The old line firms, Big Pharma, have only been deluding themselves for some years now. Cost cutting has maintained profit levels but once patents expire with no new blockbusters to replace them and generics begin to erode market share then some of those companies will start to go away.
Here’s where we may see Big Pharma starting to find ways to hire more people here in the States. Either that or they may begin to break up. Given that CEO’s and their staff are the last ones to realize that the game is over, we’ll probably start to see other desperate measures. Remember that overseas cash that I mentioned earlier? We may see Big Pharma lobbyists trying to get some tax breaks in Washington promising jobs creation or return from abroad in exchange. Of course, the question is what would these people do? Hiring back office people doesn’t add to the bottom line although it may improve employee morale among the existing overworked staff. Hiring sales rep’s only works when there’s something to sell. Hiring R&D types to produce something to sell is not a bad idea, but, given how long it takes to develop new drugs and then do trials, there won’t be any immediate relief here.
In closing, maybe Big Pharma may add jobs to curry favor with a new administration desperate to put people to work, I just don’t think they’ll last.
As always, we welcome your feedback. Please contact us at larryrothmansblog@gmail.com. We look forward to hearing from you.
Contributed by Guy de Lastin
Big Pharma has been offshoring the jobs of its employees for years now. Sometimes, to third party vendors, sometimes through the fiction of captive centers. Either way, jobs have left the country. Also, let’s not forget all the cash that some of them keep offshore to avoid US taxes. A lot of investment and jobs could be funded with it.
President Obama ran and was elected on keeping and creating jobs in America. The details still need to be worked out, but, I suspect that some combination of tax policy and government spending will be used. Other less formal methods of persuasion may be used as well. For example, how much longer will President Obama continue to meet the CEO’s of large corporations who are sending jobs overseas and laying off Americans here at home. I’ll wager that Democrats in both Houses will be raising the same point themselves soon.
The continuing global recession will impact the life sciences sector as well as the rest of the economy. Unfortunately, for life sciences, it’s going to get involved in government policy and funding just like the auto and financial services sectors. (Please see my earlier blogs comparing life sciences to Big Auto.) The old line firms, Big Pharma, have only been deluding themselves for some years now. Cost cutting has maintained profit levels but once patents expire with no new blockbusters to replace them and generics begin to erode market share then some of those companies will start to go away.
Here’s where we may see Big Pharma starting to find ways to hire more people here in the States. Either that or they may begin to break up. Given that CEO’s and their staff are the last ones to realize that the game is over, we’ll probably start to see other desperate measures. Remember that overseas cash that I mentioned earlier? We may see Big Pharma lobbyists trying to get some tax breaks in Washington promising jobs creation or return from abroad in exchange. Of course, the question is what would these people do? Hiring back office people doesn’t add to the bottom line although it may improve employee morale among the existing overworked staff. Hiring sales rep’s only works when there’s something to sell. Hiring R&D types to produce something to sell is not a bad idea, but, given how long it takes to develop new drugs and then do trials, there won’t be any immediate relief here.
In closing, maybe Big Pharma may add jobs to curry favor with a new administration desperate to put people to work, I just don’t think they’ll last.
As always, we welcome your feedback. Please contact us at larryrothmansblog@gmail.com. We look forward to hearing from you.
Contributed by Guy de Lastin
Subscribe to:
Posts (Atom)