Drug stocks are still depressed for many reasons. One is that the market has overly optimistic expecations for new blockbuster drugs with atmospheric margins like used to be the rule in the past. The generic drug industry is growing by leaps and bounds and Medicare Part D along with the huge drug distribution companies like Cardinal Health etc. are all demanding lower prices. Add to that the costs associated with R&D for new drugs and the fact that all the easy stuff has already been found and you have a ramping down of the overall profitability of major Pharma.
Add India and China to the mix and you have very low factory costs for generic drugs and a disregard for US patents (China, Brazil, Africa etc.) The result is lower costs of drug ingredients and final doseage forms that are making very strong inroads into the US and EU markets lowering prices and margins. This will continue to be the case for the next several years. Low cost producers of generics will force the US and EU major pharma. companies to move operations to lower cost areas (already taking place) and forging "deals" with the Chineese and Indian producers. Meanwhile, the US and EU phama companies still account for most of the R&D for new drugs and devices. They hold the patents but the legal costs to defend the patents against the generics companies is growing more each year. In the US alone, FDA is sitting on over 300 generic applications, each with an 18 month average approval timeframe and many of these are from non-US sources.
OK, back to my point...
Some smaller drug and medical device companies will continue to do well with 8-15% annual growth. Merck, Pfizer, JnJ etc require some pretty huge drugs to gain that much year to year growth based on their current size. The smaller companies may be fluctuate more but may also have the better longer term returns. Also, look at India and China generics companies. Dr Ready is one that is growing fast. Do some research and see if you want to dip your toe in a couple of these stocks.
