Are drug company stocks a bad long-term bet ?

[Dry Socks]

Drugs are expensive.
Medicare is facing huge unfunded liabilities.

One solution is for the gov't to do volume purchasing and drive down the cost of pills, etc.

Is that going to happen ?
Should I sell my health care ETF ?

 

[73ss454]

Socks,

What's going to happen is going to happen and no one knows.
No one can tell you what to buy or sell and when to do it with any degree of accuracy.
Everything is a guess at best.

I've learned this lesson the hard way.

Regards,
JOE

 

[wildcat]

This to me is a toss up.  Gov't implications, boomers taxing the system or maybe a move to preventive medicine (if our country is ever capable in believing in that idea).  I just wouldn't expect the same kind of returns as we have seen in the past, ala way above avg.  So 50/50  

What is your health care ETF?  Pharma weighted or diverse?

 

[Dry Socks]

What is your health care ETF? Pharma weighted or diverse?

IYH which I believe is pharma weighted.

 

[wabmester]

Is that going to happen ?
Should I sell my health care ETF ?

The goverment isn't exactly a fast-moving machine. It'll take years for any real change to happen, and in the meantime pharma companies are going to continue to milk us for every penny. Look at tobacco, something that should have been regulated and sued out of business years ago -- still going strong.

 

[brewer12345]

I think the drug companies and the hospitals will be under ever-increasing pressure to trim costs as the boomers age. The companies that stand to do the best are those that do disease management, preventative stufff, etc. Accordingly, I hold a stake in PLMD.

 

[HFWR]

Compared to MRK, PFE, or BMY, the ETFs all pay a paltry dividend...

 

[wildcat]

IMHO I think Merck pays out too much. Not a bad thing for income investors but MRK needs to fund new drug development 1st.

 

[SteveR]

Over the next few years you will see a much stronger presence in the US drug market from India and China.  That is were the growth will be.  US drug companies are closing down plants and moving operations to lower cost sites or combining operations to lower expenses.  Generic drug prices are under a lot of pressure from India already and branded products are being squeezed by state and Fed. gov. Medicare Part D will create a demand for more drugs but will force drug companies to offer them for lower and lower prices.  

This is not good news for most drug companies especially with FDA demanding more and longer clinical trials along with litigation costs and more frequent defense of patents.  Insurance companies are forcing more and more generic drug use through higher copays for non-generic drugs while forcing lower prices from manufacturers and distributors.  This all adds up to more costs with lower sales prices which will result in lower earnings and cuts in R&D which will slow the new drug discovery process.

The drug "cash cow" is being taken to India where they will feed it instead of trying to eat it.  

 

[brewer12345]

Over the next few years you will see a much stronger presence in the US drug market from India and China.  That is were the growth will be.  US drug companies are closing down plants and moving operations to lower cost sites or combining operations to lower expenses.  Generic drug prices are under a lot of pressure from India already and branded products are being squeezed by state and Fed. gov. Medicare Part D will create a demand for more drugs but will force drug companies to offer them for lower and lower prices.  

This is not good news for most drug companies especially with FDA demanding more and longer clinical trials along with litigation costs and more frequent defense of patents.  Insurance companies are forcing more and more generic drug use through higher copays for non-generic drugs while forcing lower prices from manufacturers and distributors.  This all adds up to more costs with lower sales prices which will result in lower earnings and cuts in R&D which will slow the new drug discovery process.

The drug "cash cow" is being taken to India where they will feed it instead of trying to eat it.  

Interesting. So does this bode well for Dr. Reddy and Ranbaxy?

 

[SteveR]

Interesting.  So does this bode well for Dr. Reddy and Ranbaxy?

Yes I believe it would since these are the two leading drug companies in India right now. Their biggest issue is distribution but with an ever increasing portfolio of drugs to offer that will be less of a problem since they can beat most US generics on price over the long run. If fact, most drug starting materials (APIs) are being made outside the US due to lower costs. The lower the cost of the API and the lower the labor costs (India, China, etc) the lower the total cost of the drug and the more attractive it is to insurance companies and pharmacies since it increased their profit margins.

 

[maddythebeagle]

I think we recently had a short discussion on the same issue and SteveR made some comments that were good. He is a good source. The thing that I find difficult is that a few years ago, pharma was the thing to be in since everyone thought the boomers would be this great new market for drugs (probably a little too optimistic) and now I think the pendulum has swung (to a little too pessimistic).

 

[wabmester]

Steve, I know biotech is out of fashion right now (which is why I'm looking), but are there any biotech players you like? I see a new research papers come out all the time in which they've identified the gene for some problem that could be used to design a new very target-specific drug. Is there anybody that really has a leg up in bioinformatics, genetic targeting, etc?

 

[SteveR]

Wab,

I tend to stay out of biologics for a number of reasons but I agree that they are not "in favor" right now; well most medical and pharma. are out of favor right now too.

I can't really give you much in the way of insight other than a general trend. Most of the very good ones are private and not public, so you can't buy their stock. One thing to consider with biologics is that FDA is looking very hard at allowing "generic" versions of biologics to be sold. Currently, this is not allowed so if FDA allows it, the price of biologics will go down over time and these companies will make less. I would not look for a big jump in this area for some time and that depends on stem cell research and the FDA biologics generic ruling. Just look around at who has biologics for the major disease areas and do your research on the last few years. I would look at SRLS. They are agile and hostile in the world of biologics and are doing well in a crappy market. Other than that, just look for companies that cater a larger market than just a single disease (cancer) or product.