To The Moon

In my first post-covid post - Invest In Healthcare ($UNH) - Post Covid View. I said that I would consider adding healthcare stock to my portfolio.

I have done my homework but did not find any within budget and compelling stock.

I have not given up hope yet.

And, I have widened my horizon to include pharmaceutical as well (see below).

Writer Jacob Sonenshine wrote that there are 2 approaches to pharma stocks investment:

(1) Investor could guess the pharmaceutical stocks will have most success in developing their drug pipelines?

• The ones planning to move new drugs to market can have huge upside, when successful.

• However, when the pharma stock is already expensive, any setbacks could hurt the stock.

• Good example - $Eli Lilly(LLY)$.

• Eli Lilly closed at $434.70 on 13 Jul 2023.

• It is trading at 49 times expected earnings per share (EPS) for the next 12 months.

• Eli Lilly has already rallied +41% in the past 12 months.

• Sales of Mounjaro (Type 2 diabetes treatment) are expected to grow over sixfold to $20 Billion in 2027.

• At the same time, its work-in-progress Alzheimer’s treatment, Donanemab, is undergoing trial process.

• Any disappointment in Donanemab, would hurt the shares.

(2) Alternatively, an investor, could buy a handful of the “cheap”, not penny stocks.

• Cheap pharma stocks are a better bet.

• They have been knocked down because their legacy drugs’ sales are declining (1) as patents expire and (2) they lose market share to generics.

• However, any success in moving their new drug candidates toward approval by the Food and Drug Administration (FDA) will lift their stocks, as investors anticipate higher earnings.

• Risk (of course) is that the “new” drugs do not get FDA approval.

• Therefore, the workaround is to invest a basket of cheap companies.

• With the hope that gains in a few of them can offset disappointments in others.

What Are The 4 Plus Sides Stocks?

Common features of the 4 stocks that I will be sharing:

• The 4 stocks trade at forward price/earnings multiples below the median of under 13 times of the largest 9 pharma companies, based on FactSet market-cap data.

BMY - past 5 days stock price movement

(1) $Bristol-Myers Squibb(BMY)$.

• Bristol Myers Squibb (BMY), closed at $62.28 on 13 Jul 2023.

• It trades just under 8 times earnings.

• Market’s main concern is its annual EPS of $8 will stagnate or worse decline.

• This is as a result of declining sales due to several drugs’ soon to expire patents.

• These drugs contribute to the $46.6 Billion total revenue for 2023.

• On a brighter note, BMY has 8 new drugs going thru trial; with its most promising: Milvexian, a stroke prevention treatment

• These new products could result in >$30 Billion in annual revenue - according to Jefferies analyst Akash Tewar.

• Mr Tewar also forecast a top price target of $85, or +36.48% upside.

PFE - past 5 days stock price movement

(2) $Pfizer(PFE)$.

• Pfizer (PFE) closed at $36.06 on 13 Jul 2023.

• It trades just under 11 times earnings.

• With Covid-19 waning, its annual vaccine sales will be reduced by more than half to under $14 Billion in 2023; over total sales of $67.8 Billion.

• Likewise, Pfizer has a pipeline of new drugs. Eg. a meningitis treatment.

• Pfizer is also exploring the possibility of rejuvenating its vaccine business by combining a flu and Covid vaccine.

• Early estimates > 130 Million Americans could get the vaccine by 2026.

• This is up from the 79 Million Covid vaccine (only) in 2023.

AMGN - past 5 days stock price movement

(3) $Amgen(AMGN)$.

• Amgen closed at $227.66 on 13 Jul 2023.

• It trades just under 12 times earnings.

• Like other pharma companies, several of Amgen’s drugs are set to see sales declines of a few billion dollars a year.

• All this while the company tries to increase its $27 Billion annual revenue stream.

• AMG133 and AMG786, their obesity drugs are in trial phases; with a possible market value that could be above $30 Billion annually.

• With its agreement to purchase Horizon Therapeutics (HZNP) for $27 Billion, it would immediately add > $5 to company’s existing $18 in annual EPS.

• Though the Federal Trade Commission (FTC) has sued to block the deal, Amgen would still be able to make other acquisitions or proceed with share buy back.

(4) $Gilead Sciences(GILD)$.

• Gilead Sciences closed at $76.71 on 13 Jul 2023.

• It is trading at just under 11 times earnings.

• With numerous products in decline, it depends on its new product.

• One new drug is Trodelvy, a cancer treatment.

• It is expected to grow from about $1 Billion (2023) to $2.7 Billion by 2028, according to FactSet.

• With that, it could take sales from $27 Billion (2023) to above $30 Billion by 2028.

• EPS should also gain about +6% annually to about $9 by 2028.

What do you think of the 4 big pharma stocks put forth in Barron’s post (see above)?

• Do you think pharma stocks deserves a spot in your portfolio?

• Do you think the recommendations are “good” value stocks or are there better options in the US market?

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