Warren Buffett is in the news again, only this time not for a witty remark or major acquisition, but for being diagnosed with early-stage prostate cancer. At 81 years of age, he joins many men of advanced age with the disease.
Buffett's prognosis is quite good. The American Cancer Society says the five-year survival rate for all men with prostate cancer is nearly 100%, the 10-year survival rate is 98% and the 15-year survival rate is 91%.
On Feb. 1 of this year, The Wall Street Journal published an article that said "(d)rug companies have scored a string of recent successes against advanced prostate cancer, ending a long drought during which there seemed to be few weapons to combat the disease."
Buffett has early-stage, not advanced-stage, prostate cancer, but what is noteworthy is that the pharmaceutical industry is making progress fighting the disease, providing it with a solid money-making market. The Journal article calls these prostate cancer treatments "pricey."
Among the pharmaceutical companies addressing the market for prostate cancer and other prostate diseases, three get high grades from my guru strategies.
Johnson & Johnson (JNJ) has Zytiga, a prostate cancer drug approved within the past two years. An analyst at Sanford Bernstein estimates that the drug could generate sales of $1.3 billion as early as 2013. The company is a favorite of my James P. O'Shaughnessy strategy. The strategy likes J&J's huge market cap ($177 billion), cash flow per share of $4.71 (which is way above the market's mean cash flow per share of $1.33) and large number of shares outstanding ($2.8 billion). In addition, the company has huge sales of $65 billion. Of the companies that pass the four tests just discussed, the strategy then picks the top 50 based on their dividend yield. With a yield of 3.55%, J&J is in this select group.
So is Merck (MRK), another member of Big Pharma involved in the prostate disease market. Its drug Proscar treats enlarged prostates and, according to Reuters, has sales of $223 million. Like J&J, Merck easily passes the strategy's basic tests: high market cap ($117 billion), high cash flow per share ($4.54), large number of shares outstanding (3 billion) and huge sales ($48 billion). And with a dividend yield of 4.36%, Merck is an O'Shaughnessy winner.
Both my O'Shaughnessy and Peter Lynch-based strategies like Sanofi (SNY). As is true of Merck and J&J, Paris-based Sanofi is a member of Big Pharma. Its prostate cancer drug Jevtana was approved in the past couple of years and in 2011 had net sales of $188 million. Sanofi's market cap of $100 billion, cash flow per share of $3.99, 2.7 billion shares outstanding and sales of $46 billion all pass the O'Shaughnessy strategy's tests. And with a dividend yield of 4.72%, it ranks among the top 50 companies that pass all the previous tests.
What the Lynch strategy particularly likes abut the company is its yield-adjusted P/E/G ratio, which is price-to-earnings relative to growth. An acceptable P/E/G is 1.0 or less, and Sanofi's is 0.92. Also in its favor is a moderate amount of debt.