When you find innovation you have started the journey toward a potential touchdown. If you don't get innovation you could end up hitting the goal posts and losing the game. Sorry, I couldn't resist that Eagles reference -- fly eagles fly! -- but if we get companies innovating and strutting their stuff you we can find market leaders that can create tremendous wealth even on days when the market seesaws and punks out in the end.
And that's why we find ourselves out in San Francisco this week covering the amazing innovations that so many companies reveal at the annual J.P. Morgan Healthcare conference.
Not that long ago I would have said that if you want innovation you have to go to tech. But you know what? I think that technology has hit a bit of a wall. We aren't seeing anything breathtaking that you have to say, "I need that, I have to have it, or, my company better get that product or it will die."
That's not the case with health care.
Let me give you some examples so you know what I am talking about. If you owned a company called Loxo Oncology (LOXO) on Friday you had a stock that was worth about $132. Today you have a $232 stock because Eli Lilly (LLY) , a frugal company, knew that the bear market in all things biotech had given it a chance to pick up a company that is cutting edge. Loxo, which Lilly bought for $8 billion, is developing a pipeline of targeted medicines focused on cancers that are uniquely dependent on single gene abnormalities.
Now that we are able to sequence genes Lilly wants to able to marry that sequencing with drugs that can kill cancer early, at the source.
Mind you, this isn't something that can happen overnight. We are just to the point of having sequencing that is good enough to use this product and it tends to be at the best hospitals. In the hands of little Loxo this technology might have gone nowhere.
Now it can be blown out worldwide. Can you imagine what could happen at the Shanghai hospitals that care for hundreds of thousands of people. If you have the cancer gene that comes from smoking, Loxo, could be a life saver.
Initially Lilly's stock took a hit as people thought they overpaid. But as David Ricks, the CEO of Lilly told me, you have a conceptual win that will now be a real win and keep alive the momentum of Lilly's stock for possibly years to come.
It's visionary and now it is Lilly's.
I want people to understand that for the longest time when we thought of big pharma we thought about me-too drugs and companies that fought tooth and nail to come up with iterations that will be able to beat back patent cliffs. It almost seems as if they literally outsourced innovation and became big sales forces that push products.
That's no longer the case. Take Novartis (NVS) , run by the remarkable Dr. Vas Narasimhan, a Harvard Med-trained doctor with a master's degree in public policy from Harvard's Kennedy school who is an actual scientist. The man is reinventing Novartis, off-loading Alcon, a consumer, and some would say, a commodity producer of eye care products and functioning on 26 formulations many of which could turn out to be blockbusters producing billions of dollars in sales. You will hear from Vas later and pay close attention to what he's doing with gene therapy, with radiation therapy and with heart failure where there hasn't been any innovation in years.
Or how about what Emma Walmsley, who now runs GlaxoSmithKline (GSK) . You know I have never wanted to recommend this stock because it always reminded me of a bond. It yields 5% and has consistently given you a lot of income.
But that's not what I want out of a drug stock. I want innovation, I want new and different, I want life saving products and products that meet unmet needs.
Until Walmsley got there the culture just didn't seem innovative.
Now it is a fountain of innovation.
I know this because otherwise Walmsley wouldn't have just combined her consumer products with those of Pfizer (PFE) with the idea of spinning them off three years from now in a separate company.
I know many of you will be attracted to a company that has the No. 1 or 2 brands in a host of products in the drugstore aisles. They own Advil, Chapstick, Tums, Voltaren, Teraflu, Polident, Robitussin, Sensodyne and Excedrin. I like it, too. Some good cash flow, some dominant products.
But they are hardly what we want from a pharmaceutical company. We want innovation and that's exactly what Walmsley's giving us. She has a vaccine against Shingles which we all must take lest we come down with that horrid disease. She has the latest HIV products. She's working on using 23andMe for spotting illnesses before they happening and she spent $4 billion on Tesaro (TSRO) which is doing some of the best work on ovarian cancer.
Or how about migraines. Millions upon millions of people have suffered from what those who don't get them, sound like heavy headache. I say give me a break, they can be so debilitating that it's hard to be able to put your clothes on in the morning,. There are days where you can't possibly work.
But along comes Eli Lilly and Amgen (AMGN) , which we will hear from tonight with new formulations that can cut down or even eliminate migraines, something that those of us who suffer from these can't believe could happen. It's a miracle. A drug miracle created by the pharma industry and it is here and now.
Finally there's Sage Therapeutics (SAGE) with a stock that rallied over 40 points today because it has positive data on its post-partum depression drug. I have talked to CEO Jeff Jonas over several years to check the progress of something that most clinicians doubted could be invented. The depression can be so severe and the illness so hard to combat that there was a sense that Jonas had become the Don Quixote of big pharma. Not anymore. The drug had a dramatic effect on almost half the people who took it and I think that as the company tinkers with it there will be even better results. Don' you wish you owned that stock?
Now I know that some of you will say -- wait a second there's not much more to this than the fact that the economy is slowing and these stocks are the ones you buy when the Fed senses it has to keep tightening until we get thrown into a recession which seemed to be the plan until last week.
But these stocks aren't just toys of the macro. They aren't just a gigantic ETF with no real ability to do anything but go in lockstep with employment or with the words of Jay Powell.
No, these are companies with real answers for real needs that are producing products that can't be replicated or won't be for many years and even as they often have to charge a great deal for them many of the drugs are meant to get people out of the hospital faster or never go into one.
Yes, there's innovation in Silicon Valley, and I am hearing about some great consumer technologies coming out of CES in Vegas. But you want investable? The best of the best are in San Francisco at the J.P. Morgan conference and call me convinced that many of them are worth owning.