Drug stocks have become absurdly valued. I mean downright crazy. You have Merck's (MRK) Keytruda doing $3 billion this quarter, easily on track to be the biggest blockbuster in history. It's at a dang 16 times earnings.
When was the last time Pfizer (PFE) beat the numbers? I can't recall. That's why they had to buy Allergan (AGN) for heaven's sakes. I thought it had to have a shortfall now that Lyrica is off patent. Nope, upside surprise. It gives you a 3.7% yield, ultra safe. Better management. And a 12 PE: Are you kidding me?
Biogen (BIIB) may have a way to stop Alzheimer's. The analysts were all skeptical. Now one by one they are starting to believe. I think they will all be converted in the end because this whole test is being pushed by the FDA. This isn't being driven just by Biogen but there are more holds than buys. We've got a $52 billion company that could be worth double that and nobody cares.
Last night Amgen (AMGN) reported a quarter that didn't require a number cut. I am calling that significant. They are starting to win back share in their important migraine franchise. Aimovig had been the leader and then Lilly (LLY) made in-roads with the drug stores not just the terrible middleman as Amgen did. I was on the phone for hours with McKesson (MCK) to order my Aimovig and when I got through they wouldn't even send it where I wanted it to go. They were horrendous. Now, apparently Aimovig is getting to the drug stores. As the spokesman for the American Migraine Foundation, I can tell you this company is just scratching the surface with this psoriatic arthritis drug, the one that Bristol (BMY) had to give away to close the deal with Celgene (CELG) .
Speaking of Bristol it had a super quarter on its own. I think that the combination with Celgene is going to produces so much money that Bristol can call its own shots. I know it has spiked but it still yields 3% and sells for only 12 times earnings. The deal with Celgene could close in December and numbers go up huge.
AbbVie (ABBV) hasn't reported yet but I am confident the numbers will be good but more important the merger with the under-managed Allergan will be amazing. No I am not worried about Botox challengers. I am excited about its pill for migraines. The acute care for migraine is a brand new concept and there are millions of sufferers. It could be gigantic.
Novartis (NVS) is under pressure for tampering with a drug of a company it bought. That will be solved and when it is we will be talking about how crazy it is that this amazing company, led by a doctor, sells at just 17 times earnings.
Glaxo (GSK) ? The change toward a more scientific, long-term pharm company is working.
Lilly? Got hit over some glitch in diabetes. It is coming right back.
AstraZeneca (AZN) ? Some worried that their cancer franchise was chimerical. It's the opposite. I love it although post the move I can take a pass.
Which leaves the real anomaly: Johnson & Johnson (JNJ) . This company has ceased being a pharma enterprise. It is now a law firm. It has become ridiculous. Last night's revelation that the company can't find asbestos in the lots of talc that it tested - the same tests that the FDA did - begs the question: who do you trust? JNJ didn't do the tests. A third party did. I am banking on JNJ. But there's opioids. There's Talc. There's the plaintiff's bar. There's the media. It's the hardest own in the book. That said, this too shall pass. It has tested me like no other and I find it worth owning if you know how to take pain.
If you can't stay away.
My main point? These are too cheap. They are being priced for an Elizabeth Warren win. If she loses? You can see one of the biggest moves this group has had since President Clinton gave up on price controls in the nineties.
Pick one. Pick two. They are priced for total imperfection. That's just what you want. That's just what you get.