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Nearly 75% of Biotechs in the NBI Have No Earnings
"Of this $31 billion in earnings, just 5 companies - Gilead, Amgen, Shire, Biogen and Celgene - had net income over $1 billion Just these 5 biotechs represented 83% of all the earnings generated in the NBI"
I am interested in why the consensus seems to be that this statistic won't impact your allocation to HC.
I own a couple of the mega-cap biotechs, which I'm not concerned with. In particular I think Gilead (GILD) is quite reasonably valued at this point with a 9.8 forward P/E, plus it starts a dividend soon. I also own THQ, HQL and PRHSX, whose managers I trust to make decisions on healthcare investments. I have no plans to add anymore, but am fine with what investments I have.
Even though HC is my largest sector in my portfolio, it represents about 12% of my total. and 18% of my equity portion. I own PJP, FBTIX and PHSZX (I am 70% equity 30% bonds and cash). My three top sectors are HC, tech and industrial. I think 20% of total in any one would start to be a bit too much, but I am comfortable where I am.
My top three sectors within my portfolio are financial services, healthcare, and technology at better than twelve percent each. According to my last Instant Xray report I am 55% equity, 20% bonds, 10% other, and 15% cash. The equity side of my portfolio year-to-date is up 4.4% while the portfolio overall is up 2.5%.
Thus far, the three best performing broad sectors within the S&P 500 Index year-to-date are healthcare, consumer discretionary and technology while for the past thirty days they are healthcare, consumer discretionary, and financials. Healthcare is hot ... perhaps too hot!
To be clear, my question wasn't one of challenge...as I too have a significant allocation to HC, and the pharma/bio-tech arena is my vocation so I'm active in this space from that additional perspective.
I was curious due to media mention of a corollary between biotechs and the dot.com frenzy of a few years ago.
I do believe that HC in general is worthy of a healthy allocation due to demographics...but I am getting just a bit cautious in the funds and individual stocks I own to make sure a good majority of the firms are well established and actually making money.
@PRESSmUP - Truly I'm not trying to be flippant when I say turn off the media. They have to write and say something and they might no less than you in this case. Mr. Price will tell you when to back off.
@PRESSmUP In addition to what Mark stated about Mr. Price; I continue to believe that while some bio/pharma companies will go bye-bye, here and there; that the larger healthcare companies in various sectors will also continue to purchase the smaller fish. More upward pricing pressures. 'Course, one has to remain on the ball with any of this; and not the one without a chair when the music slows/stops for a breather.
@PRESSmUP In addition to what Mark stated about Mr. Price; I continue to believe that while some bio/pharma companies will go bye-bye, here and there; that the larger healthcare companies in various sectors will also continue to purchase the smaller fish. More upward pricing pressures. 'Course, one has to remain on the ball with any of this; and not the one without a chair when the music slows/stops for a breather.
I agree. You're already seeing that with things like Pharmacyclics being bought by Abbvie. In terms of what I own, I sleep well owning the largest names and active funds. I wouldn't be sleeping quite so well if I owned a bunch of the risky small co's. I do think there is an element of people looking desperately for any sort of thing that even somewhat resembles organic growth these days, but I don't think the largest biotechs are terribly expensive on a fundamental basis and Gilead I'd call very reasonable.
I was curious due to media mention of a corollary between biotechs and the dot.com frenzy of a few years ago.
As someone who works in the industry, what is your view on it all? As someone who is invested an attempting to learn more, from the outsider's perspective, it seems like an immensely exciting time in the industry, with discussions just last week of treatments for Alzheimers and Crohn's, not to mention what seems like an increasing pace of announcements for many other things over the last year or two.
The smaller companies are significant risk, but I suppose I look at things like Amgen, Gilead and Celgene as an appealing mixture of growth and defensiveness given the need for their products. Amgen has a nice div that they've recently increased, Gilead starts a dividend soon and I'm guessing Celgene will offer a dividend eventually. Gilead also currently has a $15B buyback.
Hi Scott...I have no magic insights to the industry here, but you are correct....it is an unbelievably exciting (and profitable) time to be involved in drug discovery. One of the things my CEO keeps emphasizing is that our customers are changing lives, and this is very true. I commented earlier in regards to BIID's Alzheimers compound...simply amazing.
The cost to bring a new molecule or compound to market is now upwards of $2.5B....this is why you see the partnerships in the industry for specific compounds, and why the market hangs on trial results. If you want to really examine a specific company for purchase, examine the pipe...very closely.
From an investment perspective...I wonder how long the market will tolerate those with no profit for an extended period of time? If the compound is promising, I think there will be an increased grace period...or else a cash-rich firm will come in for an acquisition.
For funds, my personal preference is to stick with folks like VGHCX, POAGX and VHCOX. I won't break the bank on the flyer, but will still ride the trend up.
I would be very careful with a pure biotech fund. Speculation is rampant.
Comments
Regards,
Ted
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=NBI®ion=usa&culture=en-US
gives one pause, it does......that's long enough. Duke, another longneck, please.
the Pudd
Even though HC is my largest sector in my portfolio, it represents about 12% of my total. and 18% of my equity portion. I own PJP, FBTIX and PHSZX (I am 70% equity 30% bonds and cash). My three top sectors are HC, tech and industrial. I think 20% of total in any one would start to be a bit too much, but I am comfortable where I am.
Thus far, the three best performing broad sectors within the S&P 500 Index year-to-date are healthcare, consumer discretionary and technology while for the past thirty days they are healthcare, consumer discretionary, and financials. Healthcare is hot ... perhaps too hot!
I was curious due to media mention of a corollary between biotechs and the dot.com frenzy of a few years ago.
I do believe that HC in general is worthy of a healthy allocation due to demographics...but I am getting just a bit cautious in the funds and individual stocks I own to make sure a good majority of the firms are well established and actually making money.
In addition to what Mark stated about Mr. Price; I continue to believe that while some bio/pharma companies will go bye-bye, here and there; that the larger healthcare companies in various sectors will also continue to purchase the smaller fish. More upward pricing pressures.
'Course, one has to remain on the ball with any of this; and not the one without a chair when the music slows/stops for a breather.
The smaller companies are significant risk, but I suppose I look at things like Amgen, Gilead and Celgene as an appealing mixture of growth and defensiveness given the need for their products. Amgen has a nice div that they've recently increased, Gilead starts a dividend soon and I'm guessing Celgene will offer a dividend eventually. Gilead also currently has a $15B buyback.
The cost to bring a new molecule or compound to market is now upwards of $2.5B....this is why you see the partnerships in the industry for specific compounds, and why the market hangs on trial results. If you want to really examine a specific company for purchase, examine the pipe...very closely.
From an investment perspective...I wonder how long the market will tolerate those with no profit for an extended period of time? If the compound is promising, I think there will be an increased grace period...or else a cash-rich firm will come in for an acquisition.
For funds, my personal preference is to stick with folks like VGHCX, POAGX and VHCOX. I won't break the bank on the flyer, but will still ride the trend up.
I would be very careful with a pure biotech fund. Speculation is rampant.