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  • Novartis: A Strong And Innovative Company For Your Value Portfolio.

    Pharmaceutical market forecast for 2014-2018

    The global pharmaceutical market is entering a calmer business period in 2014. The uncomfortable pace of patent expirations which reached its peak in 2012 is abating now greatly. During this difficult period, the Big Pharma lost a total of $38 billion in revenue. This risk of potential revenue loss in patent expirations is still present in 2014 and probably until well after 2018, however, it is financially manageable.

    The Big Pharma had nearly $85 billion of forecasted new drug sales approved by the FDA, since 2012. This was a clear signal that the revenue contraction experienced since 2008 was about to end, and ready to reverse course the next five years.

    On the NVS conference call, Joseph Jimenez, CEO said:

    "... I want to give some observations that I've made about the industry over the past year. I believe that this industry is entering a new phase of innovation, and part of it is led by the explosion of data that we have seen that are allowing us to target diseases in new ways, but also new technologies that are emerging. So I believe that the next five years are going to be significant in terms of innovation from the industry."

    According to Evaluate Pharma, World previews outlook for 2018:

    Worldwide Prescription & OTC (15 most important categories) will have a compounded growth rate of 3.9% (from $750 billion to $941 billion.)

    Novartis (NVS) and Sanofi (SNY) are expected to surpass Pfizer (PFE) in 2018, in this sector.

    Novartis Fundamental snapshot.

    TickerStock price

    Revenue 2013

    $ Billion

    Core Earnings per share $

    Debt 2013

    $ Billion

    Dividends

    %

    EBITDA

    $ Billion

    Shares

    Billion

    P/E ratio trailing 12 months
    NVS86.5657.925.098.8*3.2613.482.7121.53

    * From the last CC: NVS proposed an increase of 13% of the dividend for 2014.

    "Novartis has a very strong growth track record of growing dividend. This represents our 17th consecutive dividend growth since the creation of Novartis in '96. And the payout ratio of 74% is also very strong as a percent of net income."

    Source: Wall street Journal Zacks and conference call.

    Here is the YTD chart:

    (click to enlarge)

    NVS data by YCharts

    3 - Novartis

    Novartis AG, founded in 1895, is based in Basel, Switzerland. The company operates through five segments: Pharmaceuticals, Alcon, Sandoz, Vaccines and Diagnostics and Consumer Health.

    1 - Its Pharmaceuticals division offers patented prescription medicines in many therapeutic areas, including oncology; primary care and established medicines; Specialty care, such as ophthalmology, neuroscience, integrated hospital care, and critical care; and cardiovascular and metabolism.

    2 - The Alcon segment offers surgical, ophthalmic pharmaceuticals and vision care products.

    3 - The Sandoz segment provides generic pharmaceuticals.

    4 - The Vaccines and Diagnostics segment provides human vaccines and blood testing diagnostics.

    5 - The Consumer Health segment comprises in two divisions, such as OTC and Animal Health, which manufactures, distributes and sells capabilities.

    The company has 135,696 employees recently worldwide.

    Key drugs at Novartis such as Gilenya, Afinitor, Tasigna, Galvus, Xolair, Arcapta Neohaler/Onbrez Breezhaler, Seebri Breezhaler and Jakavi represented around 40% of the total sales in the fourth quarter of 2013. Novartis received 18 product approvals in 2013.

    Diovan was one of the key drugs of Novartis, with over $3.5 billion in sales in 2013. The company expects that the generic Diovan monotherapy, will enter the U.S. market during Q2 2014. Novartis has a new-product pipeline with more than 200 projects in clinical development, including 144 in the pharmaceutical's Division.

    Here is the Novartis annual report 2013.

    Recent acquisitions and strategic divestitures:

    1 - NVS agreed to divest its blood transfusion diagnostics unit to Spain based Grifols for $ 1.675 billion. The deal closed on January 9, 2014.

    2 - NVS acquired CoStim Pharmaceuticals, Inc. Based in the USA to strengthen its oncology research portfolio.

    3 - April 24, 2014, Novartis is reshaping its assets.

    • "Acquires GSK oncology products, strengthening Novartis' leading Oncology business with novel therapies and becomes GSK's preferred commercialization partner for its oncology pipeline
    • Combines Novartis OTC with GSK's consumer business in a joint venture, creating a world-leading consumer healthcare business and maintaining Novartis' presence in this sector
    • Divests Vaccines business (excluding flu) to GSK, creating a global leader in vaccines
    • In a separate transaction, divests Novartis Animal Health to Lilly".

    Home website.

    Few recent new drugs highlights 2014:

    1 - NVS received good results from the Data Monitoring Committee, regarding its new drug LCZ696. LCZ696 is a drug for treating patients with acute heart failure. This recent news will help a lot the company as it suffered a set-back with Serelaxin, and an FDA vote against the approval of the drug. NVS is hoping that the FDA will revise its position.

    2 - NVS also announced recent positive data on Jakavi

    3 - NVS received also positive news for its drug Lucentis approved in Japan.

    4 - NVS LDE225 got some positive early results in February 2014.

    5 - Good new study on Gylenya for MS patients today.

    Recent filings and earnings:

    Despite some real strength, NVS missed estimates for Q4 2013. However, the company declared 0.83/share which is up to 1% from 2012. Fourth quarter revenues increased 4% year-over-year to $15.1 billion.

    Novartis is definitely a buy despite its recent little miss in earnings. Here is the Q4 2013 results conference call, Joseph Jimenez, CEO said:

    "So I think based on all of this, if you look at Novartis and the way that we're positioned, I think we're positioned well for the future. Looking at our results specifically, our sales were up 4% in constant currencies for the full year, just under $58 billion. Core EPS also up 4% in constant currencies. We've proposed a dividend of 2.45 francs. This is a 7% increase in Swiss francs, but it's also a 13% increase in U.S. dollars. But I think the best part of the year was the innovation"

    Discussion

    Novartis expects to surpass Pfizer as the number one in prescription-drug sales worldwide. The Big Pharma sector is robust and thriving again, and it is the time to place our bets for the next five years as value investors. NVS has a strong revenue pipeline and shows dynamism and innovation to fuel future growth. One example is the recent deal with GlaxoSmithKlein (GSK).

    One bright spot for years to come is the biogeneric drugs sector, which will be one major source of revenue, and a strong engine for future growth for Novartis:

    Biogeneric drugs are generic versions of their counterparts called the biologic drugs or called also "follow-on biologic drug". These biogeneric drugs are a new formulation of recombinant proteins destined to copy intimately the initial biological drug in terms of chemistry and therapeutic properties.

    These drugs remain controversial, and present no approval clear pathway in the USA yet, due to their recent introduction to the market and some other difficult issues. They are developed at a lower cost for the drug company and will result in savings for the patient also.

    The first drug of this type to be approved in Europe was Novartis, Sandoz' human growth hormone, Omnitrope, in June 2006. The product was destined to mimic Pfizer's Genotropin. Since then, the market has grown exponentially.

    Kathlyn Stone, from about.com wrote in her excellent article, that in 2012,

    "It's estimated that about 150 biologic drugs are currently approved for use, many of which have lost patent protection. Biosimilar versions of biologics are now available in 11 countries."

    "The health reform legislation which was signed into law by President Obama in March 2010 defined biosimilar as a biological product that is demonstrated to be "highly similar" to a previously approved biological product. The law also authorized the FDA to create an abbreviated approval pathway for biosimilars."

    Which means that cheaper biogeneric products could enter the market and be available for consumers the next few years.

    For example, numerous studies are underway for some of the biggest blockbusters in medicine, including Humira, in the treatment of rheumatoid arthritis.

    These products will drive Novartis long-term growth and will face less competition than typical drugs because of the cost of developing them. Novartis, Sandoz is positioning itself to become the largest generics company in the world.

    Although biogeneric drugs are important for future growth, NVS has too many moving parts to look for one principal catalyst. NVS is well diversified and is among the leaders in many sectors. This universal strength highlighted by the last acquisition/divestiture news is another example why the stock is an important complement to your value investor's portfolio.

    Disclosure: I am long NVS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Tags: NVS, long-ideas
    Apr 23 2:17 PM | Link | Comment!
  • Novartis: A Big Pharma With Great Potential.

    What is called the "Big Pharma" industry?

    The global pharmaceutical industry includes some of the world's largest and most lucrative corporations. It has come to be known in the finance world as the "Big Pharma" as a nickname, and now exercises a prevailing influence over the practice of medicine in general, and the whole patient-care business. In the last decades, the use of prescription drugs has become a regular part of life for millions around the world.

    The industry clearly has contributed to some important improvements in our everyday life. Today's many Countries in North America and Europe can expect to live up to 30 years more than they did a century ago. Most of us now can anticipate not only living longer but also enjoy a better-quality life.

    Forecast and Outlook for 2014

    We have entered a calmer business period where the global pharmaceutical market will breathe easier now. The dreadful patent expiration reached a peak in 2012 when about $38 billion vanished suddenly from the Big Pharma balance sheet (With also a potential loss of $230 billion from 2013 to 2018 at risk from patent expirations.)

    However, since 2012, nearly $85 billion of forecasted new drug sales has been approved by the FDA. It was a clear signal indicating the end of the sector revenue contraction that characterized the last five years.

    The world's 11 largest drug companies made a net profit of $711.4 billion from 2003 to 2012.

    For the entire year 2012, these top 11 companies earned nearly $85 billion in net profits. According to the IMS Health, a worldwide leader in health care research, the global market for pharmaceuticals is expected to top $1 trillion in sales by 2014 and $1.2 trillion in 2017.

    At the NVS conference call, Joseph Jimenez CEO said:

    "...I want to give some observations that I've made about the industry over the past year. I believe that this industry is entering a new phase of innovation, and part of it is led by the explosion of data that we have seen that are allowing us to target diseases in new ways, but also new technologies that are emerging. So I believe that the next five years are going to be significant in terms of innovation from the industry."

    Novartis (NVS) Fundamental snapshot (Table).

    TickerStock price

    Revenue 2013

    $ billion

    Core Earnings per share $

    Debt 2013

    $ billion

    dividends

    %

    EBITDA

    $ billion

    Shares

    billion

    P/E ratio trailing 12 monthsPEG
    NVS83.4157.905.098.8*3.2613.482.7121.532.91

    * NVS proposed an increase of 13% of the dividend for 2014. Here what has been said at the last CC

    "Novartis has a very strong growth track record of growing dividend. This represents our 17th consecutive dividend growth since the creation of Novartis in '96. And the payout ratio of 74% is also very strong as a percent of net income."

    Source: Wall street Journal Zacks and CC

    Here is the 5-year chart.

    (click to enlarge)

    NVS data by YCharts

    Importance of the PEG ratio for the Big Pharma.

    The PEG ratio is one of the most popular valuation tools in investing. It presents many advantages for stock analysis. It takes growth as well as earnings into account, providing a more comprehensive valuation metric than the P/E ratio alone. I am using it here to show why Novartis is my best choice for the next five years.

    This ratio is accurate because the growth rate carries a good probability overall due to the patent expiration's effect and quality/predictability of the earnings due to well documented growth demand.

    PEG: stock's price-to-earnings ratio divided by the growth rate of its earnings for five years. A low PEG may indicate a stock undervalued.

    Value investors should look at the PEG ratio to decide which company will be able to provide the best return for the next five years?

    Novartis has the smallest PEG ratio compare to PFE, MRK, LLY.

    NVSPFEMRKLLY
    2.916.769.1815.75

    3 - Novartis

    Novartis AG was founded in 1895 and is headquartered in Basel, Switzerland. The company operates through five segments: Pharmaceuticals, Alcon, Sandoz, Vaccines and Diagnostics and Consumer Health.

    • Its Pharmaceuticals division offers patented prescription medicines in various therapeutic areas, including oncology; primary care and established medicines; specialty care, such as ophthalmology, neuroscience, integrated hospital care, and critical care; and cardiovascular and metabolism.
    • The Alcon segment offers surgical, ophthalmic pharmaceuticals and vision care products.
    • The Sandoz segment provides generic pharmaceuticals.
    • The Vaccines and Diagnostics segment provides human vaccines and blood testing diagnostics.
    • The Consumer Health segment contains two divisions, such as OTC and Animal Health, which manufactures, distributes and sells capabilities.

    The company has 135,696 employees worldwide.

    Key drugs at Novartis such as Gilenya, Afinitor, Tasigna, Galvus, Xolair, Arcapta Neohaler/Onbrez Breezhaler, Seebri Breezhaler and Jakavi contributed 40% to total sales in the fourth quarter of 2013.

    Novartis received 18 product approvals in 2013. Diovan was one of the key drugs of Novartis, generating over $3.5 billion in sales in 2013. The company expect that the generic Diovan monotherapy will enter the U.S. market in March of 2014.

    Website.

    Analyses, discussion and recommendation

    According to Evaluate Pharma, World preview outlook to 2018:

    Worldwide Prescription & OTC (15 most important categories) will have a compounded growth rate of 3.9% (from $750 billion to $941 billion.)

    Oncology is the first of the most important categories, and Roche (#1), Novartis(#3), Pfizer(#3) and Eli Lilly(#8) are leading the Big Pharma on this one.(see page 19 of the report link above.).

    Here are the sales in USA, Europe and Japan's prescription drug sales from 2010 to 2012:

    TickerLLYMRKNVSPFESNY
    2010-2012 rank USA/EU/Japan8/11/172/4/53/1/101/3/45/2/9
    Sale in $ billion USA38.250.848.070.641.3
    Sales in $ billion EU14.730.949.940.346.4
    Sales in $ billion Japan5.913.311.215.811.2

    Novartis and Sanofi are expected to surpass Pfizer in 2018 in this sector.

    Few recent new drugs highlights 2014:

    1 - NVS received good results from the Data Monitoring Committee, regarding its new drug LCZ696, who recommended the early closure of the Phase III studies. LCZ696 is a drug for treating patients with acute heart failure. The drug demonstrated strength and an acceptable safety profile. This recent news will help a lot the company as it suffered last week a set-back with Serelaxin and an FDA vote against the approval of the drug. This new development can change the FDA position.

    2 - NVS also announced recently positive data on Jakavi

    3 - NVS received also positive new for its drug Lucentis approved in Japan.

    4 - NVS LDE225 got some good early results in February 2014.

    From the CC:

    "Core operating income went down, just over 1%, and that was a conscious decision to invest in a series of programs that had reported good results during the year, LDK378, serelaxin, Secukinumab, and the launch of Ultibro."

    "What's also important here is the next step forward for us. We gained approval for a very state of the art refill syringe for this product, which we will be able to start to launch in the first quarter of 2014."

    Recent acquisition:

    NVS acquired CoStim Pharmaceuticals Inc. based in the USA to strengthen its oncology research portfolio.

    Recent filings and earnings:

    Despite some real strength, NVS missed estimates for Q4 2013. The company declared 0.83/sh which is up to 1% from 2012. Fourth quarter revenues increased 4% year over year to $15.1 billion.

    Discussion

    I think the Big Pharma will continue to perform well and will deliver decent growth and dividends for the value investors.

    The industry will experience a compounded annual growth rate CAGR averaging 3.8% through 2018, reaching $895 billion estimates Evaluate Pharma in its "World Preview, Outlook to 2018."

    Here is an excerpt from reportlinker.com that resumes it all:

    "Global Pharma continues to remain attractive due to management efforts on the restructuring of entire business model, cost efficiency measures, de-consolidation, acquisition of high value targeted assets, share repurchase program and dividend policy."

    Novartis is expected to surpass Pfizer as a number one in prescription-drug sales worldwide. The Big Pharma sector is strong and thriving again, and it is time to place our bet for the next five years as value investors.

    Novartis is definitely a buy despite its recent little miss in earnings. Here is the Q4 2013 results conference call.

    "So I think based on all of this, if you look at Novartis and the way that we're positioned, I think we're positioned well for the future. Looking at our results specifically, our sales were up 4% in constant currencies for the full year, just under $58 billion. Core EPS also up 4% in constant currencies. We've proposed a dividend of 2.45 francs. This is a 7% increase in Swiss francs, but it's also a 13% increase in U.S. dollars. But I think the best part of the year was the innovation"

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in NVS over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Tags: long-ideas
    Apr 05 12:28 AM | Link | Comment!
  • 5 Big Pharma Stocks With Dividends To Consider Adding To Your Long Portfolio.

    What is called the "Big Pharma" industry?

    The global pharmaceutical industry includes some of the world's largest and most lucrative corporations. It has come to be known in the finance world as the "Big Pharma" as a nickname, and now exercises a prevailing influence over the practice of medicine in general, and the whole patient-care business. In the last decades, the use of prescription drugs has become a regular part of life for millions around the world.

    The industry clearly has contributed to some important improvements in our everyday life. Child mortality has practically disappeared when it was common in Europe around the 1800s. Today's many Countries in North America and Europe can expect to live up to 30 years more than they did a century ago. Most of us now can anticipate not only living longer but also enjoy a better-quality life. The bio-pharmaceutical research has permitted a notable reduction in global mortality; for instance, from HIV/AIDS-related causes; high blood pressure and cardiovascular diseases can be controlled with anti-hypertensive and cholesterol-lowering medications; knee or hip replacements prevent patients from immobility; and many cancers can be controlled or even cured, with the help of new targeted treatments and better genetic understanding.

    Forecast and Outlook for 2014

    We have entered a calmer business period where the global pharmaceutical market will breathe easier now. The dreadful patent expiration reached a peak in 2012 when about $38 billion vanished suddenly from the Big Pharma balance sheet (With also a potential loss of $230 billion from 2013 to 2018 at risk from patent expirations.)

    However, since 2012, nearly $85 billion of forecasted new drug sales has been approved by the FDA. It was a clear signal indicating the end of the sector revenue contraction that characterized the last five years. Many catalysts are at the center of any sustainable future growth for this industry:

    1. Emerging markets and particularly China's market will be driving growth for 2014 and beyond.
    2. US market is also expected to contribute to growth for the same period. Deutsche Bank forecasts an overall GDP growth for 2014 of 3.8% and 4% in 2015.
    3. The recent FDA and high Court rulings concerning the generic side of the industry will have some negative future effects. Particularly, the specific practice called the "pay for delay" when a Big Pharma company pays another company to delay the commercialization of their products. The Supreme Court ruling about the lack of immunity for the generic companies' products is also a subject of worry.
    4. Anti-counterfeiting activities as well as theft is a growing problem for the Big Pharma. The World Health Organization WHO is showing an alarming trend more pronounced in developing countries.

    The world's 11 largest drug companies made a net profit of $711.4 billion from 2003 to 2012. Six of these companies are headquartered in the United States: Johnson & Johnson, Pfizer, Abbot Laboratories, Merck, Bristol-Myers Squibb and Eli Lilly.

    For the entire year 2012, these top 11 companies earned nearly $85 billion in net profits. According to the IMS Health, a worldwide leader in health care research, the global market for pharmaceuticals is expected to top $1 trillion in sales by 2014 and $1.2 trillion in 2017.

    1. The industry is clearly now changing its business model. In 2013, many companies were shedding thousand and thousand jobs in the R & D operations, and 100,000 jobs were at risk of being eliminated. Two principal reasons:The old way of doing business by investing in research and development is becoming increasingly too expensive because of the growing power of the generics that size the market.
    2. A growing competition of smaller Pharma firms who are developing treatments.

    Business model

    It is a unique problem that these firms have to solve constantly by relying on a profitable business model "à la carte." Its main products are quickly decaying, and become obsolete as they lose their mighty patent protection and no chance to come back. An excellent article about the Big Pharma outlook for 2014 and beyond by Daniel R. Hoffman, Ph.D.on January 20,2014 resumed perfectly the headwinds that the industry is facing ahead despite a good forecast. It discussed at length the bullish outlook 2014 issue by Citigroup.

    Fundamental snapshot (Table).

    (Source: the walls street journal.)

    TickerStock price

    Revenue 2013

    $ billion

    Debt

    $ billion

    dividends

    %

    EBITDA

    $ billion

    Shares

    billion

    P/E ratio trailing 12 months*PEG
    LLY57.6123.115.213.406.991.1213.3415.75
    MRK55.9844.0925.063.1416.302.9237.829.18
    NVS81.5953.7016.023.3313.482.7121.532.91
    PFE31.8851.5836.493.2623.306.4818.706.76
    SNY51.9832.9518.893.6713.172.6527.721.83

    *Importance of the PEG ratio for the BigPharma.

    The PEG ratio is one of the most popular valuation tools in investing. It presents many advantages for stock analysis. It takes growth as well as earnings into account, providing a more comprehensive valuation metric than the P/E ratio alone. I am using it here to decide which company is the best choice for the next five years.

    This ratio is accurate because the growth rate carries a good probability overall due to the patent expiration's effect and quality/predictability of the earnings due to well documented growth demand.

    PEG: stock's price-to-earnings ratio divided by the growth rate of its earnings for five years. A low PEG may indicate a stock undervalued.

    Value investors should look at the PEG ratio to decide which company will be able to provide the best return for the next five years?

    Here is the 5-year chart to show how consistent has been the positive trend expected to continue in the future:

    LLY data by YCharts

    Five Big Pharma that I recommend.

    1- Eli Lilly eli lilly logo (LLY)

    Eli Lilly & Co. is an international pharmaceutical manufacturer based in Indianapolis in the USA. Created in May 1876 by Colonel Eli Lilly, the company has a total revenue of $23.11 billion in 2013. Eli Lilly employs more than 37,925 people worldwide, markets its products in 125 countries, and has manufacturing plants in 13 countries. The company specializes in the areas of diabetes, bio-medicines, emerging markets, oncology and animal health.

    It is known for such advancements as selling the first commercially available insulin and being among the pioneers to mass-produce penicillin in its early days.

    Website.

    2 - Merck & Co. Merck & Co. logo (MRK)

    Merck & Co., the second largest U.S. drug company, is a force to be reckoned with. Its parent company opened in Germany in 1668, and the U.S. company was established in 1891. Founded by Friedrich and George Merck, the company has 76,000 employees. The company operates its business through four operating segments:

    • Pharmaceutical
    • Animal Health
    • Consumer Care
    • Alliances

    Merck & Co. sells a vast array of products, including Claritin, Dr. Scholl's products, vaccines, antibiotics, blood pressure drugs, heart drugs and Vioxx, a painkiller.

    Website.

    3 - Novartis (NVS)

    Novartis AG was founded in 1895 and is headquartered in Basel, Switzerland. The company operates through five segments: Pharmaceuticals, Alcon, Sandoz, Vaccines and Diagnostics and Consumer Health.

    • Its Pharmaceuticals division offers patented prescription medicines in various therapeutic areas, including oncology; primary care and established medicines; specialty care, such as ophthalmology, neuroscience, integrated hospital care, and critical care; and cardiovascular and metabolism.
    • The Alcon segment offers surgical, ophthalmic pharmaceuticals and vision care products.
    • The Sandoz segment provides generic pharmaceuticals.
    • The Vaccines and Diagnostics segment provides human vaccines and blood testing diagnostics.
    • The Consumer Health segment contains two divisions, such as OTC and Animal Health, which manufactures, distributes and sells capabilities.

    The company has 135,696 employees worldwide.

    Website.

    4 - Pfizer Pfizer (PFE)

    The company was founded by Charles Pfizer and Charles Erhart in 1849 and is headquartered in New York, NY. Operating in more than 150 different countries and employing 77,700 people. Pfizer is one of the world's largest pharmaceutical companies and manufactures products in five areas:

    • Specialty care and oncology
    • Animal health
    • Primary care
    • Nutrition
    • Consumer health care

    Pfizer, currently the No. 1 global manufacturer, will experience a net growth of 0% over the next five years, and will drop to third behind Novartis and Sanofi by 2018. Roche and Pfizer will be neck-and-neck for the No. 3 slot at that time.

    Website

    5 - SANOFI (SNY)

    Sanofi was founded in 1994 and is headquartered in Paris, France. Sanofi researches, develops, manufactures, and markets healthcare products. The company operates through the following three segments:

    -Pharmaceuticals: It Includes research, development, production and sales activities relating to pharmaceutical products, including prescription, consumer health care, and generic products.
    -Human Vaccines: Research, development, production and marketing.
    -Animal Health: Research, development, production and marketing activities for vaccines. It offers a range of medicines and vaccines on animal species. The company has 112,128 employees worldwide.

    Note: Sanofi to be top vaccine company in 2018.

    Website.

    Analyses, discussion and recommendation

    Chart comparison YTD:

    According to Evaluate Pharma, World preview outlook to 2018:

    Worldwide Prescription & OTC (15 most important categories) will have a compounded growth rate of 3.9% (from $750 billion to $941 billion.)

    Oncology is the first of the most important categories, and Roche (#1), Novartis(#3), Pfizer(#3) and Eli Lilly(#8) are leading the Big Pharma on this one.(see page 19 of the report link above.).

    This expectation alone is the reason why it is important to include in your value holding, at least one of the five Big Pharma presented here.

    Here are the sales in USA, Europe and Japan's prescription drug sales from 2010 to 2012:

    TickerLLYMRKNVSPFESNY
    2010-2012 rank USA/EU/Japan8/11/172/4/53/1/101/3/45/2/9
    Sale in $ billion USA38.250.848.070.641.3
    Sales in $ billion EU14.730.949.940.346.4
    Sales in $ billion Japan5.913.311.215.811.2

    Note 1: Novartis and Sanofi are expected to surpass Pfizer in 2018 in this sector.

    Note 2: Among the 20 most valuable R & D projects, LLY owns 3: IMC-1121B(4), LY2062430(10), LY2963016(15); PFE owns 1 with Palbociclib(9); MRK owns Odanacatib(11); and SNY owns REGN727/SAR236553(16).

    Discussion

    I think the Big Pharma will continue to perform well and will deliver decent growth and dividends for the value investors.

    The industry will experience a compounded annual growth rate CAGR averaging 3.8% through 2018, reaching $895 billion estimates Evaluate Pharma in its "World Preview, Outlook to 2018."

    Here is an excerpt from reportlinker.com that resumes it all:

    "Global Pharma continues to remain attractive due to management efforts on the restructuring of entire business model, cost efficiency measures, de-consolidation, acquisition of high value targeted assets, share repurchase program and dividend policy."

    The fundamental question is always about stock price valuation and quality of the products' pipeline going forward. Big Pharma stocks are not cheap and have appreciated between 71% to 125% the last five years, and I am not including dividends. This valuation is giving a P/E ratio average at around 24 and PEG well over 1. Some could see no room for a meaningful improvement here? I am not and explained why.

    Recommendation

    I believe these five stocks will perform well the next five years and the PEG ratio specially for NVS SNY and PFE is a good future indicator. LLY is less appealing right now but presents some appeal nonetheless (good new drug's pipeline). All five are paying a little over 3% in dividend.

    Here is my recommendation based on PEG ratio:

    TickerPEG ratio
    SNY1.83
    NVS2.91
    PFE6.76
    MRK9.18
    LLY15.75

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Tags: LLY, MRK, NVS, PFE, SNY, long-ideas
    Apr 01 4:39 PM | Link | 1 Comment
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