Tags: Cisco (CSCO); Juniper (JNPR); Alcatel-Lucent (ALU); Abbott Labs (ABT); Bristol-Myers (BMY); Schering-Plough (SGP); Medarex (MEDX)
11 am ET…February 7, 2008 — Comment on Markets, Companies & Events in the News
A Safe Haven from Funk…
Big Tech continues to introduce a funk into investors’ psyche. Cisco (CSCO: $23.08) reported quarterly results after Wednesday’s market close that met expectations, however, a forecast for 10% sales growth was less than the 15% forecast Wall Street analysts were expecting.
Cisco was off 8% in pre-market trading. Already near its 52-week low, Cisco is poised to set a new trough, a stock price fate most likely awaiting its smaller competitors today as well, such as Juniper Networks (JNPR: $25.11) and Alcatel-Lucent (ALU: $6.19). With home sales and consumer credit reports to be released Thursday, more disappointing economic data in the days ahead are not likely to produce much encouraging news.
One sector of the economy that usually serves as a safe retreat, a “funk hole”, according to Merriam-Webster’s dictionary, is the pharmaceutical sector. The stock market performance of the 12 largest pharmaceutical companies in this space is off only 9% since the beginning of the year versus double digit losses in virtually every other stock market sector.
As we enter this sector for a closer analysis, among the 12 largest companies that comprise Big Phama, all but Abbott Labs (ABT: $57.73) are down, and that 5 of these 12 are down by double digits since the start of the year. Our focus in this edition is the smaller end of this industry group, Schering-Plough (SGP: $20.14) and Bristol-Myers (BMY: $23.64).
With 70 million Baby-boomers still living, it is only natural that each of these companies has product offerings that address the maladies of aging, such as heart disease and cancer. We begin this series on Big Pharma with a look at cancer…and after presenting some facts, it is likely a new perspective will emerge, not only about the disease itself, but on some treatments for the disease which actually work.
Health care represents $2.6 trillion of the US economy. About half of this figure is comprised of health providers and insurance services with the balance (of about $650 billion each) about equally divided between physician services and pharmaceuticals. Therefore, if the market value of the pharmaceutical companies providing these drugs is $1.1 trillion (see table above), then it is analytically correct to state that this sector sells for about 2-times annual revenues.
Compared with market value-to-revenue ratios in Big Tech that approximate 10 to 15 times revenues, by comparison, Big Pharma appears to be a more reasonably priced sector than that of the rest of the stock market. There are about 1.4 million new cancer cases reported every year. This illness is not in an epidemic mode. Indeed, the number of new cases in 2007 only recently surpassed the previous high point in 1997 (1,382,000 new cancer cases reported).
On this basis, new cancer cases in 2007 were only 4% greater than 1997. By comparison, the current US population is 301 million, or 11% greater than 1997 according to the US Census Bureau’s web site. Hence, cancer is growing at one-third the rate of the population growth.
Slower growth in the incidence of cancer undoubtedly reflects a generally greater level of attention to personal care and environmental issues (smoking restrictions, food preparation, etc.). This is a good thing. At the same time, the number of deaths from cancer has been remarkably steady — about 550,000 people per year. The table below provides the research.
Bottom line — not only is the incidence of cancer growing at a much slower rate than the overall population growth, but deaths from cancer are not growing at all.
Source for both tables: www.cancer.org
This table tells us that the odds of dying from cancer, once diagnosed, is about one out of 3. Ten years ago, it was one out of two. The only possible conclusion for this improvement in cancer mortality rates is that the medical science bringing this achievement about is due to the pharmaceutical companies listed on the first page.
We start at the smaller end of that spectrum, with Bristol-Myers. It has teamed up with Medarex (MEDX: $9.50) to provide a treatment for interior melanoma…arguably the smallest sector on the cancer scorecard, but no less deadly. While the outcome of various clinical trials are still months away, patients who have entered these trials are living longer. All people diagnosed with interior melanoma are usually given 3-months to live. Medarex’ clinical trials now have over 500 people enrolled.
Many of these enrolled patients have been in Medarex / Bristol-Myers trials for 2 years…which, by itself, tells us that something is working.
The only other competitor in this particular area is Schering-Plough. Its single offering for this illness, Temodar, is a total bust…no one is prepared to put that in print…but we just did.
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