Biotech Values

[DewDiligence]

ABT—More on branded generics in emerging markets…

http://blogs.forbes.com/wallaceforbes/2011/04/13/overblown-patent-cliff-concerns-mean-you-should-buy-pharma-now

Two things are important about emerging markets. First, the patents aren’t as important in emerging markets. It’s really the brand name. So it’s more like consumer health in the U.S. – that’s how things work in emerging markets. There’s a much longer tail for products in emerging markets. [I.e. old, off-patent drugs rack up big sales based on the brand name alone.]

And what’s also important about emerging markets is that the growth in income there has been extremely robust. Growth in income is about 80% correlated with drug spending.

So, as incomes continue to grow, there’s going to be a lot more demand for these products that the pharmaceutical firms have already largely developed. Granted, they’re going to be selling them at a little bit lower price in emerging markets, but the demand should be there.

...Abbott Laboratories is one of our top picks. We think this company is in contrast to the rest of the industry, in that it doesn’t face a lot of patent losses over the next five years. Yet it still trades at an industry average multiple of about 10 times 2011 earnings.

We think that the disconnect largely comes from fears of a competitive product emerging from Pfizer that will weigh on Abbott’s most important product, Humira. We think those fears are overblown and that Humira will continue to be a very strong drug for Abbott [#msg-61383188]. As the years go on, the earnings growth rate will likely translate into a higher stock price. We think there’s a strong likelihood of some multiple expansion as well.

See #msg-61699995, #msg-59590951, #msg-48556414, and #msg-50473238 for related info.