Biotech Values

[DewDiligence]

What are your reasons for dropping NVS?

I like ABT and PFE better (see below) and didn’t think I needed to own three Big Pharma. A few details:

• NVS has opted to not be a player in branded generics, missing out on the biggest worldwide growth driver of the drug/biotech industry (#msg-61960596). In emerging markets, NVS will sell only patented branded drugs and generic generics, limiting its growth opportunities in such markets.

• NVS grossly overpaid for Alcon, which was such an expensive deal that it fundamentally changed the configuration of the parent company.

• Recent quality screw-ups at multiple manufacturing plants suggest a possible JNJ-like problem with QA that could snowball into something serious.

• NVS’ flagship new drug, Gilenya, has already hit a sales plateau in the US market (#msg-77810032). It will be a decent-selling drug, but hardly a Diovan-like blockbuster.

• NVS missed the HCV market entirely by backing a series of failures such as NM283, ANA975, Albuferon, and (probably) DEB025.

• All told, NVS remains a fine company (and I might reenter some point); however, ABT and PFE currently represent better value and have a stronger tie-in with The Global Demographic Tailwind.