Archive for the ‘Healthcare’ Category

BMY vs. MRK, update

Sunday, July 10th, 2011

Barron’s has an article on this topic as well, coming to similar conclusions. It endorses Novartis (NVS), partly because it has a sizable toe in the generic drug business, which should benefit from a wave of expiring patents. See A Prescription for Profiting From Drug Stocks

Bristol-Meyers Squibb (BMY) or Merck (MRK)

Monday, June 20th, 2011

An interesting, albeit speculative, graph of the effect of drug pipelines on revenue:
pipeline revenue vs. current revenue

The article also notes that Bristol-Meyers will have to spend a lot on research in order to achieve that result, and that “estimates are notoriously unreliable”. Still, they are equally unreliable across companies.

At first glance, BMY seems to be a good value, given that all these companies have similar valuations right now, as if the market is priced for similar growth prospects:

Bristol-Meyers Squibb (BMY)
Enterprise Value/Revenue (ttm): 2.32
Enterprise Value/EBITDA (ttm): 6.45

Novartis (NVS)
Enterprise Value/Revenue (ttm): 3.00
Enterprise Value/EBITDA (ttm): 10.30

Pfizer (PFE)
Enterprise Value/Revenue (ttm): 2.62
Enterprise Value/EBITDA (ttm): 6.97

Merck (MRK)
Enterprise Value/Revenue (ttm): 2.47
Enterprise Value/EBITDA (ttm): 6.97

Why, then, does BMY have the worst 5-year growth forecast???:

Next 5 Years (per annum) -1.60%

Next 5 Years (per annum) 4.78%

Next 5 Years (per annum) 2.81%

Next 5 Years (per annum) 4.23%

The data is inconsistent on BMY. Maybe expiring patents, in addtion to research expense, are the problem….
lost revenue by 2013

Combining the two graphs (like a Venn Diagram), suggests that MRK is the safest bet. BMY seems high risk/reward with additional risk coming from the inconsistency of data.