Taking Stock: Drug stocks

By Malcolm Berko

Dear Mr. Berko:
Our broker, who could have been Miss America, has advised us to purchase AstraZeneca because this company has developed a new drug called Vimovo. She believes Vimovo, which will soon get FDA approval, could have blockbuster status for the treatment of osteoarthritis and rheumatoid arthritis. She believes that revenues and earnings from this drug can move AstraZeneca to the $70 level in the next two years. We bought 100 shares at $64 in October 2006, and she suggests that we average down and buy 300 shares at $45, which will reduce our basis to $50. We were thinking of buying 500 shares of Pfizer when she suggested AstraZeneca.
D. and B.S., Cleveland

Dear D. and B.S.:
While your broker may have a body by Fisher, I suspect she may have brains by Mattel. She reminds me of a 40-watt bulb – she shines, but she’s dim. Vimovo! Geeezzzze! Those amoebas on Madison Avenue gotta smoke a lot of dope to come up with a squirrely name like Vimovo, who I thought was a men’s fashion designer from Italy.

Anyhow, Vimovo, which will probably retail for $6 per pill at your local pharmacy, is all boast but nothing new and certainly does not rate blockbuster status. If it does, then the docs prescribing this pill ought to sign up for retraining classes. And I will give you a guaranteed maybe that — and I’m assuming the medical profession is brighter than your beautiful broker — Vimovo won’t be worth a tinker’s dam to AZN’s bottom line.

Recent tests show that OA and RA patients who take Vimovo have a 4 percent risk of gastric ulcers versus a 23 percent incidence for patients taking naproxen, which is a non-steroidal anti-inflammatory drug. Well, that is a significant difference. But not really when you realize that Vivomo is a combination of naproxen and esomeprazole, which is a proton pump inhibitor.

Well, hip, hip, hurray for the drug industry and AZN for sticking the consumer again with a new expensive and mendacious formulary. Vimovo is nothing more than a 550 mg naproxen pill, which you can buy off the shelf at Costco for a nickel, and Prilosec, on the same shelf for 6 cents a pop. I think this formulary is offensive, disingenuous and criminal, and makes me wonder what other drugs in AZN’s stable or pipeline are as duplicitous as Vimovo.

Vimovo and other funny AZM brews aside, I wouldn’t touch AZN with a hot rock. Revenues for next year are expected to decline, and so are earnings. There are eight brokerages that follow AZN, and not one of them rate it a “buy;” rather, all rank it a “hold.” None would dare say “sell” because this would make management angry and certainly preclude that brokerage from future investment banking fees with AZM.

But I think you’re right on with Pfizer (PFE-$14.77), which just swallowed Wyeth and is given a solid “buy” from Standard & Poor’s, Reuters, Argus, Schwab, Oppenheimer, Morningstar and others. The $68 billion Wyeth merger will generate pretax cost savings of at least $4 billion per year and brings a host of highly regarded prescriptives and a superb R&D staff that has several promising Alzheimer’s drugs in the pipeline. Value Line says: “The high-quality stock has enticing long term capital-appreciation potential” and there are few on the Street who disagree. The 72-cent dividend was recently raised and yields 4.3 percent. So in the coming five years, PFE could trade at the $40-$45 level and raise its dividend during each of those years you wait.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate Web site at www.creators.com. © 2010 Creators Syndicate Inc.

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