The Future of Medicine... And How To Profit From It
by Dr. Steve Sjuggerud
May 24, 2006
In the five year history of my newsletter True Wealth, I’ve never recommended a medical stock. But now, I’m finally getting close…
At a private conference I attended last week, Rob Fannon explained in simple terms the future of medicine, and the best way to profit from it…
Rob calls generic biotech medicines “a huge opportunity.” Biotech medicines differ greatly from traditional drugs.
Rob explains it like this: “Biotech medicines are displacing traditional drugs because they work much better. They work better because they’re built with a rational design… based on how the body works.”
I trust Rob. And with his unique background in both business and in biotech, I listen when he talks. -
“Not many people realize it, but biotech isn’t that new anymore,” Rob said. “The benefit is, we’re just now entering an era where biotech medicines are coming off patent and generic biotech medicines are coming out.”
Just last month, the Wall Street Journal reported the world’s first regulatory approval of a generic biotech medicine. Interestingly, the approval was granted in Europe first, NOT in the United States.
I asked Rob why on the phone yesterday. He said:
“Generic drug regulation here is complicated. It’s a mess for simple, old-style chemistry-based drugs. It’s going to be even more of a mess for biotech medicines, which are much more difficult to copy compared to conventional drugs. It’s really uncharted waters for the FDA, as it doesn’t have the experience or infrastructure to properly evaluate and approve biotech medicines…”
The biotech medicine approved in Europe is a great example of how the FDA is fumbling right now… a company called Sandoz, who makes the first approved generic biotech medicine in Europe, got tired of waiting on the FDA in the States, and filed a lawsuit against the FDA.
According to the latest issue of Barron’s:
“Citing a statutory requirement that the [FDA] act on drug applications within 180 days, it sued the FDA in U.S. District Court… Last month, Judge Urbina agreed with Sandoz that there was no excuse for a delay that was nearing 1,000 days. He ordered the agency to make a decision. The FDA still hasn’t done so.”
Rob likes Sandoz’s prospects. Sandoz - the world’s number two generic drugs manufacturer - is a division of Swiss drug giant Novartis (NVS). Rob says Novartis is experienced in getting drugs approved, and innovative. Rob reckons Sandoz as a generics business is a nice fit with Novartis.
The world’s largest generic drugs manufacturer, Teva Pharmaceuticals (TEVA), will be another major player here. Rob also mentions Barr Parma (BRL).
The future of medicine is biotech. Half of U.S. drug sales are generics… so it’s no wonder Rob calls generic biotech medicines “a huge opportunity.”
The Barron’s issue lists 18 biotech products coming off patent in the coming years.
The three companies listed above (NVS, TEVA, and BRL), don’t have sales in this space now. But they will likely emerge as the major players in generic biotech medicine. The companies who have gotten into it now and established global infrastructure will likely dominate this area from now on.
Even better, they’re all reasonably priced, with forward P/E ratios in the teens.
Drug stocks in general have been in downtrends for a while… so I’m not biting yet. But I’m definitely getting more and more interested in these stories, as the gains can be huge when the big trend in drug stocks is up.
I’ll be a buyer someday. And I plan on having Rob help me find the right places to put my money when the time comes.
Good investing,
Steve
