Portfolio manager Mark Denning discusses how recent innovations among several European pharmaceutical companies have positioned them for growth, as well as growth of dividends.
Mark Denning: I’ve always had a predilection toward pharma. I’ve liked it as an investment. You know, simplistically: aging population, greater spending on drugs, emerging markets growing, etc. The one ingredient that’s been missing over the last 10 years has been innovation — that, basically, the markets began to value the pharma pipeline at zero.
What’s interesting to see now coming through is some real innovation in therapies and therapeutics. Just taking one example would be cancer: some very new, interesting lines of attack in cancer therapy, where they’re trying to use the immune system to attack cancer cells by turbocharging, or putting the immune system on steroids. Abbott had been doing a bit — sorry, Bristol-Meyers. And then Roche and Novartis have some very interesting ideas as well.
And so you’ve got a number of the European pharma companies that are on a very interesting cusp in terms of their R&D pipeline. Bayer is rolling out four or five drugs at the moment and really doing very, very well. You can see them growing now for a long period of time — and they sell it at 20+% discount to their peers because they’ve got a couple of other divisions outside of pharma. But as a pure pharma company, they really are on a roll. And then, of course, [there’s] Novo Nordisk. Again, just done an incredible job of delivering on what it’s been up to in the whole diabetes area — and an innovative company.
As you look at pharma, people say, “Well, it’s rerated.” I’d say, yes, it’s gone up a bit. But it’s still got a number of years of good growth ahead of it. And they’re paying good dividends — growing those dividends — and the absolute valuations are not high. So I continue to find pharma very attractive.
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