<<
it's not at all a foregone conclusion that pharmaceuticals will
remain profitable to their current degree, at least not without
some very serious deviation from the generic shift toward rele-
gating high-risk research to startups that are subject to share-
holder demands for fast profitability, thereby precluding any
'plan b' should a research effort fail. >>
When you go back to 1972 and look at the P/E ratios of the "Nifty 50" drug stocks (Merck, Pfizer) you see they were quite undervalued. The ROE's of the big pharmaceuticals have been nothing short of amazing:
>From 1986 to 1996 the ROE never fell below 23%!!! Net income was doubling
roughly every 3 years!! The story of the last 12 or so years has been "Drugs
R' US"
Compare that to the US shoe industry whose ROE averaged about 15-16% and of
course airlines which have been all over the place.
The consistency of the drug companies suggests that they've got quite a lock on future cash flows.
Jason