Over the past two years, two studies showed the Niaspan cholesterol drug did not benefit patients. Yet AbbVie (ABBV) has managed to maintain revenue generated by the pill using a simple business proposition – the drugmaker has consistently raised its price, Bloomberg News writes. And the tactic is drawing criticism at a time of rising health care costs and ongoing debate over prescription drug prices.
The Abbott Laboratories (ABT) spinoff now charges $4.78 per pill, up from $3.50 two years ago, a 37 percent increase. “I don’t know how you can justify it,” Robert Giugliano, a cardiologist at Brigham and Women’s Hospital in Boston and an associate professor of medicine at Harvard, tells the news service. “The balance of the data suggests that niacin has little if any role in” treating patients with cholesterol problems.
AbbVie is unusually reliant on a single drug, Humira, which accounts for more than half of total sales, or $2.2 billion out of total sales of $4.3 billion in the first quarter. Developing new drugs and maintaining or expanding sales of its existing drugs is thus crucial if AbbVie is to avoid becoming even more reliant on Humira, an arthritis drug. AbbVie shares have rallied since the spinoff from Abbott, as seen in a stock chart, as investors have generally moved into pharmaceutical stocks and also as AbbVie’s hepatitis C drug in development has had promising enough clinical trial results that some think it, too, could be a blockbuster.
We have officially segued into a Bobby McFerrin market; don’t worry about sluggish economic growth, the sequester impact, slowed earnings growth and disappointing revenue, just be happy.
Last week JP Morgan’s (JPM) stock strategist upped his already bullish market forecast, and this week Goldman Sachs (GS) did the same, even though the PE for the S&P 500 has been expanding of late, and that index has sped ahead by about 30% since a low last June. As hedge fund manager Doug Kass (the credentialed bear at this year’s Berkshire Hathaway (BRK.B) annual meeting) remarked to the Wall Street Journal:
“While I sing a sad song of lackluster fundamentals, Mr. Market sings a happy song of global easing.”
Certainly the Federal Reserve’s continued easing goes a long way to explaining the surge in the S&P 500; as hedge funder Leon Cooperman succinctly put it in a Barron’s interview, "There is no effective alternative to common stocks." That alone can, at least in the short-term, keep the markets climbing. And it will be interesting to see if individual investors, who for the most part have been skittish about joining in, will up their ante. Absent a big change between now and June 30th, second-quarter 401(k) statements are going to show the great reversal: stocks are on a tear, and beloved bonds (the iShares Core Total US Bond Market ETF (AGG) is our proxy) have flatlined year-to-date.
General Electric’s (GE) 3.2% current dividend yield is more than a full percentage point above the payout for the S&P 500 index. That income largesse is in large part a function still-depressed share price, and the fact that investors remain wary of the conglomerate’s heavy reliance on its financial services arm; the Wall Street Journal recently pointed out that the finance segment would rank as the fifth largest bank in the country if it were a standalone. In the first quarter, General Electric Credit Corporation (GECC) accounted for 33% of the mother ship’s revenue and 40% of profit.
As if this needs pointing out, during the financial crisis GE’s finance arm imploded and took the company hostage as shown in this chart, which includes competitors United Technologies (UTX) and Honeywell International (HON).
In short General Electric company tapped all sorts of government assistance-including $139 billion in loan guarantees for the finance arm -- and agreed to pay Berkshire Hathaway (BRK.B) 10% annual interest on a $3 billion cash infusion that was as important for its p.r. value (the Buffett Seal of Approval) as its balance sheet worth. Oh, and it also slashed its dividend 68%, putting it in the income investors’ doghouse from which it is still working its way out.
Even a quick glimpse at some of the financial data surrounding Cray Inc. (CRAY) might suggest that this stock – heir to the supercomputing empire founded by Seymour Cray – is anything but a ‘buy’. True, it’s trading at a measly 4.3 times trailing 12-month earnings, a puny PE ratio, but by most other standards, it is screaming ‘avoid at all costs’. It reported a loss of 20 cents a share on revenue of $79.5 million in the first quarter of 2013, compared to a profit of 14 cents a share in the first quarter of 2012, and analysts are project a loss of 20 cents a share for the second quarter, compared to last year’s second-quarter profit of 35 cents a share. In the wake of the release of first-quarter earnings, Cray’s stock price has plunged: already made wary by the company’s heavy reliance on government spending (which generates 70% of its revenue), investors opted not to stick around, as seen in a stock chart.
Just who were those investors unloading Cray? The same people you’ll find at the hippest clubs, sipping coconut water and spewing buzzwords. You see, Cray is seen as one of the players in the world of ‘big data’, which, along with the ‘cloud’, has become one of the most yapped-about and overused phrases in technology stock investing in the last year. Those investors were drawn to Cray on that basis and their buying had helped drive its stock higher earlier in the year; when the news of the first-quarter loss hit the market, this less knowledgeable crowd -- momentum investors, really -- opted to grab their profits and go chase another rabbit.
And yet, Cray has a growing array of fans among research analysts. Collectively, they have price estimates for the company’s stock that range from a low of $23.50 to as high as $25.00 – a big improvement over the current $17.67 a share. To get to those numbers, the bulls focus on Cray’s solid financial picture – yes, really – and the growing demand for its super-fast and super-smart computers.
Over the past month, the track record for the newly launched Tecfidera multiple sclerosis pill has become a closely watched exercise on Wall Street. Each week for the past month, analysts have been poring over prescription data to gauge the extent to which the drug, which is sold by Biogen Idec (BIIB), is capturing market share and how many billions of dollars in sales may be generated this year (covered in prior Pharma news).
As seen in the chart above, a new drug bringing in billions of dollars would make a huge difference to Biogen and the market's view of its financial data. As expectations have grown for the new drug, Biogen's PE ratio has soared.
Last week, Tecfidera prescriptions rose 27 percent, a substantial increase, although less than the 37 percent gain noticed during the previous week. Not surprisingly, some of this reflects patients who are switching from older MS drugs that are injectables, such as Copaxone and Avonex, which is also sold by Biogen.
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