Big Pharma Provides an Attractive Return Profile Trading at 12.5x and 3% Dividend Yield: Wall Street Transcript Interview with Dr. Andrew Baum, Group Head of Health Care Research at Citigroup

Wall Street Transcript

67 WALL STREET, New York - September 16, 2013 - The Wall Street Transcript has just published its Biotechnology and Pharmaceuticals Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs and Equity Analysts. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Health Care - Biotechnology and Pharmaceuticals - Biotechnology and Pharmaceutical Investing - Orphan Drug and Biologics Manufacturing - Oncology Drug Development - Orphan Drugs - FDA Approval Process - Reimbursement Trends

Companies include: GlaxoSmithKline plc (GSK), Gilead Sciences Inc. (GILD), Novo Nordisk A/S (NVO), Sanofi-Aventis (SNY), Merck & Co. Inc. (MRK), Pfizer Inc. (PFE), Bristol-Myers Squibb Co. (BMY), Abbott Laboratories (ABT), AstraZeneca plc (AZN), Novartis AG (NVS) and many more.

In the following excerpt from the Biotechnology and Pharmaceuticals Report, an expert analyst discusses the outlook for the sector for investors:

TWST: If we look at it today, this good outperformance, where are multiples relative to history, or doesn't that matter this point?

Dr. Baum: Multiples are, if you want to compare to - multiples have been as high as 50%, 60% premium to the market if you go back to 1999, 2000, but that represents today a very unique period of time for the industry. Those days will never be revisited again. So I don't tend to look at multiples relative to the market, because I don't think multiples are necessarily terribly helpful to the sector, or relative market multiples are terribly helpful. It's subject to all kinds of confounding factors.

But the sector is trading somewhere around 12.5 times or so, and it's providing a 3%, 4% dividend yield, which certainly looks attractive given other return profiles in elsewhere you could get. And you're getting an organic long-term growth rate of probably somewhere around 5% or so, maybe even higher. So that kind of profile, I think that's not an expensive proposition.

TWST: What's at the top of your favorite list at this point?

Dr. Baum: We've been very upbeat on Bristol and Pfizer in the U.S., but Bristol I'd highlight in particular. And then in Europe, we'd highlight both the Swiss names, Novartis (NVS) and Roche (ROG.VX).

TWST: What's the appeal of Bristol?

Dr. Baum: Bristol is a single-most geared company to active immunotherapy. This is what I highlighted earlier with reference to breakthrough in cancer therapy. They have at least 13 therapies in clinical development, one launched and one in late-stage development, which puts them in the vanguard of potentially transforming cancer care.

TWST: And Pfizer?

Dr. Baum: Pfizer is a reflection of the most aggressive capital allocation and probably the most value-centric company in thinking about shareholder return. In addition, they have a probably underappreciated pipeline compared to market expectations, which we have highlighted, particularly a drug for breast cancer called Palbociclib.

TWST: And the two Swiss companies? Let's start with Novartis.

Dr. Baum: Novartis is a combination of both an undervalued pipeline, together with significant potential for unlocking value through capital allocation. There's been significant senior management change in this company over the last six months, raising the possibility that capital allocation and shareholder alignment could materially move in favor of shareholders.

TWST: Is the new management from inside or is it from outside?

Dr. Baum: A bit of both, actually. The chairman, who is just taking his seat now, was the former head of pharma, who was squeezed out of the company by the current CEO and went to Bayer (BAYN.DE) to become head of pharma at Bayer, and he is now coming back as the chairman. So he is outside, but inside if you take my meaning.

TWST: And the final name was?

Dr. Baum: The final name is Roche, which shares in common with Bristol a rich pipeline story, which we believe is...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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