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Edward Owens' Health Care Moves: Adds Novartis, Amgen, Bristol-Myers Squibb

August 04, 2011 | About:
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Edward Owens has managed the Vanguard Health Care Fund since its inception in 1984. The fund focuses on the health care sector and seeks long-term capital appreciation, typically resulting in relatively low turnover. Owens utilizes a fundamental approach to find companies with strong balance sheets, capable management and the potential for new products that can drive growth. He is not afraid to purchase stocks after negative events have caused prices to fall. Historically, the fund has been relatively conservative with its portfolio, maintaining greater geographic diversification than other health care sector funds. In the past 10 years, the Vanguard Health Care Fund has averaged a 7.16% annual return that outperformed the benchmark Spliced Health Care Index's 1.91% annual return. According to his second-quarter portfolio update, Owens' biggest moves included adding to Novartis AG (NVS), Amgen (AMGN) and Bristolmyers Squibb (BMY).

Novartis AG (NVS)

In the first quarter of 2007, Owens held more than 13 million shares of Novartis when the average price was $57.56. However, prices generally trended downwards over the next few years and Owens gradually sold 8.35 million of his shares spread out during this time frame for an average price of $53.72, netting him a slight loss. However, recently the stock has rebounded in price back to its 2007 values. In his most recent move, Owens added 30% to his position at an average price of $59.63, impacting his portfolio by 0.45% and giving him a total of 6,331,280 total shares in the company.

Novartis AG engages in the research, development, manufacture and marketing of healthcare products worldwide. It offers therapeutic prescription medicine through its Pharmaceutical division, preventive vaccines and diagnostic tools through it Vaccines and Diagnostics division, active ingredients and finished dosages of medicines through its Sandoz division and over-the-counter medicines through its Consumer Health Division.

According to Novartis's second quarter report, net sales for the quarter increased 27% year-over-year (19% constant currency) from $11.7 billion to $14.9 billion. This includes a 46% growth for recently launched products over last year, contributing $3.8 billion in to net sales. Pharmaceuticals net sales grew 10% (+2% cc) as a result of increased volume. The new Alcon Division's net sales grew 12% (+6% cc) due to successful new product launches. Sandoz net sales grew 25% (+16% cc) due to volume growth as well. Vaccines & Diagnostics declined 47% (-50% cc) due to H1N1 pandemic flu vaccines driving sales in the second quarter of 2010. Consumer Health grew 5% in constant currency, driven by U.S., Canada and Germany as well as double-digit growth in key emerging markets. Net income increased 12% (+17% cc) from $2.44 billion to $2.73 billion due to the revenue growth and improved tax rates. Free cash flow before dividends was $3.30 billion, 39% higher than last year's 2.37 billion, due to increased operating income, $420 million in cash inflow for the Elidel divestment and improved working capital.

In the second quarter of 2011, Novartis had four major approvals and two major filings. In Europe, Rasilamlo, a single-pill combination therapy for patients with uncontrolled high blood pressure, was granted approval. The EU also approved Lucentisto treat visual impairment due to macular edema. In the U.S., the FDA approved Arcapta Neohaler, a once-daily bronchodilator for chronic obstructive pulmonary disease. The FDA also approved Afinitor, the first new treatment in nearly three decades for patients with advanced neuroendocrine tumors of pancreatic origin for which treatment options have been limited. The company also filed an application in the EU for a treatment for myelofibrosis and an application to the FDA to expand their meningococcal vaccine to include infants and toddlers as young as two months.

The company plans to focus on improving efficiency in order to continue investment in R&D. They made moves to reduce excess capacity and shift production to technology competence centers.

During the quarter, the board of directors removed the restriction that limited dividend payments to 35-60% of net income to maintain strong cash flows. Novartis also completed a $1.8 billion share repurchase program during the quarter.

Novartis has a market cap of $137 billion. The stock trades with a P/E ratio of 11.2, below its eight-year average. Its P/S ratio is 2.7, slightly below its eight-year average. Its P/B ratio is 2.0, below its eight-year average. Both book value per share and quarterly sales per share have been trending upwards over the past eight years. GuruFocus has awarded Novartis a four-star predictability rating.

Amgen Inc. (AMGN)

In 2007, Owens owned nearly 10 million shares of Amgen stock when the average price was $66.39. However, over time the price of the stock dipped down and Owens reduced his position by 1 million shares throughout 2008 and 2009 for an average price of $53.48 per share. In the fourth quarter of 2010, Owens added another 1.7 million shares of the stock for an average price of $55.59. In his most recent move, he added to his position by 8.97% at an average price of $57.67, impacting his portfolio by 0.29% and giving him 11,810,355 total shares in the company.

Amgen Inc., a biotechnology medicines company, discovers, develops, manufactures and markets human therapeutics based on advances in cellular and molecular biology for grievous illnesses primarily in the United States, Europe and Canada. The company markets recombinant protein therapeutics in supportive cancer care, nephrology and inflammation.

According to Amgen's second quarter report, total revenue increased 4% year-over-year from $3.80 billion last year to $3.96 billion, driven by a 8% growth in total product sales. Cost of sales decreased to 14.6% of product sales versus 15.2% of product sales last year. Research and development expenses increased 26%, from $642 million last year to $808 million, as a result of late stage clinical programs for certain products as well as increased support for their marketed products. SG&A expenses increased 15%, from $968 million to $1.11 billion, due to U.S. Healthcare Reform Federal excise fees, expansion of international operations and spending related to new product launches. Adjusted net income decreased 3% from $1.33 billion to $1.28 billion and adjusted earnings per share were $1.37 as compared to $1.38 last year.

Among their major products, U.S. Aranesp sales decreased 10% due to decreased unit demand while international Aranesp sales decreased 1% due to a slight decrease in average net sales price, substantially offset by an increase in unit demand. EPOGEN sales decreased 17% due to decline in unit demand. Both Aranesp and EPOGEN stimulate the production of red blood cells. Neulasta and NEUPOGEN sales increased 13% as result of increased unit demand and increased average net sales price. Neulasta and NEUPOGEN stimulate the production of neutrophils, a type of white blood cell that helps the body fight infections. Enbrel sales increased 9% as a result of increased unit demand and increased average net sales price. Enbrel is an inhibitor of tumor necrosis factor that plays a role in the body's response to inflammatory diseases.

Capital expenditures for the quarter were $123 million, down from last year's $177 million. The company also repurchased $732 million worth of stock during the quarter, leaving $6.4 billion remaining under its authorized stock repurchase program.

The company expects its total revenue for 2011 to be at the upper end of its guidance range of $15.1 billion - $15.5 billion, which would be an increase over last year's $15 billion for the fiscal year. It also expects adjusted EPS for the year to be at the upper end of its guidance range of $5.00 - $5.20, greater than last year's $4.90. It expects the total impact of the U.S. Healthcare Reform to range between $400 million - $500 million.

Amgen has a market cap of $49.6 billion. The stock trades with a P/E ratio of 10.3, a historic low. It has a P/S ratio of 3.3, very near its historic low. Quarterly sales per share has been rising steadily since 2000. Its P/B ratio of 2.0 is also near its historic low. Book value per share has been increasing since 2007, now at a high of $26.79 per share.

Bristol-Myers Squibb Co. (BMY)

In 2007, Owens owned 15.1 million shares of Bristol-Myers Squibb when the average price was $27.22. As prices fell, Owens slightly added to his position, purchasing 1.4 million shares when prices were as low as $20.14 in the second quarter of 2009. However, two quarters later Owens cut his holdings almost in half when he sold 7.4 million shares for an average price of $24.00. After sitting on his holdings as prices increased in 2010, Owens added 300,000 shares in the first quarter of 2011. Most recently, he added another 17.59% to his shares at an average price of $28.09, impacting his portfolio by 0.24% and giving him 11,028,361 total shares in the company.

Bristol-Myers Squibb Company is a global leader in the research and development of innovative lifesaving and life-enhancing treatments for heart disease; high blood pressure; stroke; diabetes; cancer; HIV/AIDS and other infectious diseases; depression, schizophrenia and other mental disorders; pain; and other conditions.

According to Bristol-Myers Squibb's second quarter report, net sales increased 14% year-over-year (10% excluding the impact of foreign exchange) from $4.77 billion last year to $5.43 billion. This included 15% growth by PLAVIX, 31% growth by BARACLUDE, 46% growth by SPRYCEL and 28% growth by ORENCIA. YERVOY delivered $95 million in sales in its first quarter on U.S. markets while ONGLYZA and recently launched KOMBIGLYZE together delivered $112 million. Marketing, selling and administrative expenses increased 16% while research and development expenses increased 12% to $923 million. Overall, net earnings attributable to Bristol-Myers Squibb was $902 million, down from last year's $927 million. However, excluding items such as upfront, milestone and licensing payments as well as other items, adjusted net earnings attributable to Bristol-Myers Squibb was $971 million, up from last year's adjusted net earnings of $944 million.

During the quarter, the European Commission approved ELIQUIS for the prevention of venous thromboembolic events in adult patients and approved YERVOY for the treatment of advanced melanoma in adults who have received prior therapy. Regulatory authorities in China approved ONGLYZA for the treatment of type 2 diabetes in adults. Both the U.S. FDA and the European Commission approved NULOJIX for the prevention of organ rejection for kidney transplant patients. Regulatory authorities in Japan approved the use of SPRYCEL as a first-line treatment of chronic myeloid leukemia.

In July, Bristol-Myers Squibb announced a global agreement with Innate Pharma S.A., a biotech company in France, for the development and commercialization of a novel immuno-oncology biologic in Phase I development.

In July, Bristol-Myers Squibb entered into an agreement to acquire Amira Pharaceuticals, a small-molecule pharmaceutical company focused on the discovery and early development of new drugs to treat inflammatory and fibrotic diseases. This acquisition marks Bristol-Myers Squibb's entrance into fibrtoic diseases.

The company raised its EPS guidance range to $2.08 - $2.18. This would be an increase over last year's $1.81.

Bristol-Myers Squibb's has a market cap of $48.3 billion. The stock trades with a P/E ratio of 12.9, below its eight-year average. Its P/S ratio is 2.5, generally consistent with its eight-year average. Its P/B ratio is 3.0, slightly below its eight-year average. Book value per share jumped up in 2010, currently at a high of $9.33 per share.

This is part of GuruFocus Real Time Picks report, which reports the stock trades of Gurus within the last few days. For more information, go to Real Time Picks.

Rating: 2.5/5 (15 votes)

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