Fairholme Fund Q1 Results Dragged by Pfizer and Forest Laboratories, Inc.

I’ve been driving less. I’m getting older. So we’ve made significant moves towards the health sector after they crashed by 50 percent then the pharmaceuticals. And we’ll continue to do that…

Ten years ago, companies like Pfizer, people were grabbing the sign with both hands between 30 and 40 times earnings. Recent past, we’ve been buying Pfizer under 10 times earnings, under eight times earnings, seven-and-a-half percent dividend yield, triple A quality balance sheet, and loads of free cash flow, significant double digit free cash flow, significant cash in the bank. And with all of these biotech companies and small startups starving for cash, where are they going to go?


Pfizer very much now reminds me, in some ways, of the old Phillip Morris where they had two distribution – the distribution system handed their branded goods, their patented goods, plus their non-patented goods. I think you’ll see Pfizer going becoming much more active in the world of I don’t want to use – generics is a vulgar word but I don’t think most people in the United States realize that there is a difference between a generic drug, and the real (tasigent) drugs. And Pfizer, I think, is going to become a gigantic in that area. There are also new executives. Kindler, we like a lot. He’s cutting down. He’s really cutting the fat out of the organization, going more – much more towards the venture capital model, whereby, instead of having it people internally coming up with new miracle drugs, he’s waiting for young vibrant companies and universities to do it. And then Pfizer is one of few places they will go to to get the cash they need and the distribution system, the global distribution system they will need for their kinds of drugs.

… regarding the acquisition, we’re more excited than ever. We’ve had the opportunity, Frank and I and others to really spend a lot of time with the leadership of Wyeth over the last several weeks since we announced the deal. And it’s just confirmed for us that they are really a perfect fit with us for advancing the strategies that we detailed about a year ago. And just very quickly, to refresh those of you who may be familiar with this, more than a year ago we articulated that there were seven important strategies that we felt we needed to pursue as a company to position ourselves for success and to produce strong profitable growth especially in the years after Lipitor goes off patent. Those were to expand our investments in disease areas that we believed we could invest to win in, to become a leader in biologics, to enter the vaccines market, to strengthen our leadership in emerging markets, to create new opportunities for our established products, those are products that have lost exclusivity, to invest in complimentary businesses and to establish a lower and more flexible cost base.


The Wyeth transaction helps accelerate each and every one of these strategies in a very meaningful way. It updates our portfolio mix by adding vaccines and biologics, consumer, nutritional businesses as well as a broad array of scientific programs and talented people. So we’re working now on finalizing the leadership structure of the new company which will have a strong management team that includes people from both companies, both on the science and the commercial side representing a broad range of expertise and experience.

After healthcare companies went over the proverbial cliff, their prices. The bottom line is the HMOs that we invested in, WellPoint, United, those two alone insure one out of every five insured in the United States and they are our healthcare system. They are the government’s healthcare system. There is no other healthcare system. The only healthcare system that the government has is the ability to write a check. And the ability to write a check usually causes much faster increases in costs that having gatekeepers such as United or WellPoint. And of course, their services are essential to the company, vital, given that the baby boomers are just hitting retirement age. And, of course, when we look on a global basis, the new middle class is who wants the same good healthcare that we have. So that’s the reason for going into healthcare.

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