Prof. George Athanassakos of the Richard Ivey School of Business at The University of Western Ontario interviewed Warren Buffett in 2008. The two great minds had the following conversation with regard to the Pharmaceutical companies:
The question is how do you pick a pharma company when you haven’t got the faintest idea what your competitor in 6 or 7 years will be offering. You are better off in that business by buying a group, if the group is reasonably priced. They will be using some drugs for sure 5 years from now. In dollar terms you don’t know who the winners will be. I know in my own case I can’t pick winners in the pharma industry. I can decide the pharma industry as a whole is a pretty good business with good aggregate returns on capital. Purchasing a group, unless you are really an expert in the field, makes a lot more sense. I don’t care who has a hot item in the pipeline. It will likely be selling for more than a company that is coming off a patent in a year. The price tends to account for what is in the pipeline anyway. I don’t know which company but I know there will be more drugs sold on aggregate 5 years from now.
Read the complete transcript of the interview here.
Put it simple, individual pharma companies fall into Buffett’s “too hard” bin but he would endorse the economics of the industry as a whole attractive. So maybe a ETF investing in pharma companies. Of course, Buffett did not make his fortune by betting on the right ETF’s.
These are the Pharma companies that Berkshire Hathaway held as of March 31, 2010.
Johnson & Johnson (JNJ, Financial)
Johnson & Johnson is engaged in the manufacture and sale of a broad range of products in the health care field in many countries of the world. Johnson & Johnson has a market cap of $163.39 billion; its shares were traded at around $59.24 with a P/E ratio of 12.8 and P/S ratio of 2.7. The dividend yield of Johnson & Johnson stocks is 3.6%. Johnson & Johnson had an annual average earning growth of 11.1% over the past 10 years. GuruFocus rated Johnson & Johnson the business predictability rank of 4.5-star.
This is one of Berkshire’s major stock holdings and it has held JNJ for a long time. However, it has reduced its position rather dramatically, from 61 million shares back in 3Q2008 to less than 24 million shares as of 12010.
SanofiAventis (SNY, Financial)
Sanofi-Aventis is a global pharmaceutical company primarily in Europe and the United States. Sanofiaventis has a market cap of $78.27 billion; its shares were traded at around $29.75 with a P/E ratio of 6.3 and P/S ratio of 1.9. The dividend yield of Sanofiaventis stocks is 3.7%.
Berkshire had held the stock since 2006 and has maintained the 3.9 million shares for the last two years.
GlaxoSmithKline plc (GSK, Financial)
GlaxoSmithKline is one of the world's research based pharmaceutical and healthcare companies. Glaxosmithkline Plc has a market cap of $95.83 billion; its shares were traded at around $33.83 with a P/E ratio of 8.4 and P/S ratio of 2.2. The dividend yield of Glaxosmithkline Plc stocks is 5.9%. Glaxosmithkline Plc had an annual average earning growth of 6.8% over the past 10 years. GuruFocus rated Glaxosmithkline Plc the business predictability rank of 3-star.
Berkshire has held 1.5 million of the stock since 2007.
Conclusion
Warren Buffett was modest and did not want to point out which pharma companies represent better investment opportunity, however his company stock positions have already cast his vote.
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Question: The pharma industry is a very risky industry. I was just wondering, how do you pick a pharma company?
The question is how do you pick a pharma company when you haven’t got the faintest idea what your competitor in 6 or 7 years will be offering. You are better off in that business by buying a group, if the group is reasonably priced. They will be using some drugs for sure 5 years from now. In dollar terms you don’t know who the winners will be. I know in my own case I can’t pick winners in the pharma industry. I can decide the pharma industry as a whole is a pretty good business with good aggregate returns on capital. Purchasing a group, unless you are really an expert in the field, makes a lot more sense. I don’t care who has a hot item in the pipeline. It will likely be selling for more than a company that is coming off a patent in a year. The price tends to account for what is in the pipeline anyway. I don’t know which company but I know there will be more drugs sold on aggregate 5 years from now.
Read the complete transcript of the interview here.
Put it simple, individual pharma companies fall into Buffett’s “too hard” bin but he would endorse the economics of the industry as a whole attractive. So maybe a ETF investing in pharma companies. Of course, Buffett did not make his fortune by betting on the right ETF’s.
These are the Pharma companies that Berkshire Hathaway held as of March 31, 2010.
| Symbol | Company | Number of Shares | Value ($1000) | Weighting (%) | % of Company |
| JNJ | Johnson & Johnson | 23,891,448 | 1,557,720 | 3.06 | 0.87 |
| SNY | SanofiAventis | 3,903,933 | 145,851 | 0.29 | 0.15 |
| GSK | GlaxoSmithKline plc | 1,510,500 | 58,184 | 0.11 | 0.05 |
Johnson & Johnson (JNJ, Financial)
Johnson & Johnson is engaged in the manufacture and sale of a broad range of products in the health care field in many countries of the world. Johnson & Johnson has a market cap of $163.39 billion; its shares were traded at around $59.24 with a P/E ratio of 12.8 and P/S ratio of 2.7. The dividend yield of Johnson & Johnson stocks is 3.6%. Johnson & Johnson had an annual average earning growth of 11.1% over the past 10 years. GuruFocus rated Johnson & Johnson the business predictability rank of 4.5-star.
This is one of Berkshire’s major stock holdings and it has held JNJ for a long time. However, it has reduced its position rather dramatically, from 61 million shares back in 3Q2008 to less than 24 million shares as of 12010.
SanofiAventis (SNY, Financial)
Sanofi-Aventis is a global pharmaceutical company primarily in Europe and the United States. Sanofiaventis has a market cap of $78.27 billion; its shares were traded at around $29.75 with a P/E ratio of 6.3 and P/S ratio of 1.9. The dividend yield of Sanofiaventis stocks is 3.7%.
Berkshire had held the stock since 2006 and has maintained the 3.9 million shares for the last two years.
GlaxoSmithKline plc (GSK, Financial)
GlaxoSmithKline is one of the world's research based pharmaceutical and healthcare companies. Glaxosmithkline Plc has a market cap of $95.83 billion; its shares were traded at around $33.83 with a P/E ratio of 8.4 and P/S ratio of 2.2. The dividend yield of Glaxosmithkline Plc stocks is 5.9%. Glaxosmithkline Plc had an annual average earning growth of 6.8% over the past 10 years. GuruFocus rated Glaxosmithkline Plc the business predictability rank of 3-star.
Berkshire has held 1.5 million of the stock since 2007.
Conclusion
Warren Buffett was modest and did not want to point out which pharma companies represent better investment opportunity, however his company stock positions have already cast his vote.
GuruFocus provides real time information and insights of Investment Gurus such as Warren Buffett for Premium Members. If you are not a premium member, click here to sign up or upgrade. 7-Day Free Trial is available.
