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gwramseyfund (64.44)

AHS Take on MYGN and ABT

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October 06, 2010 – Comments (4) | RELATED TICKERS: MYGN , ABT

About the Analyst: Andy Schneider is an MBA student at George Washington University School of Business studying accounting and finance. He has professional experience in higher education and has a master's degree in English Literature. He is new to this, so constructive feedback would be much appreciated. And go easy on him... 

 

Myriad Genetics (MYGN):

Myriad researches and markets predictive and personalized medicine. it is particularly well placed in medicine for colorectal cancer and hereditary melanoma.

The firm looks fairly safe given its minimal debt. That said, predictive medicine seems to be a sexy area for healthcare, pitching itself as forward thinking and "the future of medicine." If hoping for a favorable buyout is really the objective of investing in MYGN, you're probably going to have to wait for a while. The firm's margins are strong, but the stock price has been steadily dropping since it split in March '09. Management is well-established and has been in place since the mid 90's, which certainly bodes well, but I'm still lukewarm on the operations and what exactly it is that they do; that it is, they pitch themselves as biotech, but it seems a lot like a research company that spends a lot of time promoting predictive medicine rather than developing it. The spin-off of Myriad Pharmaceuticals seems like a nice play, but we'll have to see how the market reacts. 

Still, FY2009 earnings for similar companies like Seattle Genetics (SGEN) and Hologic (HOLX) were horribly negative, while Myriad posted $165m of net income with operating margins over 35%. The data looks good, but I'm still not sold on the product. Those I've consulted in the healthcare industry are not sold either. MYGN is a sexy pick. There could be value, but I feel like you'd be rolling the die a bit.

On paper, this company looks fine. The earnings are good (almost too good compared to SGEN and HOLX)and margins are solid. That said, I've read the 10-K twice now, and I'm still not entirely sure on what the firm does, other than it "develops and markets predictive and personalized medicine." Buffet says, "if you can't understand how the company makes money, sell."  

Grade: Sell

 

Abbott Labs (ABT):

A giant in pharmaceuticals and consumer products, Abbott's major cash flow seems to come from pharmaceuticals. Its operating margins landed around 20% for FY09, shortly trailing Johnson & Johnson at 25% and Pfizer at 22%, some good company to be in. 

The firm made several acquisitions that will allow it to exploit economies of scale as it grows, particularly the acquisition of Solvay Pharmaceuticals. Solvay will provide an additional 2.9 billion in revenue, and allows ABT to expand to Eastern Europe, previously untreaded territory for the firm. This will also double ABT's presence in emerging markets. The firm has launched new products such as Tripilex, a fenofibrate medicine that reduces triglycerides. In addition, the firm strengthened already strong products such as Niaspan for cholesterol, and Similac, the infant formula.   

Also noteworthy, the firm returned 2.5 billion dollars in dividends in 2009, an 11% increase from 2008, and the 37th consecutive year dividends have increased.  

ABT is very safe. Pharmaceuticals are the least likely healthcare industry to be hurt by healthcare reform. The pharma companies will still having pricing power, and will likely pass increased costs onto consumers. For a long term investment, ABT is likely to produce strong returns and will continue to increase dividends.

Pill-popping isn't going out of style any time soon in the USA, and it will likely only increase in emerging markets.  

Grade: Buy 

 

 

 

 

    

4 Comments – Post Your Own

#1) On October 06, 2010 at 10:32 PM, zzlangerhans (99.53) wrote:

I'm still not entirely sure on what the firm does, other than it "develops and markets predictive and personalized medicine." Buffet says, "if you can't understand how the company makes money, sell."  

Grade: Sell

Oh, for crying out loud. Maybe biotech isn't the best sector to be plunging into with the master's degree in English Literature. Is that going easy enough on him for you?  

 

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#2) On October 06, 2010 at 11:32 PM, MegaEurope (< 20) wrote:

I agree with Buffet's quote. On the other hand if you can't understand how the company makes money, you should probably not write a blog about it.  (Unless it is to humbly ask, instead of making a recommendation.)

The NYT might be a good place for an English major to start:

http://topics.nytimes.com/top/news/business/companies/myriad-genetics-inc/index.html

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#3) On October 06, 2010 at 11:38 PM, MegaEurope (< 20) wrote:

Not to be negative, you made some good points on both companies.  Welcome to CAPS.

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#4) On October 07, 2010 at 10:22 AM, gwramseyfund (64.44) wrote:

Thanks for the comments everyone. To clarify, this is a part of a school project. These companies have been assigned to me. I didn't one day decide to start investing in biotechs just for fun. I'm learning as I go here, trying to become a more intelligent investor. Again, constructive feedback would be appreciated. I am well aware of the fact you all know more than I do. Hopefully, in time, I can catch up.  -Andy

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