The Reasons Why I Don't Like to Invest in Pharmaceuticals

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1. The volitilities – one minute the company are owning the drug of choice, the next minutes it become obsolete because they find out it cause cancer, kidney failure, liver failure, heart failures, etc. I don’t have the stomache for it. And even if I do, I want to save those moments for family member, for someone I truely care for, not some pharmaceutical company.

Magic-PillRemember Prozac? The drug of choice for depression. They’ve just found out that it cause birth defects. For those of you who own Eli Lilly, a storm is coming. For those of you who want to own Lilly, time to find a new bottom. Here the article http://www.reuters.com/article/2015/07/09/us-usa-health-antidepressants-idUSKCN0PJ2T320150709

2. Insider trading – I have access to the front and center to the drugs that we use, therefore with this kind of feedbacks, I could easier beat the mass to the information. The last I’ve heard, insider trading is illegal. Martha Stewart was jailed for that. I don’t want to go near that.

Remember 2009? Wells Fargo received bailout from the FED, but still go ahead and do a huge company party. WFC stock dropped like flies. Wouldn’t want to be an insider during that time.

3. Diversifying – There is a saying “don’t s*** where you eat.”  I don’t like having my judgments be clouded by the the companies that I own. Remember Cisco in 199-2000? And Anron? Yeah, there were people who invested 100% in there own company and lost everything. After that, there were regulation that make it harder for companies to force employees into buying their own stocks. There will be mutual funds available. Employees can still buy stocks at a discount, but can sell it off in 3 months.

With companies like PM, AA you wouldn’t think of the as pharmaceutical companies, but they are. The number one producer of nicotine. Helping people get off cigarette, imagine that!

Companies like JNJ, PG, BAX they own from cosmetic, diapers, to household products. They are vastly diversify. You can’t even call them pharmaceutical companies anymore.

PG has just spun off its cosmetic line.

I guess if you work in the oil and gas industry, you might feel the same way. If you work for an oil company, the years that the oil got to $120 per barrels, thing was going well. But now it’s down to $50s, and someone predicted $30s, and you’re on the verge of losing your job because you didn’t work for the big 4 or big five – COP, bp, xom, cvx. Worse, having to constantly being worried  that the company getting sued for environmental consequences – oil spill, water caught on fire, earth quake, etc. everybody has their own reasons.

With that said, I might have mutual fund, S&P 500 that owns pharmaceuticals. And I bought a few shares of Baxter and considering buying JNJ. But I’d probably will never have a huge stake in any of them.

What do you think? What’s your profession, and does it affect how you’d invest?

GA

4 Comments

  1. Seeing the way the drugs are patented, pharma companies make lots of money. But, you are right that any drug can go down any day.

    How about choosing a company that has multiple drugs on the market? When one drug goes down, the rest can balance out the investment. Also, how about a mutual fund that owns multiple drug companies? If one company goes down, the NAV may go down and provide more opportunities for dollar cost averaging.

    Going the mutual fund way can remove any bias from your professional knowledge and also give you the diversification.

    • I agree with you on owning mutual fund or index fund that have a mix pharmaceutical companies so we don’t miss out on gains. Hence, I now have 70% of my 401k in the S&p 500, a euro blue chip fund that also includes pharmaceutical companies.

  2. Hi Vivianne

    Like you, I hate to be investing in pharma companies.

    I have a friend who worked in the industry and he mentioned regarding the patent life cycle which the company needs to bid and prolong for the patent to be renewed, it’s a very tolling process and it’s eating up a lot on the bottomline of the company. As a shareholder, I won’t want to see that coming up in surprise.

    • Drug company has a formula for patent in America. 17 years exclusive patent. Then after 12-15 years, they’d come out with the extended release. A slightly different version, last a bit longer, works a bit better, but that would extend the SR patent for another 17 years. Total 20-34 years. So the profit is enormous.

      The 2nd thing they do is. They would hire grads who have military background. So they would have an easier route to get into the FDA. Then after a few years in the FDA to learn the ins and outs. They’d rehire that person. Now, that would help with the drug approving process.

      Drug manufacturer spend more money on advertisement than R&D. That’s the truth.

      Again, profit is enormous!!

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