Bullish on health care
Interview: BB&T Asset Management---Ryan, Charles---Analyst
>> our next guest is a large-cap growth investor. one industry he’s especially bullish on is health care. charles ryan is an analyst at bb&t asset management joining us from raleigh, north carolina. welcome.
>> thank you.
>> good to talk to you today. let’s talk, first of all about what’s happening here with health care versus biotech. where do you fall on this? where is the best place to put money to work right now?
>> well, right now, i believe investors are pulling money out of biotech. they have had a very nice run. p/e’s are getting to the upper end of their range. and i see money moving into the pharmaceutical area. they’ve got historically low p/e’s, they’re trading below the market multiple and right now we’re adding money to the larger pharmaceuticals, particularly pfizer.
>> why is that? why would you pick that name in particular as one that you want to put money to work in?
>> one reason why we like pfizer is because of management. they’ve got quality management that has proven its ability to execute. it’s also got a very full pipeline which should continue to bring blockbuster drugs in the future, and again, we believe the pharmacia merger is coming along nicely, and it’s been going well.
>> it’s up 12% year to date. do you think it has much to go from here? what’s your target?
>> i think it does. i think it could be a $40 stock by the end of the year. it’s got some good management working for it and it’s also had some nice cost-cutting, so i think the cost-cutting will take effect and as sales begin to ramp up we’ll see that in the e.p.s. number.
>> you’re not concerned there will be problems in trying to swallow up pharmacia? >> there naturally could be but i believe pfizer has the ability to execute, and they’ve proven it in the past with some of their other mergers so i’m confident they will be able to do this merger without any problem.
>> a headline that merck will not bid for schering-plough. was that surprising to you at all?
>> it was somewhat surprising. however, thinking back to the c.e.o. comments that he believes that mergers are not value creating and merck’s role is pretty much to research and use that as a means of growth rather than acquisition, so while it’s a surprise, and certainly investors were hoping that they would buy schering-plough, it’s not too much of a surprise. >> do you see any merger partner in the future for merck? or do you think those comments put that to rest?
>> i think the comments pretty much put it to rest. it would be nice, considering that they’ve got some patent issues coming up especially in 2006, so we would like to see somebody come along and purchase and add to their pipeline. however, according to management, i don’t think that’s unfortunately going to be the case.
>> plans to spin off metco, the pharmacy benefits management unit. what do you think of that and how do you look at it?
>> i think it’s going to be a win-win for merck, they’ll got $2 billion in cash which they can use to pay down debt and i believe going forward it will be easier to analyze merck as a stand-alone pharmaceutical company. with medco you have to make adjustments for it and the margins in medco are not as nice as it is, for instance, in the pharmaceutical business. so going forward, i think you’re going to see a much cleaner picture as far as merck.
>> what kind of relationship, though, do you think merck and medco are going to have once the spinoff is completed? moody’s says it may be risky in light of the allegations that medco improperly pushed products.
>> this should be a positive for merck. however, there is some concern as far as legislative, as far as whether they will be looking into in terms of the contracts but for right now that’s yet to be seen and we believe that right now it should be ok.
>> abbott labs due out with earnings tomorrow. what do you expect?
>> i think abbott’s going to come in in line with analyst expectations. it will be interesting to watch humera―it’s been a hot drug for abbott and certainly its gross driver and i’m going to watch the underlying business. it seems that management has rolled up its sleeves and taken to fixing the underlying business and this should be a good chance for investors to see how the progress is going.
