There's Money to be Made in Pills by Malcolm Berko on Creators.com

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There's Money to be Made in Pills

Dear Mr. Berko: I would like to buy some drug company stocks. Do you still like Pfizer, which you recommended some months ago at $18? What is your opinion of Bristol-Myers Squibb? The shares are lower today than they were in 2001, when I owned 150 shares at $70. I'm also looking at Perrigo, which makes over-the-counter cough, cold, stomach, pain and other nonprescription medicines for drugstores to market under their personal labels. What do you think of these three companies? And if you have another drug company you like, please advise me. — H.E., Bethlehem, Pa.

Dear H.E.: Yes, I still like Pfizer Inc. (PFE-$15.25). You've got to love a company making Claritin so pharmacies can retail a bottle of 100 of those little suckers for $125. Did you know the ingredients in a bottle of 100 cost 71 cents, which is a 30,000 percent markup? Pfizer also makes Lipitor, and pharmacies retail a 100-pill bottle for $275. The cost of ingredients is $5.80, so the markup is 4,500 percent. Pfizer also makes Norvasc, and your friendly neighborhood pharmacists sell a 100-pill bottle for $185. The active ingredients cost 14 cents, which translates to a 134,000 percent markup. Pfizer also manufactures Zocor, which your pharmacist retails in a package of 50mg pills for $200. The active ingredients cost $1.75, so the mark up is 11,500 percent. I also like PFE's 31 percent net profit margins, its $48 billion in revenues, its potentially fecund pipeline, its financial strength and its $1.18 dividend that yields 7.9 percent.

I also like Bristol-Myers Squibb Co. (BMY-$20) because many of its prescriptives have similar profit margins and because its $1.12 dividend has a swell 6.1 percent yield. I also like BMY because this stock, which just a few years ago was trading in the lofty $65 to $80 range, is now trading 70 percent lower. I also like BMY because there's talk on Wall Street that it could be an enticing marriage partner and that Sanofi-Aventis or Pfizer might offer a substantial dowry (guesstimate $31 per share) to take it to the altar.

BMY has a panoply of great prescriptives, but it seems to have lost its momentum and management can't figure out how to jump-start the company again.

I really like Perrigo Co. (PRGO-$31), a prosperous $1.8 billion over-the-counter manufacturer that posted significantly higher 2008 earnings. Earnings exploded because management's quality control initiatives, new operating efficiencies, margin expansions and a 26 percent revenue gain were responsible for a 90 percent increase in 2008 net income to $1.58 a share. I'm certain 2009 won't replicate 2008, but I'm equally certain that 2009 earnings will closely approach $2 a share. And I really like PRGO because this company is the nation's largest manufacturer of over-the-counter pharmaceuticals and nutritional products sold by supermarkets, drugstores, and mass merchandise chains (21 percent of revenues from Wal-Mart) under their own labels. And I like PRGO because it also produces prescription generic drugs, which are sold by most pharmacies in the nation.

And I like PetMed (PETS-$16.75) because it's riding on a wave of increased medical spending for pills, unguents, salves and liquids for dogs, cats and birds. It seems that most folks won't hesitate to spend $50 or $60 bucks a week on pills for their pets. Revenues for this online advertiser with an 800-telephone number grew from $10 million in 2001 to $190 million in 2008. Earnings have grown just as fast from a deficit in 2001 to an expected 85 cents a share profit in 2008. Next year, Wall Street expects PETS to post a 15 percent increase in revenues and a 20 percent increase in net income. I think that in the next 12 months PETS could trade in the low $20s.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@comcast.net. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.