The Unseen Pharmaceuticals

This week, health-care conglomerate Bayer AG (OTC BB: BAYRY) joined a surprising number of pharmaceutical firms not listed on major U.S. stock exchanges.

Bayer announced that it had completed delisting its American Depositary Shares from the New York Stock Exchange, citing the expense of reporting to the Securities and Exchange Commission. Its shares now trade only over the Pink Sheets, home to many other drug firms as well.

With sales of nearly $36 billion last year (at an exchange rate of one dollar to 1.17 Swiss Franks) Roche (OTC BB: RHHBY) is the sixth-largest drugmaker by sales. This puts it ahead of well-known names such as Merck (NYSE: MRK  ) , Abbott Laboratories (NYSE: ABT  ) , and AstraZeneca (NYSE: AZN  ) . However, U.S. investors can only find shares of Roche on the Swiss stock exchange, or on the Pink Sheets. U.S.-based investors can easily get a piece of Roche's largest asset, Genentech (NYSE: DNA  ) , on the more transparent NYSE, but shares of Roche trade at a much more palatable price for value investors.  

The group of drugmakers choosing to delist from the U.S. stock market is growing as well. Earlier in the year, small SkyePharma chose to drop its U.S. listing and trade only in London, because the expenses of complying with Sarbanes-Oxley regulations. After its $18 billion purchase of Swiss-based Serono last year, Merck KGaA dropped its U.S. listing for the same reasons.

I'm not here to lament the loss of foreign drugmakers' public listings in the U.S., prompted by costly financial requirements. (I'll save that for another article.) Instead, I want to remind investors that they shouldn't discount foreign drugmakers not listed on the main U.S. stock exchanges.

As is the case with Roche, or even Swiss-based Actelion (PK: ALIOF), these drugmakers may trade at more reasonable valuations than their U.S. based counterparts. Investors also need to watch privately held or foreign-listed drugmakers for competitive reasons, lest they be blindsided by the development of new drugs that compete with products from U.S.-listed firms.


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