Which Drugmaker Is a Buy?

Drugmakers are an interesting bunch.

On the one hand, they get multi-year patent protection on new drugs, many of which become the preferred treatment for everything from heart disease to cancer. All of that means steady profits, because even in recessions, people buy their medicantions.

On the other hand, drugmakers must continually be filling the pipeline to ensure that they always have lucrative and profitable products under patent protection. That entails not just money but risk, as one never knows if a given candidate will actually turn into an effective -- and safe -- product.

Getting into the numbers
Who are the major drugmakers, and how do they stack up to one another?

Company

Market Cap (in millions)

Revenue, LTM (in millions)

Free Cash Flow, LTM (in millions)

R&D Expenditures

CAPS Rating (out of 5)

Pfizer (NYSE: PFE  )

$122,686

$55,892

$5,823

$8,296

****

Novartis (NYSE: NVS  )

$111,386

$47,505

$11,722

$7,802

*****

Merck (NYSE: MRK  )

$111,228

$33,465

$2,477

$6,471

****

GlaxoSmithKline (NYSE: GSK  )

$89,778

$42,831

$10,424

$5,610

****

sanofi-aventis (NYSE: SNY  )

$80,232

$38,411

$9,645*

$6,140

*****

Abbott Labs (NYSE: ABT  )

$75,280

$31,745

$7,017

$2,823

****

Bristol-Meyers Squibb (NYSE: BMY  )

$44,333

$19,293

$3,419

$3,649

****

Data from Capital IQ, a division of Standard & Poor's, and the Motley Fool CAPS database; LTM = last 12 months.
*Period ending Dec. 31, 2009.

It's important to keep track of revenue, but free cash flow gives us a better sense of what the company is doing with that revenue -- and whether they'll have the funds to invest in the business later.

But the bread and butter of drugmakers is the pipeline -- those drugs in development and trials that can generate patent-protected profits for years on end. And a robust pipeline depends on robust R&D expenditures.

Which drugmaker do you like and why? Let us know in the comments box -- and tell us your reasons, too.

Fool editor Julie Clarenbach doesn't own any of the companies mentioned here. Pfizer is a Motley Fool Inside Value selection. Novartis is a Global Gains recommendation. The Fool owns shares of GlaxoSmithKline. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (26)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 21, 2010, at 2:44 PM, garceman wrote:

    BMY ... seems to be doing well with long range

    plan to transition away from standard drugs to

    biogen .

    Medx deal looks more and more like a bargain.

    The dividend is terrific

  • Report this Comment On June 25, 2010, at 2:24 PM, chezmiller wrote:

    Do you think the market has priced in the launch of a generic Plavix? You saw what happened to sales when there was the "premature" launch a while back.

  • Report this Comment On June 25, 2010, at 7:17 PM, aaplover wrote:

    Pfizer is the best.

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