Drip Portfolio Report
Wednesday, September 17, 1997
by Jeff Fischer (TMF Jeff)
ALEXANDRIA, VA (Sept. 17, 1997) -- Following the overview of our first two healthcare considerations, an initial preference has developed. The preference is based on the business, not on the stock valuation. Indeed, the preferred company -- Pfizer -- has a stock that is valued significantly higher than the stock of Schering-Plough on an earnings basis. A decision won't be made until all four of our healthcare companies are considered against one another, of course, and no company has yet been decided against. Something might be discovered in the final "combing-through" process that makes us like Schering-Plough more than Pfizer. This is a work in progress. You're reading it as we discover it.
Initially, I like PFIZER (NYSE: PFE) better for a few reasons: the company has more diversity of product, spends more on research & development as a percentage of sales, and has more products in the pipeline (in development). Also, Pfizer depended on pharmaceuticals for 72% of sales last year, while at SCHERING-PLOUGH (NYSE: SGP) nine dollars of every ten came from pharmaceuticals. Pharmaceuticals are high margin product, but we want a company that doesn't depend on them too much, nor on only a few big-selling drugs.
Though Schering-Plough has twelve major pharmaceutical products that rank number one in their class, its CLARITIN product for allergies accounted for 20% of total sales last year. That product has seen increased competition beginning in 1996 (and it did very well last year in spite of it), but competition is going to increase further rather than slacken. Last year 36% of sales at Schering-Plough came from allergy and respiratory products, but 20% of those were CLARITIN alone. Alongside that, INTRON A, an anti-cancer drug, accounted for 10% of total sales.
At Pfizer, 30% of sales were in cardiovascular drugs, but those sales came from nearly half a dozen drugs, not just a couple. The company also has over half a dozen cardiovascular drugs under regulatory review and in late-stage development. Infectious disease remedies accounted for 20% of sales at Pfizer, and the company sells several drugs in this division as well -- in fact, well over a dozen. Pfizer also expects to have seventeen new drugs on the market by the year 2000.
Moving away from drugs, Pfizer also offers more in hospital products (13% of total sales), and animal healthcare (11% of sales). Meanwhile, growth has been more prevalent in Pfizer's smaller divisions, while sales in Schering-Plough's consumer products have been, overall, about flat since 1994.
It isn't nearly this simple, though. Both are great companies and both have been rewarding shareholders handsomely for decades. Following our overview, though, this is how we're thinking.
We'll study our other two considerations and then compare all four companies to one another and look at the valuations granted as well, once again. We'll continue to learn about Pfizer and Schering-Plough as we move forward into our next companies, too, so this is still a learning process. We do expect to reach a decision by the end of the month, though.
In this corner of the ring....
A company that is nearly as large as Pfizer....
Sporting $11 billion in 1996 sales...
Wearing the flag of hometown state Illinois...
ABBOTT LABORATORIES (NYSE: ABT)!!
Abbott will be our next consideration, followed by the "fat cat," JOHNSON & JOHNSON (NYSE: JNJ).