Can't See the Appeal of Big Pharma

Every day, someone calls the bottom in pharmaceutical stocks. I keep seeing the headline "Is it time to buy big pharma?" and then I hear some manager, who obviously genuinely believes that the bottom is here, drone on about how Merck's(MRK Quote) right, or Lilly's(LLY Quote) right or Pfizer's(PFE Quote) right.

Having run Syntex down almost to zero a decade ago, and having watched Bristol-Myers(BMY Quote) and then Schering-Plough(SGP Quote) chronically underperform for years, I have to wonder: What the heck's so appealing now? Is it price? Do people really think these stocks are bought on price? If they do, I have to tell you that the price is not right. There's nothing particularly appealing about the yield of Merck, say, that isn't appealing about the yield of Bristol-Myers, and Bristol-Myers hasn't done anything for years.

Is it the buybacks? Is that what inspires people? If it is the buybacks, let me ask you a question: Have these buybacks, which are like Coke's(KO Quote) and Cisco's(CSCO Quote) in their repetitive nature, been responsible for one point on the upside? Have they done anything good for you?

Is it the pipeline? Maybe, except all I see are me-too cholesterol drugs that are very similar and competitive in nature -- competitive meaning that the prices can't stay high.

Is it the distribution method? Do you really think that Merck is going to be unscathed because its Medco unit distributed statistically more Vioxx than Celebrex, even though someone at Medco should have known how many heart attacks the drug was causing?

Is it the political climate? Oh please, New Jersey went for Kerry. Do you really think that the president wants to help this industry, which, incredibly, is populated almost exclusively in blue states? You have to be kidding me.

Is it the possibility for tort reform? Yeah, I will believe it when I see it. It wasn't just the Democrats who stopped tort reform before. There were Republicans -- Sen. Richard Shelby (R., Ala.) -- who betrayed the president. There are too many lawyers in Congress and not enough businesspeople for us to hope, realistically, that something can be accomplished in time to save these companies from the current rounds of litigation.