Somewhere between October 2011 and March 2012, it is estimated that the world welcomed its seven billionth person. With the numerous advances in medical technology, we have been able to extend our lifespan tremendously in a relatively short period of time. We are living longer while our population expands.
To put it into perspective, between 1965 and 1970, there were approximately 3.5 billion people on the planet. That means in about 45 years or so, we have essentially doubled our numbers. Although the UN projects lesser growth rates in the future, it is still quite significant to think that there will be approximately 9.3 billion people on Earth in 2050.
Also, life expectancy for the world's population increased by 20 years between 1950-55 and 2005-2010, from 48 to 68 years. The UN approximates that currently one in every nine persons is over 60 and projects that by 2050 that number will increase to one in five. This means that there is going to be a greater need for health care in the coming years as more and more people will require medication and other health related services.
The pharmaceutical industry earns billions every year and there maybe opportunities for investors for the medium to long term. Though some biopharmaceutical companies can give you very quick short-term gains as they skyrocket when they receive approval for new drugs, they have more risk involved as the drug could be rejected. I would like to focus on more conservative and stable companies due to the current financial climate.
AstraZeneca plc has been a stable performer over the last few years. The company was formed in 1999 and is responsible for brands such as Nexium, used to treat heartburn and acid reflux, and Crestor, used to treat high cholesterol. They have numerous other drugs that treat cancer, diabetes and cardiovascular illnesses just a name a few, with others being developed in their product pipeline.
Although their most recent quarterly earnings were down over 50 per cent year-over-year to US$1.53 billion, it beat expectation posting earnings per share of US$1.51 compared with an estimated US$1.47. The decline in earnings was mainly due to the company losing exclusivity on several of its drugs in key markets. The fall-off seems to be in-line with expectations as it reaffirmed its full year core earnings forecast of between US$6 and US$6.30. Currently the company is spending billions on research and development and is going through a restructuring exercise (which also impacted earnings), whereby they will be able to derive US$1.6 billion in annual benefits by the end of 2014.
The company's stock price has been undulating for the past few years and although it has not been appreciating in a consistent upward trajectory, there were several opportunities to invest in this company when the price retreated.
Against some of its major rivals, the company enjoys mostly better metrics which make it a slightly more attractive company in terms of value for money. AstraZeneca also pays a good dividend of 5.7 per cent and has been increasing its dividend for at least the last five years.
Another pharmaceutical stalwart to consider is Pfizer. The company was founded in 1849 and currently makes approximately twice the revenue of AstraZeneca. Major brands include Lipitor, a drug to combat high cholesterol, and Lyrica, which is used to treat fibromyalgia, diabetic nerve pain and spinal cord injury nerve pain. Similar to AstraZeneca, the company experienced a fall in earnings though not as severe. In the most recent quarter, earnings fell 14.2 per cent to US$3.21 billion due mainly to the loss of exclusivity of Lipitor in Europe.
Pfizer states that year-to-date (January 2012 to October 2012) they have absorbed approximately US$5.5 billion due to loss of exclusivity of its drugs but that 2012 would represent the most significant impact. Subsequent years would see a lower effect on revenue. To mitigate the current impact, the company has been growing some of its key products. In addition to this, Pfizer has been experiencing growth in emerging markets; particularly in China, Mexico, and Russia.
The company also spends billions on research and development and has several projects in development in areas such as early and mid-stage diabetes, pain and cardiovascular disease.
Although the company's metrics are not as value-oriented as AstraZeneca's, its share price has appreciated over 25 per cent year-over-year, perpetuating a mostly upward trend over the last few years. From January 2012 to October 2012, Pfizer repurchased almost US$6 billion worth of its shares and stated that its board has approved an additional US$10 billion in buybacks to be utilised over the next few months after it has finished divesting one of its operations. To cap it off, the company has a moderate dividend yield of 3.56 per cent.
It is evident that as a race, we continue to evolve and improve upon countless technologies. We will no doubt make more medical advancements that will aid us in treating many more of our sick and ailing. Investing in pharmaceuticals can be a great investment as the demand for drugs will continue to rise in the foreseeable future.
Justin Jones is the Supervisor of the Research Department at Stocks & Securities Limited and may be contacted via email@example.com