DAY (1/15) - PRRN CHALLENGE!

 Hello! I am Priya, and thank you so much for being here! :)

I recently watched the '100 day challenge' to build a career in finance by The Valuation School, and immediately jumped into it. I decided to tweak it, so this is a series where for the next 15 days I:

1) 'Pick' a sector

2) 'Read' relevant news articles, annual reports, sector analysis reports etc 

3) 'Report' what I've read

4) Make 'Notes' and see how they evolve!

To make it more interesting I've decided to pick a sector that has always been intriguing to me - the Pharma sector. I've picked 3 companies for my reference - Eli Lilly, Novo Nordisk, Johnson and Johnson.

A quick disclaimer, none of this should be treated as professional investment advise. Life is all about evolving into the best version of yourself, and I'd like to take you all on this journey of mine. Kindly only read this for gaining some additional insight, and feel free to give me any sort of feedback :)

Let's get learning! 

13/03/2025

I started of my day with some strangely intriguing news articles. Thomas Reuters reports that after nearly a decade, Measles has claimed the life of an unvaccinated schoolgirl in Texas (may she rest in peace). 

How does that impact the pharma sector? Well, US's healthcare secretary is not seen to be the biggest vaccine advocate. Naturally, there is now a certain section that believes vaccines can cause autism, Vitamin A is the best vaccine etc (I can't claim whether this is true, but it's unproven) and this is having some really tragic consequences.

I think this might encourage the government to raise awareness campaigns (although it doesn't align with their ideology) or in the long term, lead to identifying closely substitutable biosimilars. Either way, there is a need to encourage more parents to vaccinate and I believe this could set a favourable regulatory environment for the Big Pharma.

On the M&A front, a pharma franchiser, Chemist Warehouse in Australia merged with Sigma Pharmacies. Chemist Warehouse is a retail pharma company boasting insanely competitive prices - an outcome of very efficient backward integrations. This merger is expected to be a big cash cow to its investors. In Japan, Mitsubishi Pharma is likely to be acquired by the private equity division of Bain & Co.

One thing I've learnt today is that regulations are a BIG BIG part of pharma. Astrazeneca recently withdrew their plans of constructing a £450m plant in UK, because UK's labour party that's currently in power, is massively reducing the subsisidies given to companies for such investments. However, things might improve because the labour party's Racheal Reeves is pretty focussed on enhancing investment in the Oxford Cambridge axis, and hence might act on reforming the government's policies.

The last thing I came across was the S&P 500's Global Credit Outlook for the Pharma Sector and it was one BIG CAKE. It talked about why the Pharma sector is expected to have much fewer M&A's this year, and why the sector overall can be expected to have much more modest, single digit growth in the period to 2027.

Firstly the high interest rates in the US economy combined with massive regulatory restrictions on ownership of pharma companies is limiting the scope of M&A. These 2 situations have existed for quite a while now, however, this is one period where most companies can expect some kind of organic revenue influx as well (FDA has been approving more medications) so they don't have to lean on inorganic growth.

Now, Big Pharma companies are seemingly expecting growth in 4 sectors:

-Development of Anti Drug Conjugates (ADC - for cancers)

-GLP-1 based treatments (for treatment of obesity and type 2 diabetes)

-Treatment of autoimmune disorders

-Neuro treatments

Then I came across a chart which was showing the growth rates in each of the popular names in Pharma companies (both actual and estimated). Although I don't want to bore you too much with the details, I made some interesting inferences from them:

-Eli Lilly: They experienced really rapid growth in the period between 2022 and 2023. In alignment with S&P 500's inference before, this stemmed from their weight loss drug Zepbound and diabetes drug, Mounjano.

-Regenaron: This company made big money from its cancer drug Libtayo, again consistent with the previous inference.

-Johnson & Johnson: Low growth in the last few years due to the divestiture of Kenvue. Technically this is just a number thing rather than a quality issue.

-Abbvie: Low growth due to falling exclusivity of drugs (reinforces the importance of patents in this sector. Most patents in pharma are expected to, on average, expire by 2028).

AND THAT'S A WRAP!

Looking forward to Day 2! Hope you had a fun time reading my article, HAPPY LEARNING! :)