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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Joan Osland Graffius who wrote (14190)	3/29/2002 2:37:16 PM
From: Jurgis Bekepuris	Read Replies (1) \| Respond to of 78732

Historically pharmas had ROE in >30-50% range. Did anyone consider a scenario where ROEs fall to 20% range? It is not pretty. Changing future ROE from 35% to 20% for MRK, BMY and SGP drops their expected annual returns from ~15% to ~1-3% (!). Why should such drop occur? Hmm. 30-50% ROE range is impossible to sustain unless company is a monopolist and even then there is a ceiling for the company/market size. So there are two risks: - losing monopoly (oligopoly) due to patent expiration or government regulations - growing up to market size ceiling The first one is definitely a risk. The second I did not try to calculate. Comments? Pharmas do look attractive here, but there is a risk too. Jurgis