Riskless Business

There's still a part of me that's a business reporter, so I couldn't help but notice the profit reports pouring in from drug and device firms in recent days. If I were to write a headline on a round-up story, it would be: "Drug, Device Makers Shrug Off Recession."

Wyeth earned $1.2 billion in the first quarter, virtually the same as a year ago. Glaxo profits were down 14 percent, but that was almost entirely due to a falloff in Avandia sales. Bristol-Myers Squibb saw profits surge 51 percent on a 20 percent increase in sales over a year ago. Boston Scientific beat expectations. AstraZeneca profits were down all of 3.7 percent.

Developing and marketing drugs is a risky business, consumers are constantly told. It takes a billion dollars to bring a new drug to market. Only one in 10,000 molecules make it from the lab to the bedside. That's why they have to charge so much for their products.

But as Stan Finkelstein and Peter Temin write in their new book, "Reasonable Rx," "investing at the drug company level is a good, solid and basically riskless (their emphasis) proposition."

No matter how many times industry analysts warn that a patent expiration is going to make this or that company vanish, it hasn't happened -- at least in the last quarter century. . . A large part of that stability comes from the fact that the industry has figured out how to price its products so companies stay financially healthy."

And, unlike Europe and Japan, there's no one in government to stand in the way. Medicare is prohibited from negotiating lower drug prices, while insurance company co-pays shift more and more of the burden onto consumers, effectively taking them out of the game of negotiating lower drug prices.

Decades ago, investment advisers counseled their clients to shift into consumer non-durable manufacturers like Procter & Gamble to weather a recession. People will always need soap and toothpaste. I suspect these days the word on the Street is to buy drug stocks if you want consistent earnings. Come hell or high water, people will continue taking their meds because there's at least one thing in life that is more precious than cleanliness, and that's health.