It’s commonly held that when Frederick Remington cavilled to William Randolph Hearst that conditions in Cuba were not bad enough to warrant hostilities, Hearst told Remington to shut up and draw: “You furnish the pictures and I’ll furnish the war.”

The truth is, as always, somewhat more complex. Yes, a good tale of death and destruction will hold the public’s interest for a while. But it has to be something they can easily wrap their minds around. And it has to go somewhere if it’s going to have legs.

Just Because It’s Boring…

An example: For a week or so, the H1N1 Virus – a.k.a. Swine Flu – was the talk of the town. Old folks in Asia and Europe were dying, elementary schools in NYC were closing, men in white isolation suits were rushing about doing things that looked important, and the international authorities were bandying about scary words like “Level 5 Epidemic.”

All that hubbub got our attention but good – for a minute or two anyway.

But then it turned out that all we were talking about was yet another iteration of the flu. No piles of corpses on wagons. No quarantine posters on front doors warning off visitors and salesmen. Heck, all some people got were bad chest colds.

And those doctors: Who can really understand all the gobbledygook about reservoirs, global transmission paths and such? “What kind of plague is this?” people wondered. “Ah fergeddaboudit. I just wanna hear about ex-Chrysler dealers burning cars they can’t sell.”

… Doesn’t Mean It’s Going Away!

Now just because a subject isn’t holding the public’s interest at the moment doesn’t mean that it isn’t important. In fact, while the public at large may be “over” Swine Flu right now, there is every indication that it will reclaim center stage come this winter.

Just last week, the World Health Organization’s Director General, Margaret Chan, announced that H1N1 had attained official “Pandemic Status,” warning that the virus was spreading quickly around the globe, with some 30,000 reported cases in 74 countries.

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The authorities now tell us that this was simply H1N1’s initial wave, the first round of what might very well be a long, bruising fight. Now that it is entrenched worldwide, H1N1 is simply waiting for winter in the northern hemisphere to unload its real roundhouse punch.

And this will not be “a mere head cold.” Nor will it strike mostly the old, young, sick or poor. The WHO now reports 144 H1N1 deaths, with most of those fatalities striking adults between the ages of 30 and 50 – the prime productive figures in most economies.

Not the Plague, but Not a Mere Head Cold Either

Now please understand that I am not, repeat NOT, suggesting that this will be some kind of return of the Black Plague or such. You do not need to buy a ranch in Montana and secure it with barbed wire or anything that extreme.

What I am saying is whether we like it or not, whether we ignore it now or not, swine flu IS coming, and it WILL have an impact.

It’s that old “wisdom gap” again. Once again, we know everything we need to, but most folks are simply not paying but so much attention.

How to Cash In on the Wisdom Gap

As I have said many times in the past, wisdom gaps are the source of virtually all really good investment gains. And this time around is no different.

Back in April, we advised WaveStrength Options Weekly readers to buy call options against the British drug company GlaxoSmithKline PLC (GSK:NYSE).

GSK already manufactures the anti-viral drug Relenza, an effective post-infective treatment for H1N1, as well as most of the other flu viruses expected to attack the northern hemisphere come November. It is also one of the prime contractors developing an H1N1-specific antiviral vaccine, which should be available to doctors, hospitals and clinics by late fall.

Short-Term Gains…

The options we advised saw gains of as much as 109% last Friday when the WHO announced H1N1’s upgrade to pandemic status. But this is only the beginning of the mid-term ramp up for this well-placed drug maker.

As I sit to write, the GSK January 2011 35 Call Option contract can be purchased for $550. By mid-winter, when the flu is actually here and can no longer be ignored, GSK shares could be expected to match their 2008 highs at $59.98. That rise would push the sell price on these calls to $1,692, for gains in excess of 300%.

Now that ought to pay for your tissues and cough syrup this winter – and then some.

But all this is mere short-term speculation – a hedge against the potential impact flu will have this year. And while GSK is certainly a major soldier in this year’s battle, it is also a field general of sorts in the war to come.

… And a Long-Term Plan

GSK is forming a joint venture with China’s Shenzhen Neptunus Interlong Bio-Technique Co. to develop and manufacture influenza vaccines for China, Hong Kong and Macau, including vaccines for seasonal, pre-pandemic and pandemic influenza.

GSK will take a 40% stake in the joint venture and will contribute cash and assets equivalent to 21 million British pounds. Shenzhen Neptunus will take a 60% stake in the joint venture and will contribute cash and assets equivalent to 31 million British pounds. While it may take a couple of years for these vaccines to hit the market, the venture could assure GSK’s position at the table for decades to come.

Keep in mind that GSK was a $76 stock as recently as 1999. Forward planning like this could easily see a simple investment in GSK shares double in value over the next 12 to 24 months.

Source: The Invisible Plague

He says that, “ while few other sectors can boast recession resilience, the health care sector is proving to be a sector that should be part of everyone’s portfolio…”

This from David:

Several weeks ago, we focused on the distribution side of the health care industry as yet another overlooked area that should continue to do well during our economic downturn.

We discussed one of the largest “Grainger-like” companies in the health care industry, Cardinal Health, Inc. (NYSE: CAH). Cardinal is an $87 billion global manufacturer, supplier and distributor of medical products.

Given the sheer size of the medical equipment and drug market – the global pharmaceutical market alone is estimated to be north of $700 billion annually – it shouldn’t be too surprising that Cardinal has a competitor or two…

One of its biggest is AmerisourceBergen Corporation (NYSE: ABC), a large, global pharmaceutical services company with operations in Canada, Great Britain and the United States.

AmerisourceBergen Corporation’s Products & Services

AmerisourceBergen Corporation was formed in August 2001, with the merger of Amerisouce and Bergen Brunswig, the company’s 13,000 employees provide its 27,000 customers with a wide range of products and services:

• Pharmaceutical distribution and delivery to hospitals, critical care facilities, retail pharmacies, clinics and long-term care facilities.

• Specialty pharmaceutical delivery services directly to physicians.

• Delivery of over-the-counter and health and beauty aids.

• Packaging, logistics and commercialization services for pharmacies and drug manufacturers.

• Consulting services in each of the above areas.

One of AmerisourceBergen’s growth drivers is specialty drugs, an area that’s growing faster than the overall drug market.

These drugs are normally administered directly by physicians, and include cancer-fighting oncology products, plasma and plasma derivatives, vaccines, ophthalmic drugs for the eyes and dialysis drugs.

AmerisourceBergen Corporation – A Leader In Specialty Drug Distribution

AmerisourceBergen Corporation is the undisputed leader in the specialty drug distribution market:

• It’s the largest oncology products distributor in the United States, delivering products to more than 4,600 oncologists.

• It’s the largest physicians services organization in America.

• It’s the biggest nephrology/dialysis products distributor.

• It’s the largest blood plasma products distributor.

• It has the biggest market share in ophthalmology products.

Another growth story will be the oncology drug market. There are currently 750 different medicines in development for cancer, making it the strongest area of drug development.

The company estimates that the market for oncology drugs alone will be roughly $80 billion annually by 2012. Currently oncology drugs are only 2% of the company’s revenue, representing a huge upside potential as many new drugs come on-line.

AmerisourceBergen’s Biggest Growth Area – Generic Drugs

Perhaps the biggest growth area for AmerisourceBergen is generic drugs. The company has formed key relationships with its manufacturers and its biggest customers through 2011.

But here’s the best part: Over the next five years, patents will expire on many top branded drugs representing over $85 billion in sales. The soon-to-be-available generic forms of Flomax, Lipitor, Prevacid and six other blockbuster drugs should be huge sales drivers for the company.

And while it’s true that generics sell for as much as 80% less than their branded counterparts, there’s a great upside: Gross margins are up to five times higher, resulting in similar gross profit numbers on much reduced receivables.

It’s all paying off in spades: Last year’s earnings were up a whopping 19% from 2007, on a 7% increase in overall revenue. This is even more remarkable when you consider an industry-wide annual growth rate of only 1% to 2%.

Not too unlike other companies in the drug distribution space, AmerisourceBergen has grown both organically and through acquisitions, completing nine of them in the last three years.

It’s increased the number of products it handles as well, with nearly 32,000 different items in its distribution system. Most of these products can be ordered one day, and delivered the next.

All this bodes well for the AmerisourceBergen’s future, and the company expects 2009 revenue growth of 5% to 7%. And while few other sectors can boast recession resilience, the health care sector is proving to be a sector that should be part of everyone’s portfolio, while the broader market continues to struggle.

Source: AmerisourceBergen Corporation: Increase the “Health” of your Portfolio

David Fessler from Investment U offers us his advice on the two stocks:

Cubist Proves Saving Lives Isn’t Good Enough

With the recent surge in cases of MSRA (methicillin-resistant staphyloccus aureus), or at least a surge in reporting, one would think it was good news for Cubist Pharmaceutical’s (Nasdaq: CBST).

It may have been, had Cubist not been blindsided by a business-rocking revelation Tuesday.

MRSA is a big problem. It’s a widely prevalent and pervasive bacteria found in hospital facilities, and it’s the most common cause of staph infections. Patients contract these infections from catheters, surgeries or I.V. drug needles.

As we use (some would say over-use) anti-biotics to treat infections, only the resistant germs remain. Each successive generation of bacteria are more resilient to treatment and we continually need stronger and stronger drugs to fight them.

They’re called “superbugs” in the press, but that’s not too far from the truth. We are running out of ways to treat these outbreaks. Current estimates put the annual cost of treating MRSA infections at over $10 billion dollars.

And it’s only going to get worse…

That’s why Cubist Pharmaceuticals had really hit a home run with its antibiotic Cubicin – one of the few ways left for hospitals and doctors to fight back.

Introduced in 2003, Cubicin was first prescribed as a treatment for serious skin infections caused by bacteria that invade the body during surgery. However, in 2006, the FDA approved Cubicin to treat bloodstream infections from blood-resistant staph bacteria.

Things looked good for Cubist, until this week.

Teva Pharmaceuticals Files For Generic Cubicin

An Israeli drug company, Teva Pharmaceuticals (Nasdaq: TEVA) has just filed with the FDA to start production of a generic form of Cubicin. Even though Cubist’s patents extend to 2016 and 2019.

How so? Teva contends that either Cubist’s patents were not valid in the first place, or Teva can produce a generic without infringing on those patents.Of course, Cubist intends to challenge Teva through litigation, which automatically puts Teva’s plans on hold for 30 months, according to FDA rules.

Even more of a problem, Cubicin is the one and only product that Cubist Pharmaceuticals sells. It’s all indicative of the kinds of intellectual property problems that plague pharmaceutical development.

Cubicin costs about $100 per day (depending on details), while Teva’s generic would be expected to cost much less. Of course, that’s good news for patients worried about medical bills.

But still, if Cubist, and other pharmaceuticals can’t protect the profitability of their products, then there would be no incentive to spend millions in research and development to create new products and save lives.

It’s one of those ugly problems where both sides are right… and wrong.

Using Price Controls As Alternatives

The alternatives? Price controls. Ugh. Single-payer system. Blech. Publicly-funded research. Yikes.

One of the better “outside the box” suggestions is a prize-based system. Wherein the government or well-funded charities take a necessary, but unprofitable drug needing ailment, and fund a large cash prize to be delivered to those who make the first successful cure.

By balancing the prize, the cost of R&D, and the revenues that could be made on an affordably priced drug, it could be the most cost effective means of providing incentives to provide a public good.

But somehow, I don’t see such progressive thinking passing through the U.S. legislative system.

I’d love to see comments on successful reform of the pharmaceutical industry.

In any case, investment in Cubist has now become a binary pass-or-fail proposition. If Cubist wins, shares will surge. If Teva wins, Cubist is likely a penny stock.

But at least we’ve got something to cure an infection.

Source: Cubist Pharmaceutical’s (CBST): Stock of the Day

This Small-Cap Biotech Just Hit its Stride

One of the most recession-proof industries is health care. No matter what happens to the economy people will always need medical attention – and new developments will always be in the works.

On Thursday, a small-cap pharmaceutical company, Pozen, Inc. (Nasdaq: POZN), soared after the Food and Drug Administration agreed to allow testing of two of its experimental drugs.

The stock is up over 50% in a week. Yesterday (Thursday), it was one of the top-five percentage gainers on the Nasdaq.

Pozen Inc. - Helping Those With Chronic Pain

Pozen is a drugmaker that creates new medicines to help patients with diseases that cause chronic pain. Its goal is to improve these patients’ quality of life by providing them with therapies that are more effective, safer and convenient.

The go-ahead by the FDA is huge for the company. Obviously, the success of its business is highly dependent on the marketplace value of its ideas and the related patents obtained.

But Pozen’s ability to obtain from the required regulatory agencies approval to sell the developed products, and its ability to find strong commercial partners to successfully commercialize the products, cannot be understated.

Pozen paired with AstraZeneca in August 2006 in order to license the product(s) and to collaborate in the remaining development and commercialization. Upon reaching certain goals, AstraZeneca has promised to pay them $345 million, what is being referred to as “milestone payments.”

Pozen’s PN 400 – Treating Types of Arthritis

One of its drugs, PN 400, will be used to treat various types of arthritis. The second, PA32540, is intended to give the same cardiovascular benefits as aspirin. Both are designed to help patients without developing ulcers that come from current drugs used.

These developments bode well for Pozen, which plans to file for regulatory approval of the two drugs – allowing it to then market and sell the products to those who would benefit.

There is a clear need in the drug market for a medicine that can relieve inflammation and help to manage pain – Pozen can fill that void. Given the roughly 20 to 30 million people who suffer from osteoarthritis, not to mention the millions of others with chronic pain, this product is likely to have mass appeal.

And according to Bill Hodges, Pozen’s Chief Financial Officer, “The acceptance of the filing would fetch us a milestone payment of $10 million.” That’s money in the bank for Pozen.

Pozen is pulling back a little this morning, and it’ll probably come down a little more in the coming days. Once the euphoria of FDA approval wears off, and the emotion gets driven out of the buying, serious investors can start looking at purchasing this stock before it makes its next big gains. And with the pipeline this company has, that could be considerable.

Source: Pozen Inc. (Nasdaq: POZN): Stock of the Day

• Pfizer Inc. (PFE), the world’s No. 1 drug maker, said yesterday (Monday) that it would acquire U.S. rival Wyeth (WYE) for about $68 billion in a strategic buyout that diversifies its revenue base. To help finance the deal, Pfizer said it would cut its dividend and use about $22.5 billion in debt that it raised from a consortium of global banks. The deal is key because it will help Pfizer cope with a major revenue gap that will emerge in 2011, when its blockbuster cholesterol-treatment drug, Lipitor, will begin to face U.S. generic competition, Reuters reported. Next year, Wyeth loses patent protection on its own top drug, the anti-depressant Effexor XR.

• Two measures of U.S. economic performance unexpectedly turned positive in December Bloomberg reported.  The National Association of Realtors said sales of existing homes rose 6.5%, propelled by the biggest slump in prices since the Great Depression. Also, the index of leading economic indicators increased 0.3% reacting to an expansion of the money supply, the Conference Board said.  The positive numbers are a sharp contrast to the tens of thousands of layoffs announced yesterday (Monday) which may accelerate the pullback in consumer spending and deepen the longest recession since 1982.

• McDonald’s Corp. (MCD) reported softening in some overseas markets, but still managed to produce a quarterly profit that handily topped Wall Street estimates, Reuters reported. The company posted a 5.8% rise in worldwide sales in December at restaurants open at least 13 months, despite a U.S. recession that has spread to global economies.  The world’s biggest hamburger chain reported a slowdown in its German business due to price hikes and slower same-store sales in China, where growth has been red-hot. McDonald’s said it was also hit by a stronger dollar in foreign markets, including Canada, Europe, Britain and Australia.

• Plummeting metal prices led Freeport McMoran (FCX) to lower projected copper and molybdenum sales targets for both 2009 and 2010 as it posted a gigantic net loss of $13.9 billion, or $36.78 per share yesterday (Monday), Reuters reported.  But its shares rallied on Wall Street as the losses were primarily blamed on $14 billion in noncash charges, including writedowns of inventory values and goodwill from the acquisition of rival Phelps Dodge. Still, citing the worldwide construction slump, Freeport lowered its forecasts for copper sales by 9% and cut its outlook for molybdenum production by 25% for 2009.

• After posting five straight declines in quarterly profit, Lincoln National Corp. (LNC), the Philadelphia-based life insurer, said yesterday (Monday) that it is cutting 5% of staff, or about 540 jobs. North American insurers have announced more than 5,000 job cuts over the past two years as the industry reported at least $125 billion in losses and writedowns tied to the collapse of the U.S. mortgage market, Bloomberg reported. The insurer’s third-quarter net income plunged 55 percent to about $148.4 million. Fourth-quarter results are scheduled to be released Feb. 9.

• General Motors Corp. (GM) said it will eliminate shifts in the second quarter at Ohio and Michigan plants, a move that will shed about 2,000 jobs. The carmaker will also cut production at 13 other U.S. and Canadian plants, Bloomberg reported.

• Brazil’s state-controlled oil company, Petroleo Brazileiro SA (ADR:PBR), said it will seek to cut costs by as much as $4 billion annually. Officials said the move is necessary for its plans to double output and develop the Americas’ largest oil-field discovery in the past three decades, Bloomberg reported.

• Halliburton Co. (HAL) will pay $559 million – $382 million to the Department of Justice and $177 million to the Securities and Exchange Commission – to end an investigation into its KBR Inc. unit. The unit allegedly bribed Nigerian officials for as much as 20 years, Reuters reported.

Source: Global Investment News Briefs, Tuesday, January 27th, 2009

• More than $48 billion was withdrawn from emerging market funds in 2008, with the largest chucks of change pulled from funds tracking Asia, according to EPFR Global. An emerging markets bellwether, the MSCI Emerging Markets Index, dropped 54% last year, its worst performance since it was created in 1987, Bloomberg reported.

• Bank of America Corp. (BAC) sold 5.62 billion of its China Construction Bank Corp. shares, raising $2.83 billion. Based on the Construction Bank’s IPO price, Bank of America realized a profit of about $1.13 billion, Reuters reported.

• Bargain retailer Family Dollar Stores Inc. (FDO) closed its fiscal fourth quarter with a 14% rise in profit and raised its annual forecast, Reuters reported. The compact expects to earn $1.63 to $1.81 a share, up from $1.58 to $1.78, in its fiscal year ending August 29. It also expects sales, same-store sales and total sales to rise as well.

• Orbitz Worldwide, Inc. (OWW), an online travel agency, announced a new president and chief executive, and that it would institute more measures to save an additional $20 to $25 million annually. Barney Harford will replace Steve Barhart as CEO, The Wall Street Journal reported.

• Russia cut off all gas supplies to Europe through Ukraine yesterday (Wednesday) leaving more than a dozen countries struggling with dwindling energy supplies in the depths of winter, The Associated Press reported. “It is unacceptable that the EU gas supply security is taken hostage to negotiations between Russia and Ukraine,” said European Union spokeswoman Pia Ahrenkilde Hansen.

• Monsanto Co. (MON), the world’s largest producer of genetically modified seeds, closed up more than 17% yesterday (Wednesday) after the company reported that first-quarter profit more than doubled. Revenue jumped 29% to $2.65 billion from $2.05 billion.

• India’s Sun Pharmaceuticals Industries Ltd. said yesterday (Wednesday) that it’s secured U.S. Food & Drug Administration approval to sell a generic tablet version of the painkiller Vicodin. The U.S. market for branded and generic versions of that drug is worth $540 million. Sun has also received approval for generic versions of cholesterol-fighting Lopid, for Aredia, which is used to treat high blood calcium, and for the anti-allergent drug Phenargen, in multiple strengths, Reuters reported.

• Light, sweet crude for February delivery yesterday (Wednesday) tumbled 12%, or $5.95, to settle at $42.63 a barrel on the New York Mercantile Exchange. The drop was the mainly the result of a report from the Energy Information Administration said U.S. inventories of commercial crude inventories rose by 6.7 million barrels.

Source: Global Investing Roundups Thursday, January 8th, 2009

European stocks ended higher on Friday, as buoyant pharmaceutical shares eclipsed a drop in cyclical mining and industrial sectors hit by renewed economic fears, while energy shares tumbled along with oil.

The FTSEurofirst 300 index of top European shares closed 1.1 percent higher at 862.07 points.

Although it gained 13 percent during the week, the index dropped 7 percent in November, recording a ninth month of losses in what has been a torrid 2008 for equities worldwide.

Pharma stocks made strong gains on Friday, with GlaxoSmithKline up 5.1 percent and Sanofi-Aventis up 4.5 percent. Novartis , whose CEO said the company could increase its dividend and also resume share buybacks once it has reduced its debt, gained 4.4 percent.

The sector rallied after the publication of a long-anticipated EU report on generic competition. Although Competition Commissioner Neelie Kroes said preliminary results showed competition in the pharmaceuticals industry “does not work as well as it should”, traders said the absence of specific penalties in the report brought some relief to pharma stocks.

Energy firms such as Total and BP dropped 0.7-2.6 percent as oil prices sank below $52 a barrel on signs OPEC would defer cutting production when it meets this weekend in Cairo.

Industrials were also among the biggest losers, with Siemens down 3.8 percent and Alstom down 6 percent.

Despite the market’s recovery during the week, analysts remain wary about a potential “Christmas rally” this year.

“The volatility is not about to come down immediately. The economic newsflow is just too horrible. It’s too early to call for a straight market rally at this point,” said Arthur van Slooten, strategist at Societe Generale, in Paris.

“With deflation fears, risky assets have been pricing in the worst. But it doesn’t mean that all of a sudden, from now on you have a straight way up. We know that the newsflow will be terrible, but we need at least some sort of indication that the bottom is maybe in sight,” he said.

“Next year’s first quarter will really look awful in terms of macro data and with analyst further downgrading their estimates and companies finally becoming realistic in their own guidance. That in itself could provide us with a sound basis to build from there.”

Miners took a beating on Friday, adding to recent sharp losses. Anglo American shed 2.4 percent and Xstrata dropped 3 percent.

Prices for copper, a key industrial metal, slipped as tumbling industrial production data from Japan highlighted bleak prospects for demand in an oversupplied market, while prices for aluminium also fell, hit by the rising fears about the health of the embattled auto sector.

“There is little doubt that the outlook for metals demand is grim for at least the next few quarters and prices have fallen to levels that reflect market expectations for further stock increases,” Barclays Capital said in a note.

Automakers lost ground, with Volkswagen down 5 percent, BMW off 3.4 percent and Renault down 4.8 percent.

“Going into the weekend, one can’t help but worry that we are only a heartbeat away from the next scare story,” said Chris Hossain, senior sales manager at ODL Securities.

“The markets appear to have been buoyed by the feeling that the U.S. will be bailing out the auto industry, but one has to wonder how much more the global governments can continue to support troubled industries,” he added.

Around Europe, Germany’s DAX index eked out a gain of 0.1 percent, UK’s FTSE 100 index rose 1.5 percent and France’s CAC 40 added 0.4 percent.

By Blaise Robinson
PARIS, Nov 28 (Reuters)

Take Lipitor – the world’s best-selling cholesterol drug – for example. Each $3 Lipitor pill only costs Pfizer about $0.25 to make. So the company collects 90% profit margins.

One way the drug industry has learned to reap those outsized rewards with less risk is through “me-too” drugs. Me-too drugs are essentially copycats – like generics but with fat margins.

For example, after Pfizer’s (PFE) Viagra wowed the market, Eli Lilly (LLY) and Bayer jumped into the fray. Now the market has three drugs – Viagra, Cialis, and Levitra – to treat the same condition. Viagra and Cialis fetch more than $1 billion per year. Levitra, the laggard, still generated $500 million in 2007 sales.

But the me-too well is running dry. These days, the FDA won’t approve new drugs unless they offer a clear advantage over what’s already on the market. Recently, me-too drugs vying to compete with Merck’s Januvia (a diabetes drug) and Gardasil (a cervical cancer vaccine) faced serious setbacks. Neither drug satisfied the FDA’s higher standards.

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Now a new class of drugmakers is taking a slightly different tack: They pick existing drugs and make them better. So a company might make a drug available as a pill rather than an injection. Or it might change a three-pill daily regimen into a once-a-day routine.

These so-called “specialty pharma” companies start with what works and go from there. With thousands of drugs on the market, specialty pharmas have no shortage of lucrative products to choose from. Here’s an example of how it works

Until recently, many schizophrenics had to struggle with a complex dosing routine that included capsules of Risperdal (a popular treatment option). So Alkermes (ALKS), one of the biggest specialty pharma outfits, collaborated with Johnson & Johnson, Risperdal’s maker, to create Risperdal Consta.

The new version is a bimonthly injection, and it generates more than $1.2 billion in revenue a year. Besides Alkermes, investors can choose from a handful of pure-play specialty pharma outfits

Specialty pharmas boast profit margins almost as big as the brand-name drug business 70% or higher. And by modifying drugs the FDA has already cleared, they take on much less risk.

Recently, the industry has far outperformed the general market These five stocks are up 3.5% over the last three months, while the S&P is down 8%. I’ve been busy digging through the short list in search of the best company. If you are looking for a low-risk way to get in on the lucrative drug business, this is a great place to start.

Good investing,

George Huang, editor, S&A FDA Report

Source: Where to Earn Monopoly Profits, Minus the Risk

Steve called these bargain-hunting foreigners “the new saviors of America,” because they were propping up prices in U.S. malls.

A similar spending spree is taking place in the U.S. pharmaceutical industry… and I think it’s going to mean big profits for biotech investors. Let me explain…

Early last week, British drugmaker GlaxoSmithKline gobbled up Sirtris Pharmaceuticals, a tiny Massachusetts-based biotech, at a whopping 84% premium. The deal was all cash.

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The really crazy thing is that Sirtris has no chance of selling any products for at least five years. Heck, Sirtris only has one compound in clinical trials… and that’s in the earliest Phase I safety testing stage. Most of its “drug candidates” are still being tinkered with in the lab.

So, why was GSK willing to shell out $22.50 per share for a company that went public just 11 months earlier at $10? GSK will tell you – “great science.” But as you know, the real answer is the cheap dollar.

No American drug company – Merck, Pfizer, or Bristol Myers – could have afforded to pay so much for so little. But like the holiday shoppers Steve described, GSK can pony up such a premium because, by paying in pounds sterling, it essentially got Sirtris half-off.

GSK’s fellow British drugmaker, AstraZeneca, made a similar deal last spring. It bought Maryland-based MedImmune for a staggering 12 times sales – a 60% premium.

As the dollar continues to sag against world currencies, the British aren’t the only ones eying U.S. biotech assets… Japanese drugmaker Takeda Pharmaceuticals coughed up a 53% premium to buy Boston-based Millennium Pharmaceuticals. Its peer Eisai scooped up U.S.-based MGI Pharma for 10 times sales.

This year, U.S. health care firms have seen $80 billion in merger and acquisition deals… 60% came from foreign buyers. This is not a trend I expect to let up anytime soon.

As I’ve written before, the world’s largest drugmakers are in trouble. Expiring patents, generic competition, and anemic pipelines all point to a bleak future for Big Pharma. At this point, buying up biotechs is the only choice they have. And they’re going to have to pay huge “knock out” premiums to outbid their competition.

Now, with lots of extra dollars in the bank, foreign companies are flooding U.S. biotechs with rich cash offers, even if it means paying shareholders astronomical premiums. The entire industry is going in one direction – up. It may be a bad time to own dollars, but it’s a great time to be in biotech.

Good investing,

Rob Fannon

Yet India remains one of the world’s great growth opportunities and investors at this level may well be getting in on the ground floor of a very major long-term profit play.

Let me explain …

India’s economy expanded at a breezy 9% clip last year. The rate of growth is expected to throttle back to about 8% this year, but that’s still excellent, justifying fairly lofty price-earnings ratios in the local stock market. Even so, market valuations there do not now appear excessive; the overall market is trading at about 18 times earnings, which is not particularly high given the economy’s growth potential.

As with China, if India can get its house in order – both politically and economically – we’re looking at the very real prospect of very rapid growth before that country’s standard of living starts to approach that of the West, causing India’s rate of growth to slow dramatically.

The bottom line: With 1.1 billion potential Indian consumers, we’re looking at a huge potential purchasing power for all kinds of consumer products.
Now, there are some potential pitfalls to be concerned about in the near term.

For instance, the current Indian government, in office since 2004, is a coalition between the Congress Party, which had ruled India for most of the period since independence, though without any great success, and the Communists (who are a pretty mild lot, but are nevertheless pro-government and fairly anti-market).

Although India Prime Minister Manmohan Singh is a moderate, the government as a whole has seen India’s economic emergence as an opportunity to fund favorite projects and social programs. For instance, this year’s budget proposes an 18% increase in public spending for the 12 months that end next March, over and above the 24% increase in public spending for the year-to-March 2008. Even after several years of rapid growth, the state budget deficit (the federal shortfall plus the local deficit) is around 7% of Gross Domestic Product (GDP). With any kind of downturn at all, that 7% could quickly swell to 10% – a point at which deficits become difficult to finance.

Now there is some hope on the horizon – an election is due in May 2009, at the latest, and the center-right opposition is currently leading in opinion polls. Even so, shrewd investing veterans know better than to rely on that alone for their investment profits.

The other current problem is inflation, right now running at 8% per annum, which means that it’s higher than the level of short-term domestic interest rates. Higher commodity and energy prices have affected India as they have other countries: India’s position is made more difficult by the poverty that afflicts much of the population. The Indian government, like the good socialists that they are, has seen fit to restrict exports of rice and to subsidize other foods and gasoline (the latter makes no sense socially, since automobiles are largely owned by the middle classes, not the poor). Needless to say, these subsidies and restrictions make the budget deficit worse; and they will pose an additional problem in the future, when they are lifted and consumer prices soar in response.

Having described some of the challenges that India faces, let’s be clear on a very key point: No market is perfect. Ironically, if it were, it would be a much less alluring investment opportunity. I mean, let’s face it: If India didn’t face the problems that we’ve detailed here, the market would be trading at a hefty 40 times earnings, well above its current multiple of 18.

The underlying truth remains that economic growth has achieved real momentum in India, that any government we can picture will do no more than slow the country’s economy incrementally, and that the economics of providing manufacturing and services from a base in India – especially in the era of the Internet – is so compelling from a cost and logistical standpoint that it must inevitably continue to produce huge profits for long-term investors for decades to come.

When it comes to India, it’s almost as if the central question no longer is “how much should I invest in India?” but rather “how can I afford not to invest in India?”

Let’s take a look at how best to invest in this fast-growing economy.

India Profit Plays

The simplest way to invest in India is via an Exchange Traded Note (ETN), in this case the Barclays IPath India Index ETN (INP), whose returns are linked to the Morgan Stanley Capital International India Index (unlike a conventional ETF, an ETN is technically a 30-year note, so it distributes assets to holders at the end of 30 years). In January, INP was trading at about a 15% premium to its net asset value (NAV). But now it’s trading very close to its NAV, having slipped backward.

As an alternative you might consider the Morgan Stanley India Investment Fund (IIF) or the India Fund (IFN), both actively managed funds investing in India, which currently trade at discounts to NAV of 2.0% and 0.3% respectively.

Individual shares to look at would include Infosys Technologies Ltd., (INFY) the India-based software giant, which following the fall in the Indian market has declined to a fairly reasonable 19 times earnings, or 16 times next year’s earnings.

Another possibility is the pharmaceutical company, Dr. Reddy’s Laboratories Ltd. (RDY), which, as a major generic drugs manufacturer, can expect to benefit from the expiration of many U.S. pharmaceutical patents in the next five years, and right now carries a P/E ratio of only 15.

Finally, you might consider an India-based automaker that’s been in the news a lot recently: Tata Motors Ltd. (TTM), which is trading at only 11 times earnings, reflecting the risk involved in a medium-sized company taking on the world automotive industry. In the luxury end of the market, Tata recently bought Jaguar and Land Rover from Ford Motor Co. (F), for $2.3 billion. At the economy end of the market, Tata has announced the Nano, a car for the Indian market that will sell for $2,500 – 40% cheaper than any other car on the world market. And that’s after Tata had a smash hit with a light truck designed for the India market, as well.

As I’ve previously articulated in several Money Morning articles, it is highly likely that – years from now – the worldwide center of auto-making will migrate from Detroit to someplace in either China or India, or both, thanks to the combined allure of low costs and potentially huge consumer markets. That means that Tata, as India’s largest manufacturer, is likely to be a key player in the global auto market of the future.

So if you know what the ultimate outcome of that global game is going to be, why not deal yourself a winning hand right now, and then sit back and wait for this scenario (and your profits) to play out?