Buying big pharma right now is bad investing, Cramer says.
Patents on blockbuster drugs are expiring, generics are eating away at what was once titans-only territory, and giants like Pfizer and Johnson & Johnson have nothing in their pipelines to make up the loss in sales.
According to Cramer, the best drug development is taking place in biotech. Once a new therapy is invented, the big boys of pharma swoop in and snatch it up. But that strategy isn’t going to work if these companies want to see sales the size of Pfizer’s Lipitor again. Cramer believes they have to produce the drugs themselves.
Generics are even elbowing out big pharma before patents have expired. A judge recently approved Teva’s generic version of Novartis’ Lotrel, which was supposed to be patent-protected until 2017.
So these once-great growth stocks have been stunted. Big pharma is a virtual danger zone for investors. That’s why tonight’s show is all about what to sell, what to hold, and what’s worth owning.
First, the stocks to sell. Pfizer’s two major franchises, Lipitor and Norvasc, are already feeling pressure from generics. The company’s only worthwhile pipeline drug, torcetapib, was discontinued. With both patent expirations and a weak pipeline, there’s just no reason to own this stock, Cramer says.
Johnson & Johnson is no better. The company’s biggest drug, the anti-psychotic Risperdal, goes off patent next year, and its replacement, Invega, is off to a bad start. Even worse: From 2008 through 2012, one of JNJ’s major drugs goes off patent every year.
“Sure, Warren Buffett likes the stock,” Cramer says, “ but I think this is one of those times when Buffett is wrong.”