Berko: The Google car and Novartis' muscle-rebuilding drug
Thursday, June 05, 2014 6:00 AM
Dear Mr. Berko:
What do you think of Google Inc.’s driverless car? Would you recommend Google’s stock based upon its expected success? I’ve read that the car will be commercially available by 2017.
Also, my son, who is into bodybuilding, tells me about a drug made by one of the big pharmaceutical companies that quickly builds muscle strength and muscle mass. It’s not on the market yet, but the product is available on the black market. If this is a good product, I’d like to buy stock in that company. Can you tell me the drug my son refers to and what company is making it?
D.K., San Antonio
Why in the world would anyone want to spend $247,000 to buy Google’s (GOOG-$564.84) driverless car when, for a much smaller sum, he or she could take the bus or a cab? Now, I may be as wrong as the celebrated Douglas “Wrong Way” Corrigan, but the primordial delight of owning an automobile is the pleasures one gets driving the thing. And driving a driverless car is like drinking warm, flat beer or eating a steak without the taste. It is dumb, dumb and dumber and will probably be a dud in the coming few lifetimes. GOOG is having fun with this thing; the car generates great publicity. But it doesn’t have a rat’s chance in a cat cage to be commercially profitable. There are 47 reasons to own GOOG, but a driverless car certainly isn’t one of them.
Novartis AG (NVS-$90.02), a $59 billion Swiss pharmaceutical company, may have an anti-aging drug on the market in less than three years, and it looks like a blockbuster. It doesn’t have a commercial name yet, but according to “my son the doctor,” who keeps up on this stuff, it is called “BYM338” and is in late-stage clinical testing for sarcopenia. Sarcopenia is the age-related degeneration of muscle mass and strength. Most of us begin to lose about 1 percent annually after age 30. Myostatin is the naturally occurring protein in our system that regulates muscle strength, development and repair and is responsible for the loss of muscle mass as we become older. In clinical trials, BYM338 clearly blocked those areas in the body where myostatin is detected. This drug allows aging bodies to rebuild muscle mass and strengthen musculature and helps elderly folks who have lost mobility to walk again. One of the most damaging aspects of aging is frailty, or sarcopenia, affecting 20 percent of those of us who are older than 65. It is a major factor contributing to the institutionalization of elderly family members. Apparently, BYM338 is in high demand from bodybuilders and even those seeking an anti-aging elixir for whom muscle wasting is not a problem. There’s a thriving black market for this stuff, and your boy may know more about BYM338 than most physicians.
BYM338 is also being tested for muscle wasting caused by cachexia, a chronic illness responsible for 30 percent of cancer deaths, as well as deaths from tuberculosis and heart disease. Researchers also believe the drug can be used to treat obesity and Type 2 diabetes because larger muscle mass creates more storage area for sugar, which can accumulate in the pancreas and liver. And there’s not a single drug on the market that promotes muscle mass in diabetics. Eli Lilly, GlaxoSmithKline and Pfizer are working on it, but NVS is years ahead of them.
Though more clinical trials are scheduled for 2015, Wall Street expects BYM338 to be available commercially by 2017. That’s quick, but drugs for rare diseases can usually gain rapid approval after a relatively small number of clinical test trials. Analysts believe BYM338 could generate annual sales in excess of $4.5 billion. And considering that NVS’ net profit margins should be better than 20 percent, BYM338 could add about 35 cents a share to earnings for the 2017 fiscal year.
So I’d be comfortable owning NVS as a splendid long-term investment. The current $2.72 dividend, which has increased fourfold in the past 10 years, yields 3 percent.
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