When the Pharma Industry's Stuck with Nowhere to Hide

The value of medicines sold has barely grown in mid-single digits in the last three years

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Regular readers know about Bertie's skepticism when it comes to using low per capita consumption as an investment thesis to buy stocks. With 1.4 billion people in the denominator, the per-person consumption of anything from beer to cement is bound to be low. The charts look seductive, though, especially when placed next to the same number for China and developed countries. A 'happily ever after' tale starts taking shape in the reader's mind, and the resulting warm, fuzzy feeling leads to the pressing of the buy button. But in those moments of temptation, it is worthwhile to remember what Yogi Berra told us, "In theory, there is no difference between theory and practice. In practice, there is."

Bertie has seen similar charts for the consumption of medicines in India. With more doctors, the argument goes, doctor visits and formal medical diagnoses are increasing. This means more prescriptions get written, and, hence, more drugs are sold. This is sound in theory, but the reality is that the value of medicines sold has barely grown in mid-single digits in the last three years. Being a stickler for detail, Bertie double-clicked this number to find that volume growth has been barely positive.

Unable to reconcile the seductive charts and insipid reality, Bertie posed the question to the CEO of a large pharma company. The two had interacted for several years and played an occasional game of badminton together so Bertie could ask the CEO to deliver the bitter pill without the sugar coating.