TAKING STOCK: Now hear this


Dear Mr. Berko:

Do know the name of a large drug company that is supposed to have a cure for deafness? I have profound hearing loss, and I'm interested in the company. And I have about $30,000 to invest if you think the stock would be a good long-term investment.

-TP, Erie, Pa.


Dear TP:

The company to which you refer is Novartis (NVS-$102.65), home-ported in Switzerland, an uppity country of 8 million people who make overpriced watches that are shipped to fine jewelers around the world. Most of these folks ski, wear lederhosen, consume expensive chocolates, drink coffee at $12 a cup and have low opinions of Americans. The Swiss don't look down their noses at Americans; they look down their chins at us.

In 2010, NVS purchased a novel therapy from GenVec, a biopharmaceutical company in Maryland. This experimental therapy, involving a gene called atonal-1, seems to reverse hearing loss by stimulating the regrowth of microscopic sound-sensing hair cells in the inner ear that were depleted by exposure to loud noises or disease. The procedure is so simple that a Zurich watchmaker could complete it in 22 minutes. A surgeon peels back the inner ear, drills a teeny hole (about the width of two hairs-maybe three) in the stapes and then injects a drug that consists of a harmless virus carrying atonal-1. The gene triggers regrowth of hair cells inside the cochlea, which pick up sound waves, converting them into electrical signals that travel to the brain, which interprets them as sound.

Those lederhosen lads put dozens of deaf lab rats to sleep and zapped them with atonal-1, and within two months, those cute little furry white creatures demonstrated marked improvement. Rats are used because they are small, are easily housed, adapt well to surroundings, have a short life span and reproduce like rabbits. NVS initially wanted to use members of Congress as test subjects but was vetoed by President Obama. In October, NVS began conducting a National Institutes of Health-sanctioned clinical trial with 45 U.S. patients, and it expects to publish results by 2017. The procedure won't help those whose hearing loss is a result of genetic defects. About 10 percent of the population of the industrialized world has notable hearing loss, including over 36 million Americans, and this procedure might measurably improve their lifestyle. But that's not the sole reason to buy NVS.

NVS is an impressive company that began trading on the New York Stock Exchange in mid-2000 at $34. Revenues were $20 billion; share earnings were $1.55; and the dividend was 47 cents for each American depository receipt. Last year, revenues grew to $58 billion, and NVS posted earnings of $4.40 a share. The dividend, which increased in each of the past 14 years, has grown sixfold, to $2.82, and the stock price has tripled. The coming years may be just as prolific and profitable as the previous years. As a long-term growth and income investment, NVS should give you a lot of zip for your doo-dah. Though its atonal-1 treatment probably will be a high-demand application, it won't have the long-term impact of popular drugs such as Celebrex, Viagra, Valium, Lorazepam, etc., which are maintenance drugs and repeatedly purchased to treat conditions that are episodic or permanent. Still, it very likely will improve NVS' earnings.

NVS is also a superb investment because it has a wide economic moat with the support of many patents, a powerful distribution network, economies of scale and hugely diverse operations. NVS' industry-leading and impressive late-stage pipeline nearly guarantees long-term growth. The company's revenue and earnings stability is a result of its multiple-segment approach, which has produced impressive drugs for multiple sclerosis, cancer and eye disorders, as well as vaccines and prominent treatments for skin problems, high blood pressure, gastrointestinal conditions and other conditions. NVS is a classy company that analysts believe could earn $6 a share by 2018 on $68 billion in revenues and have a $3.25 dividend. And if those projections are accurate, NVS could trade between $145 and $160.


Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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Published: Tue, May 26, 2015