You have invested in drug companies such as Johnson & Johnson and Sanofi. How do you evaluate the pipeline of these companies and know if their competitive advantage is, indeed, enduring?
Well, that’s a good question. And unlike many businesses, when we invest in something like pharma, we don’t know the answer on the pipeline. It will be a different pipeline anyway five years from now.
So we don’t know whether Pfizer or Merck, you know, or you name it — Johnson & Johnson — we don’t know which of those will come up with a blockbuster commercial drug three or four years from now, and we don’t try to assess it.
What we do feel is, if we have a group of those companies bought at reasonable prices, that, overall, pharma will do well. Maybe not quite as well as they have in the past, but they’re doing something enormously important. They’re doing something that should offer chances for decent profits over time.
And we do not pick one by one. I could not tell you what’s the number one potential in the pipeline of a J&J or Sanofi — whatever which one you want to name.
So I think in that area, actually, a group approach makes sense, which is not the way we would go at the banks or something of that sort.
I do think if you buy pharma stocks at a reasonable multiple, a group of them, you know, you’ll probably do OK, 5 or 10 years from now. I would not know how to pick the specific winner.
Well, you speak from a position where you have a monopoly of our joint knowledge about pharmacology. (Laughter)
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Warren Buffett's approach to investing in pharma companies involves buying a group of these companies at reasonable prices, rather than trying to pick specific winners in their pipeline.