Warren Buffet Scales Back Big Biopharma Investments

Warren Buffet_Edt_Kent Sievers

Kent Sievers/Shutterstock

What does Warren Buffett know that everyone else does not? Exactly one year ago, BioSpace reported that Buffett’s Berkshire Hathaway Inc. was investing heavily in four pharmaceutical companies: Pfizer, Bristol-Myers Squibb, AbbVie, and Merck & Co. This week, Berkshire announced that it has scaled back those investments and completely eliminated its stake in Merck. 

The most perplexing nugget is that Berkshire dropped its investment in Merck just before the company came out with results showing that its COVID-19 antiviral molnupiravir might be the next step toward exiting the now 20-month-old pandemic. The drug, which Merck has since submitted to the U.S. Food and Drug Administration (FDA) for Emergency Use Authorization (EUA), cut deaths and hospitalizations in adult patients by approximately 50%. Merck shares soared as high as 12.3% following the announcement.

Still, on Monday, Berkshire, which usually appears to possess a crystal ball, said it had eliminated its investment in Merck and reduced its shares in AbbVie and BMS. Merck spinoff Organon & Co. also lost Buffett’s vote, as his company cleared its 1.55 million shares from the women’s health specialty company.

Buffet does still appear to be betting on the pharmaceutical industry, albeit with a seemingly different strategy. According to a securities filing, Berkshire’s new investments include a sum of $475 million in Royalty Pharma Plc, a company that, true to its name, invests in the life sciences industry by buying drug royalties. The New York-based company purchases economic interests in marketed and late-stage biopharmaceutical products from other life sciences organizations. Royalty Pharma also partners with biopharma companies to co-develop and co-fund products in late-stage clinical trials. In June, the company inked a long-term strategic funding partnership with MorphoSys AG worth $2.025 billion. In August 2020, the company invested up to $450 million in Biohaven Pharmaceutical to help Biohaven advance its CGRP receptor antagonist program. Royalty Pharma’s shares rose more than 5% following the news of Berkshire’s investment. Teva Pharmaceuticals also maintained its approximately $400 million buy-in from Berkshire.

In November 2020, Berkshire made significant investments in Pfizer, Merck, BMS, and AbbVie to the tune of $1.8 billion to $1.9 billion in each. The recent reports do not mention anything about Pfizer, which on Tuesday submitted an EUA filing with the FDA for its own COVID-19 antiviral, Paxlovid. Berkshire’s shares in AbbVie and BMS fell 30% and 16%, respectively, in the third quarter.

While leaving its largest investments in Apple and Bank of America alone, the conglomerate also trimmed back its shares in financial firms Visa, Mastercard, and trimmed its U.S. Bancorp. 

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