Michael Yellen

AIM Global Health Care Fund

by Marla Brill
MFI Publisher

“Lower than expected earnings for some of the large US pharmaceutical companies hasn’t changed our strategy that much,” says Michael Yellen,  manager of the AIM Global Health Care Fund. “We didn’t really have that much invested in the group to begin with.”

While the fund has about 35 percent of its assets in pharmaceutical companies, large US drug makers account for just 8 percent of assets. Foreign drug companies, including France’s Sanofi-Synthelabo SA  and Germany’s Altana comprise another 17 percent, while mid-cap specialty pharmaceuticals make up the balance for the category.

The latter group, which includes names like portfolio holdings King Pharmaceuticals, Teva Pharmaceutical Industries, and Forest Laboratories, sport higher valuations than their larger counterparts but also have better growth prospects, he says. On the foreign side, Yellen has been buying stocks of Japanese drug makers, such as Fujisawa Pharmaceuticals, since early November. These companies have good growth prospects and “are much cheaper on a valuation basis than European and US drug stocks.”

Despite his low weighting in US drug stocks, Yellen says the beating the group took last year has added to their appeal, at least from a pricing standpoint. “Merck and Bristol- Myers are priced at a discount to the market, while Pfizer and Eli Lilly are at a slight premium,” he says. “It’s very rare that you’ll see any of these companies selling at those kinds of valuations.” Pfizer, his largest pharmaceutical position, is “undoubtedly the best-positioned drug company in this country because of its strong product pipeline and negligible patent exposure.” Yellen has also begun “nibbling” at Bristol-Myers Squibb, which he believes will recover from its problems in 2002 to see “healthy growth” in 2003.

At 40 percent of assets, hospital management companies such as Tenet Health Care and HCA represent the fund’s biggest bet.  “There are only seven publicly-traded hospital management companies,” says Yellen. “All of them had stellar earnings growth in 2001, and I expect earnings growth in the 20 percent range for 2002. Yet the stocks are trading at a discount to the market.”   Biotechnology stocks account for about one-fifth of the fund’s assets, with larger, profitable companies such as Amgen and Genzyme dominating the group.”