Buy-Side Drug Addiction

In part II of our two-part series of discussions with fund managers, Steve Dalton of First Capital and Arnie Snider of Deerfield Management, discuss how drug companies face a myriad of challenges likely to depress stock prices, but have performed so well in the last few years that it's been difficult to diversify into other health care sectors. Medical devices don't represent much of an alternative, lacking the growth prospects or pricing flexibility of drugs--indeed, the expected collapse of pricing in the stent market is also likely to have broader repercussions on medical devices in general. Meanwhile, the illiquidity and consequent penalties for investing in small cap stocks has kept investors, despite their general concerns, investing in large cap companies.