Wednesday, January 8, 2014

The Rise and Fall of Modern Medicine

As an investor I generally stay away from companies in the medical field. Not only are they often not in my circle of competence, but they are also usually subject to the whims of governments (patent law, regulations etc), which increases my risk as an investor. Also increasing the investor's risk is that in many cases the nature of the research results in a binary outcome: the company either hits the jackpot or is worthless. I don't have any interest in those types of issues.

Nevertheless, it doesn't mean that I would totally avoid the sector. In every sector, companies will at times trade for prices that are clearly bargains to those even with minimal industry knowledge. With that in mind, I decided to create some of that "minimal knowledge" by reading Le Fanu's The Rise and Fall of Modern Medicine.

In the book, Le Fanu argues the case that a lot of the easy wins in the medical field have been achieved. The major argument boils down to the idea that for the most part, the amazing advances in medicine thus far have been in treating ailments. But those returns are now diminishing. Meanwhile, little has grown in our understanding of the *causes* of ailments. This is the frontier medicine has to tackle next in order to advance, but it is doing very poorly in that regard.

While I don't know enough to comment on whether Le Fanu is right or wrong in his outlook, the book was very educational. The author provides a detailed history of what he deems to have been the 12 most important medical discoveries over the last six decades. He discusses what conditions enabled these advances, and then discusses the challenges facing medicine today, and why the field is ill-equipped to face them.

One of the examples provided is in pharmaceuticals. As an investor, I strongly considered investing in a basket of these companies a few years ago as the whole sector traded at single-digit P/E's thanks to the weak drug pipelines of these companies. Le Fanu makes a compelling case for why the glory days of this industry are behind it; impressively, he made the prediction back in 2002, which was a time investors viewed the industry rather favourably.

You should now have enough info to know whether the book interests you. If it does, enjoy! If not, check out some of the other books I've discussed here.

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