Berkshire Hathaway 2002 Annual Meeting Audience Question # 18

Pharmaceuticals, as an industry, has been a very, very good business over time.

Warren Buffett:

Let’s hear from area 8, please.

Audience Member:

Hi, my name is Jennifer Pearlman from Toronto, Canada.

Mr. Buffett, in 1998, you were asked to comment on the pharmaceutical industry, and at that time your answer was that you considered it a mistake not to have taken a basket approach to the industry.

I was wondering if you could revisit the issue, now that valuations have contracted so dramatically.

And also, considering that health care spending is outpacing inflation, and that there are significant moats in the industry, I was wondering if you could share with us your thoughts on the health care industry at large.

Warren Buffett:

Charlie may be better equipped on that than I am, but it certainly… it’s been, as an industry, a very, very good business over time. And if you take the aggregate capital in it and what it’s earned over time, it’s been a very good business.

And we did make a mistake, your memory’s 100 percent accurate, in we’d… in what we said in earlier meetings, because we should have taken a package approach. We actually did buy a tiny, tiny bit, but that’s worse than buying none almost. I mean, it’s just aggravating… back there in ’93.

It’s certainly the… they’re certainly the kind of businesses that, as an industry, we can understand. We would not have great insights on specific companies. So, if we did something, we would be more inclined to do it on an industry-wide basis.

It’s hard to evaluate the individual companies. As you know, Bristol-Myers has recently had a big stumble, and even Merck has fallen back. And so, it’s hard to pick the winners.

But that’s no reason not to have a basket approach to the industry. And at some valuation level, it would be something we would think very hard about. And it’s something where we could put quite a bit of money if it happened, which is another plus to us.

Charlie?

Charlie Munger:

Well, I mean, failed to get it right the last time. We’ll probably fail to get it right the next time.

Warren Buffett:

I don’t know what he had for lunch.

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