For more than seven years, Mike Krensavage was a stock analyst at Raymond James, where he discerned the prospects for a bevy of major drugmakers. Of course, the prospects have turned about to be rather meager for many drugmakers and, by and large, drug stocks have tumbled. But Krensavage is an optimist - he sees this as not only an opportunity to buy selectively, but to open his own hedge fund devoted to…drum roll…pharma stocks. The name on the door? Krensavage Asset Management, naturally. We chatted briefly about the gamble…

Pharmalot: So why do this now? You’ve still got a couple of rough years forecast for the industry.
Krensavage: That’s usually the time to buy. I feel pretty strongly about the valuations, which I think already reflect the doom and gloom. I’m pretty sure we’re going to make it through the subprime and housing crisis. I don’t know when. That’s the macro view. But you’ve got this wall of worry with the elections coming up, and it may turn out not to be as bad (for pharma) as some people think.

Pharmalot: So you’re seeing an uptake?
Krensavage: I’m wondering if we won’t see a mini-rebound for drug stocks like we did in ‘94. Although, yes, it’s different this time, with more exposure to patent lapses. But they’ve gotten so beaten up and there have been some horrible performers. But I think that’s another thing that actually makes them interesting. Right now, the valuations are low. And if a success comes along - a strong, new drug that’s approved - or a merger, then things change some more.

Pharmalot: Which of the stocks is an interesting story right now?
Krensavage: I look at Pfizer and wonder how low does it go? It’s interesting how the company shows signs of a cash crunch. There are no share repurchases. And debt increased from $13 billion to $17 billion. Why is a company that’s supposedly generating so much cash borrowing so much?

Pharmalot: And who else?
Krensavage: I think Wyeth has some M&A in its DNA. I’ve always thought the sum of the parts are greater than the whole. The most interesting thing I see right now is their (experimental) Alzheimer’s drug. I’ve not seen this much hype over a new drug in a long time. It’s just absolutely amazing. It’s almost like you get into a taxi in New York and the driver will ask about a cure for Alzheimer’s. I’m starting to get more inquiries about this from non-drug investors, which is an interesting sign.

Pharmalot: But is the direction for this group of stocks really so clear right now?
Krensavage: Look, ultimately, it’s new drugs that really matter. And it’s really difficult to predicdt if or when we’re going to cure something. But long term, people want to get better and drug companies want to make money. So it seems like there’s still plenty of opportunity.