Pharma Stocks

Pharma's deep pockets means more M&A

Christe Bruderlin-Nelson — Wed, 01 Oct 2008 04:07:58 -0400

The folks over at the Motley Fool are once again waxing positive for big pharma.

Despite thinning pipelines, relentless job cuts and rollercoaster share prices, the Fool says the pharma companies still have plenty of cash on hand and give some numbers to prove it. For example, Pfizer has $26.2 billion in cash and short-term investments with $14.8 billion in free cash flow, and Novartis has $16.2 billion in cash and short-term investments with $14.0 billion in free cash flow. On the lower end of the spectrum, Eli Lilly has $5.2 billion in cash and short-term investments with $5.2 billion in free cash flow, which is no small potatoes, either.

What might big pharma use all this cash for?

Acquisitions, perhaps, especially when taking advantage of some deals in the struggling-drug-developer arena. Companies might also buy more marketing rights or acquire drugs directly. Either way, the Fool says, having cash on hand--especially when its in the billions--says more than an earnings report ever will, because cash is either there or it isn't.

- read the story at the Motley Fool

Pfizer layoff talk boosts stock

Tracy Staton — Fri, 26 Sep 2008 10:30:34 -0400

While the financial markets teeter, Pfizer stock closed 4 percent higher yesterday as rumors of more layoffs swirled. Never mind that Pfizer already announced big job cuts; the actual implementation appears to be cheering investors as it scares the drugmaker's rank-and-file. Derek Lowe at In the Pipeline hears from his Pfizer sources that employees are being told to expect "deep cuts," with more details--and some actual pink slips--hitting in two weeks.

As you know, a Pfizer exec announced earlier this week that about $800 million in cost cuts were coming during the fourth quarter. Now, word that those cuts could include jobs are making analysts tout Pfizer shares. "I think the 7 percent yield is increasingly attractive in the current environment," uber-analyst Barbara Ryan of Deustche Bank told MarketWatch, referring to Pfizer's vaunted dividend. Ryan also said word of layoffs, plus Pfizer's strong cash position, are boosting the stock.

- read the story at MarketWatch
- check out the In the Pipeline post

Cash-poor patients cut back on meds

Tracy Staton — Mon, 22 Sep 2008 10:26:28 -0400

Pharma stock may be something of a safe haven for investors battered by the yo-yo markets, but as the turmoil continues to leak from Wall Street to Main Street, drugmakers themselves may suffer. In fact, cash-strapped Americans are already cutting back on healthcare. That's big news, because healthcare has historically been seen as a port for every recessionary storm.

Scrips fell by 0.5 percent during the first quarter, year-over-year, and almost 2 percent during the second. The first negative quarters in more than a decade, according to IMS Health. Plus, 11 percent of consumers surveyed by the National Association of Insurance Commissioners said they've cut back on prescription drugs to save money. They're also cutting back on elective surgeries such as hip and knee replacements--and along with them, all the anesthesia meds, painkillers, antibiotics, and other meds they'd be given in the hospital.

People are skipping pills, postponing refills, and switching to cheaper alternatives to their current meds. Will the trend continue long enough to make a big dent in Big Pharma's bottom line? Your reading of the economic tea leaves is probably as good or better than ours.

- read the Wall Street Journal story

Pharma investing: A good bet?

Christe Bruderlin-Nelson — Wed, 17 Sep 2008 12:04:33 -0400

The folks over at the Motley Fool are wondering if big pharma remains a safe haven in challenging investment times or whether its time for investors to jump ship. Writer Brian Orelli notes that some of big pharma's strongest players were down--including GlaxoSmithKline (0.9 percent), Eli Lilly (1.2 percent), Pfizer (3.1 percent), Merck (3.3 percent) and Schering-Plough (3.5 percent)--but not as down as the Dow (4.4 percent) and the S&P 500 (4.6 percent) when the market tanked on Monday.

With giant banks and insurance companies going under, should investors wonder if pharma is next? Not so much, says the Motley Fool.

While the normal not-so-great things are happening in the current down market, such as private investors and larger mutual fund managers selling in moments of hurried dread, the need for drugs is likely one of the most inelastic needs out there. People will keep buying their meds and big pharma will likely remain a safe (or at least a safer) haven compared to other investments.

The little guys, on the other hand, might not fare quite as well. It takes a decent bit of cash for smaller start-ups to take drugs from the development phase to market. While that can eventually work to the shareholders' advantage, the small companies rely on financing and a sturdy credit market; they will likely have to work much harder to secure the money they need to get to market in this economy.

The Motley Fool began to drool, though, when it talked of the downward pressures on stock prices making shares of smaller drug developers cheaper--even when they have great pipelines--thereby making them more accessible to independent investors. This is despite the fact that big pharma is just as likely to buy them later and make the small investors very happy.

In reality, keeping the cash flow up is important for big pharmaceutical companies, too, so they can keep their pipelines funded, and it isn't going to be easy to determine the best companies to invest in. For big pharma, keeping hands off emergency funds whenever possible and forgoing extra investment income from time to time could help them keep their reserves up.

- read the article for more

Icahn boosts stake in Amylin

Tracy Staton — Mon, 15 Sep 2008 10:51:32 -0400

Guess who's knocking at Amylin Pharmaceuticals' door? None other than activist investor Carl Icahn, who boosted his stake in the company to 10.1 million shares, or 7.3 percent. Known for rattling the doors of executive suites--and pushing for M&A deals--Icahn could already be eyeing his next biopharma project.

Icahn owns a chunk of Biogen Idec, the company he pushed onto the sales block last year. Though that bidding process failed to turn up a buyer, Icahn is still pressing Biogen to make a deal, saying it didn't try hard enough the first time around. Meanwhile, as chairman of ImClone, Icahn is in a contest of wills with Bristol-Myers Squibb CEO Jim Cornelius, who offered $60 a share for the company. Icahn says he has a $70-per-share buyer in the wings, but with that bid contingent on due diligence, he and Cornelius have been trading accusations via letter.

What's Icahn's interest in Amylin? The company sells the diabetes med Byetta in partnership with Eli Lilly, and as you know, the drug came in for some controversy last week when the FDA announced several severe cases of pancreatitis among Byetta patients. But its follow-up med, a once-weekly version, won some research kudos for controlling blood sugar better than Merck's Januvia.

And that controversy may be the simple reason: Amylin stock plummeted on the news, so Icahn had a chance to buy low. Still, the move shows a confidence in Amylin that investors haven't exactly shared recently. Will the market now follow Icahn? We'll have to wait and see.

- read the CNBC story

Pharma a defensive play no more

Tracy Staton — Mon, 23 Jun 2008 10:19:35 -0400

Some big stocks were down to multiyear lows last week--including Pfizer and Merck, a deveopment that runs counter to pharma's traditional position as a defensive stronghold. Typically, investors see drugmakers as "safe" during down markets because patients need their meds no matter what the economy does.

Not so anymore, analysts are saying. Big Pharma's woes are well-known by now--patent expirations, aggressive generic competition, reimbursement pressures, fewer brand-new meds to tout. In Pfizer's case, it took the huge settlement with Ranbaxy over Lipitor to goose the stock upward last week. And then it fell back again. Merck got a setback with its new cholesterol med when the FDA asked for more data. To one big investor, the market's reaction to last week's news just shows how far pharma needs to go to get back into investors' good graces.

- see the item at Wall Street Journal's MarketBeat blog

Dividend puts strain on Pfizer

Tracy Staton — Tue, 03 Jun 2008 10:30:37 -0400

It's not a new question, but it's one whose urgency is growing: How long can Pfizer pay its big dividend? It's the largest in the industry, at 6.67 percent compared with 3.37 percent pharma-wide. And it cost the drugmaker $8 billion last year--at a time when the U.S. dollar is weak and the globalized Pfizer generates proportionately less money in the States.

Those are the costs. The benefits to Pfizer? Well, it's one of the few reasons folks are holding onto their shares. It's helped provide "a floor for the stock," someone close to Pfizer's board told the Wall Street Journal--and without that floor, the board worries, the price could drop to $10 or $12 from its current price of $19.18, already a 10-year low.

- read the story in the Wall Street Journal
- check out the Pharmalot post

Silver lining to Big Pharma's cloud?

Fri, 09 May 2008 06:59:56 -0400

Some people see the Big Pharma glass as half-full instead of the alternative. In an investor's-eye look at the industry, Kiplinger ticks off the usual criticisms: patent expirations, tough generics competitors, skyrocketing R&D costs, picky regulators, and election-year political pitfalls. But it also says that beaten-down pharma stocks are so cheap, for some there's no way to go but up.

Institutional investors tell the magazine that "gloomy" Pfizer can only get better, that Johnson & Johnson has consumer healthcare and devices as hedges, and that Schering-Plough is dirt cheap and, given its comparative lack of copycat exposure, poised to rise. The whole sector has several forces pulling in its favor, too. Strong cash flow that could be even stronger if they'd cut unproductive R&D, there are the undeniable demographics of the baby boom, and Big Pharma possesses the kind of marketing muscle that smaller drugmakers will pay dearly for. Not to mention the propensity for pulling rabbits from empty hats: "It always seems like they have nothing in the pipeline...Then they always come up with something."

- read the Kiplinger article

Glaxo bonds bring whopping $9B

Wed, 07 May 2008 06:59:54 -0400

GlaxoSmithKline went hat in hand to the bond markets and came back with a record $9 billion. Intending to sell $6 billion in corporate bonds, GSK added $3 billion more as investors hungry for non-financial corporate issues snapped up the offerings.

GSK plans to use the proceeds for its big share buy-back plan. That plan is designed to strengthen GSK stock at a time when the entire pharma sector is suffering on the equity markets.

- read the story in the Financial Times

ALSO: In Vivo is reporting that GlaxoSmithKline plans to set aside up to $500 million for a new venture fund that will support its internal R&D work as well as fund start-ups created from de-prioritized assets. GSK report

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Big Biotech's Stock Report

Under pharma earnings, basic problems

Wed, 23 Apr 2008 06:59:55 -0400

You've heard of see-through buildings. How about see-through pharma earnings? Though drug makers have been reporting increases to their bottom lines, investors are looking past the foreign-currency gains and one-time earnings boosts to the fundamental problems the industry faces.

"Each company generally has had somewhat of the same narrative... limited pipeline visibility, patent expirations, and decelerating growth in their main products," one analyst told the Associated Press. Thus Wyeth lost Protonix revenues; Roche suffered from falling Tamiflu sales; Merck's Singulair, Vytorin, and Fosamax dropped off; Pfizer saw Zyrtec and Norvasc decline; and Lilly's top seller Zyprexa deflated.

Of course Big Pharma also confronts a larger problem, just as most other U.S. companies do: the economy. As Steve Brozak of WBB Securities pointed out, the lackluster quarter is just one more sign of an overall market shift. "This proves to us that we're in a recession," he said.

- read the Associated Press story