When will the deluge of M&As hit?

Buttonhole most any market-watcher these days, and you'll find someone eager to tout the current turmoil as the perfect environment for Big Pharma to make a deal. Credit markets seizing up, banks failing, and derivatives lurking--never mind all that. Drugmakers are in the catbird seat.

The logic goes something like this: Big Pharma is cash-rich. Big Pharma needs to stuff its pipelines full of drug candidates. Small biotech companies of the sort that could do just that--they're either already bargains or soon will be as their funding dries up. "The No. 1 driver of why we think there are going to be more deals is the patent cliff that is beginning to drive the industry starting around 2011," Moody's senior vice president Michael Levesque told the Philadelphia Inquirer. "And then because of recent stock market events, valuations globally are much lower than they were six months ago, so that could favor even more mergers and acquisitions or faster M&A."

It's true that pharma is sitting on a cache of cash. Nine of the biggest U.S. drug and biotech firms count a combined j$105 billion in cash and investments as of June 30. And there's no doubt that several big-name drugmakers are on the prowl; just last week, GlaxoSmithKline said that it would give stock buybacks a rest so it can reserve cash for deals. "Opportunities are surfacing with some frequency on the small to medium scale," CEO Andrew Witty told analysts during a third-quarter earnings call. And Bristol-Myers Squibb, which lost out to Eli Lilly on the ImClone buyout, says it has a long list of companies it could buy with its $7 billion in cash.

Bottom line, we should hear some announcements soon. Unless the market suddenly rockets upward, pricing pharma out of the biotech market. But the chances of that, we fear, aren't very good.

- read the story in the Inquirer

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