wdhalgren

Big Mergers Could Mean Sweet Gains for Biotech

"When it does, the strongest drug companies will be the ones that took advantage of this unique opportunity to fill their pipelines with products from inexpensive biotech companies."

Several problems with your analysis. First, most biotechs don't have a single drug in their pipeline that will ever reach market. Generally, if they have a drug that truly looks promising, they're no longer cheap.

Second, there is a serious problem for big pharma buying companies like Genzyme or Biomarin. Genzyme can charge 750,000 a year for one of it's glycogen storage drugs and get away with it. If big pharma tries that, they quickly accumulate protesters at the front gate talking about exploitation.

Third, acquisition of established biotechs is usually not acretive for big pharma because the valutaions are too high. It's hard for a company at two times revenues to acquire a company at 8 times revenues and come out looking good, even over a longer period. Historically, those type of acquisitions haven't been positive for the big pharma acquirer's stock price (see AZN buyout of Medimmune and the market response).

Not to say that that big pharma can't profit from acquiring smaller companies, but they have to be very smart, and try to buy companies with early stage drugs before the market realizes the value. There's not going to be some wild rush of biotech acquisitions.