wdhalgren

New MS Therapies: A Hard Pill to Swallow?

Thanks for the informative overview. Please post more often.

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.

After Thursday's Bloodbath, Is Biopharma a Buy?

Political risk for the pharma/biotech sector has entered extreme territory. analysts have been ignoring that for years, blithely assuring investors that the US would never force drug makers to modify their monopoly pricing model. Meanwhile, newer biotech companies have provoked an arms race of drug pricing, asking amazing sums for drugs under the premise that the government and industry would continue to accept them without blowback. Some of the pharmaco-economic modeling (from drug industry and analysts) has been reminiscent of the time of analysis done by dotcom analysts during the late 90's.

Now comes the problem. If you look at the current and future liabilities of governments, states, employers, health plans, the numbers are staggering. Now add in the current state of the economy, and future ecoomic growth under a period of deleveraging. The outcome is that serious savings must come from somewhere. Military spending is obvious, but healthcare is probably more important. If drug price escalation is allowed to continue (Alexion's Soliris costs 500K a year), healthcare could be the dealbreaker for the entire US economy.

Upshot, big changes are coming, and drug price negotiations are in the middle of the table. That is not priced into the stocks as yet, particularly companies like Gilead, Celgene, Amgen, Genentech, Alexion, Genzyme, Lilly (erbitux), Astra Zenica (Synagis), OSI Pharma, etc. The heady days of driving executive stock option compensation through extreme drug pricing are done. The investment community is just starting to realize that.