Investors can’t help but wonder what’s the best way to play Pharma after Pfizer said it would buy rival Wyeth for $60 billion, a 20% premium!
On Monday Pfizer, the world's biggest drugmaker, said it would buy rival Wyeth for $68 billion; that’s a 20% premium. The deal is expected to add to Pfizer's earnings in the second full year after closing and result in cost savings of $4 billion by the third year.
Some are speculating that the blockbuster deal could dramatically reshape the cash-rich pharmaceutical industry by forcing rivals to respond, and as a result, setting off a string of takeovers and mergers.
"If you're going to loan money, you're going to take a risk on the Pfizers of the world," says Richard Scheff, vice chairman of Montgomery McCracken.
So how should you play Pharma now?
According to Pete Najarian this deal makes it more likely that another Big Pharma firm such as Johnson & Johnson or Merck could make an acquisition. And he thinks they will probably go after a biotech. But rather than guessing which one, he recommends looking at the SPDR S&P Biotech ETF .
Its top holdings are Genentech, Amgen , Gilead Sciences, Celgene and Genzyme. By playing this one ETF investors get exposure to a deal that any of these firms may strike going forward without having to pick names.
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Trader disclosure: On Jan. 26th, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour Owns (AAPL), (BAC), (EEM), (F), (FXI), (PBR); Seymour Owns A Short Position In (SNE); Seymour's Firm Owns (BIDU); Macke Owns (MS), (BAC), (SDS), (MCD); Adami Owns (AGU), (C), (BTU), (GS), (INTC), (MSFT), (NUE); Najarian Owns (EEM) Call Spread; Najarian Owns (FCX) & (FCX) Short Calls; Najarian Owns (GE) Put Spread; Najarian Owns (MSFT) & (MSFT) Short Calls; Najarian Owns (MS) & (MS) Short Calls/Put Spread; Najarian Owns (PALM) Calls