Could The Credit Crisis Help Pfizer?


Pretty much all of biopharma is caught in the downdraft of the markets today with the notable exception of Dendreon (data) and ImClone Systems (a deal).

And the folks at Datamonitor, a business intelligence/research outfit that covers a bunch of sectors including drugs and healthcare, say we could see more ImClone-style deals. Before I get to that, Bristol-Myers Squibb put out a press release saying, as an IMCL stakeholder, the company stands to pocket $1 billion in the Eli Lilly-ImClone deal and that it decided it was in the best interest of BMY shareholders not to offer more than $62 a share for IMCL.

Datamonitor is out with a piece today titled, "Opportunity Knocks for Big Pharma in Credit Crunch." The author points out that the "average net debt as a proportion of capital employed for the top 20 pharmaceutical companies is just 6 percent, while the average net debt carried by financial institutions is 95 percent. This fact alone suggests that the fallout from the credit crisis will not be as significant as in other more highly leveraged sectors."

In the current environment, Datamonitor argues that cash-strapped biotechs are losing leverage and that big pharma's "bargaining power and acquisitive tendencies will blossom in the credit crunch." The report says that the average top 20 pharma company is sitting on $7.5 billion in cash or stuff it can quickly turn into cash. "Pharma's cash pile means that it is now the only serious 'buyer in the room'--private equity has vanished and small players will lose their own sources of funding," Datamonitor writes.

Indeed, LLYis doing its $6.5 billion deal with IMCL with no financing required. The report singles out Pfizer. though, which is estimated to have more than $25 billion in cash and short-term investments. That cash hoarde dwarfs the amount held by the next-closest competitors including Novartis, Roche and Wyeth, in that descending order.

"It may well be that the credit crunch provides Big Pharma with exactly the opportunity it needs to rebuild its ailing pipelines," Datamonitor concludes. For now, at least, the market isn't buying into the theory. All of the usual-suspect biotech takeout targets are getting hammered. Then there's ImClone and Dendreon, which is one of only three Nasdaq stocks to hit a new high today.

Questions? Comments?