Healthy Skepticism Library item: 7249

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.

Publication type: news

Brand C.
Merck's Sirna Deal - Expect More From Big Pharma
Yahoo Finance 2006 Nov 1
http://biz.yahoo.com/seekingalpha/061101/19654_id.html?.v=1

Abstract:

Chad Brand submits: Pharmaceutical giant Merck is clearly looking for ways to boost growth. It’s no secret that big pharma companies face increasing competition from generic drugs and pressure to keep rising healthcare costs in check. Small to mid size acquisitions of biotechnology companies are a solid way for companies like Merck, Pfizer, and Glaxo SmithKline to strengthen their product pipelines.
On Monday we learned that Merck is paying more than $1 billion for Sirna Therapeutics. It’s is quite possible that they overpaid. After all, MRK is paying $13 per share in cash, a premium of more than 100 percent over Monday’s closing price. However, overpaying by a couple hundred million dollars isn’t a big deal for a company the size of Merck if several of Sirna’s products eventually reach the market.

There is no doubt that deals like this one will continue. I am generally leery of trying to predict which firms will get taken out next. So, I would suggest that biotech investors pick stocks that have solid fundamentals, not just those that some speculate could get a bid from big pharma.

As for the pharma companies themselves, I like Pfizer at current levels ($27 per share). It trades at a discount to most of the other pharmaceutical companies and yields well over 3 percent. Pfizer has done mid size deals before and likely will do so in the future. In fact, I made a ton on a company called Esperion Therapeutics when it was bought out by Pfizer for $1.3 billion.

With a hefty yield and a below-market multiple, conservative, defensive, income-oriented investors should take a look at PFE. A recent analyst downgrade has knocked the stock down a buck.

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Far too large a section of the treatment of disease is to-day controlled by the big manufacturing pharmacists, who have enslaved us in a plausible pseudo-science...
The blind faith which some men have in medicines illustrates too often the greatest of all human capacities - the capacity for self deception...
Some one will say, Is this all your science has to tell us? Is this the outcome of decades of good clinical work, of patient study of the disease, of anxious trial in such good faith of so many drugs? Give us back the childlike trust of the fathers in antimony and in the lancet rather than this cold nihilism. Not at all! Let us accept the truth, however unpleasant it may be, and with the death rate staring us in the face, let us not be deceived with vain fancies...
we need a stern, iconoclastic spirit which leads, not to nihilism, but to an active skepticism - not the passive skepticism, born of despair, but the active skepticism born of a knowledge that recognizes its limitations and knows full well that only in this attitude of mind can true progress be made.
- William Osler 1909