hey4ndr3w (98.22)

Time to be Bullish on Biologics?

January 25, 2009 – Comments (0) | RELATED TICKERS: PFE , WYE.DL , AMGN

There's an old business aphorism that says you can't succeed just by cutting costs. Eventually, you're going to have to do something better than your competition is doing it to come out ahead. Right now, it seems like innovation is on the sidelines in the biotech world as all the big names race each other to see who can cut costs and lay off head count the fastest. Problem is, the finish line lies just over the edge of a 500-foot patent cliff.

I'm watching the Wyeth - Pfizer mating dance with great interest, because I think if the deal closes it could start a wave of M&A activity for companies with a reasonable biologics pipeline. Biologics are much harder than small molecules for generics companies to replicate after their patent protection expires, and if you can't innovate but still have to stuff your pipeline, an acquisition is a good way to do it. Amgen and Biogen Idec look like great targets.

Who are the buyers? Companies that have a large consumer investment (OTC drugs, lotions, etc.) seem to be faring better in the current downturn than their scrip-only competitors. I would expect a J&J to be shopping for a bargain just now.