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Sector Snap: Drug developers insulated from storm
(AP Online Via Acquire Media NewsEdge) NEW YORK_Big pharmaceutical companies and their biotech cousins will likely weather the financial crisis engulfing Wall Street, several analysts said, because of the necessity of their products and cash-rich balance sheets.
While drug developers' shares have been dragged down over the last week, they are still slightly stronger than the broader market. Since the market opened Sept. 15, the American Stock Exchange's pharmaceutical and biotechnology indexes are down 3.6 percent and 3.7 percent, respectively.
Meanwhile, the Dow Jones Industrial average is down 4.7 percent and the Standard & Poor's 500 index has lost 4.8 percent.
Many of the larger, established drug developers have diversified balance sheets that have cut down their reliance on credit and tools such as commercial paper, which is short-term debt used to finance working capital.
"If there's a flight to safety (by investors), these guys are the safest around," said Standard and Poor's analyst Arthur C. Wong.
The falling broader market so far has had little impact on several multibillion-dollar buyout bids within the industry. Late Monday, Bristol-Myers Squibb Co. increased its unsolicited offer for cancer drug partner ImClone Systems Inc. to $4.7 billion, or $62 per share.
The previous $60-per-share offer was rejected by ImClone, and going into Tuesday the company's stock climbed $3.10, or 5.2 percent, to $62.50, indicating that investors believe they can get more money for the company. ImClone previously said it was offered $70 per share, but has not named the prospective buyer.
Elsewhere in the sector, Genentech Inc. has already rejected a $43.7 billion bid by Roche, which owns nearly 56 percent of the company. Genentech said it was open to a higher bid. Alpharma Inc. already said no to a $1.4 billion offer from rival King Pharmaceuticals Inc.
"I don't think the market has gotten to the point where it will be prohibitive for them to close the deals," said Morningstar analyst Damien Conover. "They have a lot of cash on the balance sheets and their credit quality is very strong."
While these potential blockbuster buyout deals continue to play out, smaller biotechnology companies still remain attractive targets as big pharma tries to build up their research and development pipelines. The market downturn has not detracted from those smaller companies' leverage in negotiating licensing and buyout deals.
"More acquisitions are likely heading into the 2011 to 2012 patent cliff," said Moody's Investors Service Senior Vice President Mike Levesque, referring to the period when many companies expect key revenue-driving drugs to lose patent protection and face generic competition.
"As we get closer and closer to these years, its likely to accelerate," he said.
Copyright ? 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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