"We risk becoming the best informed society that has ever died of ignorance"
- Rubén Blades

"You can't make up anything anymore. The world itself is a satire. All you're doing is recording it"
- Art Buchwald

"It's getting exciting now, two and one-half. Think of everything we've accomplished, man. Out these windows, we will view the collapse of financial history. One step closer to economic equilibrium"
- Tyler Durden

"It is your corrupt we claim. It is your evil that will be sought by us. With every breath, we shall hunt them down."
- Boondock Saints

Monday, April 28, 2014

Big Pharma M&A

Pharmaceuticals were on fire this morning.  When I originally wrote this before forgetting to post it this AM, GWPH is up 16% on news that the FDA decided to Fast Track the Sativex pain treatment for clients with advanced cancers (read the filing here).  

Pfizer also announced this morning a bid for AstraZeneca for $76.62 which was rejected.  There has been recent concern over the impact of Big Pharma M&A on CRO’s (contracted research organizations) as Stern Algee highlighted the benefits to the CRO of the acquirer.  

M&A Activity increasing over the past year:

Source: Capital IQ

Sterne Agree acknowledged unease about the current times because “CRO’s (contract research organizations) are trading at a 60% premium to the S&P 500 on a NTM PE basis, which has historically represented a peak valuation for the group (12 year average is 29% premium)”.  

The impact to CRO’s from Big Pharma M&A can be traced back to 1998 (as shown in the chart below) where larger biopharma M&A can damage the bookings and equity values of CRO’s although most of the time the CRO of the acquiring firms will survive and possibly experience better growth conditions following the closure of an acquisition.

AZN closed Monday April 28th at $77.01 up from Fridays close of $68.63.