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Big Pharma’s Big Mistake

August 23, 2012 Leave a comment

Bruce Booth, Partner at Atlas Ventures, has some very insightful commentary on big pharma’s recent habit of share buybacks.  I suppose reinvesting all that cash back into R&D wouldn’t add value to their company?  This exemplifies the state of the industry.  No wonder big pharma isn’t hiring.  In fact, they’re doing just the opposite, they’re cutting jobs.  

On the other hand, with the patent cliff upon many companies, the recent behavior of big pharma does make financial sense.  Why bother reinvesting that cash into their own company just to labor through the undertaking of high-risk research and development?  It makes a lot more sense to let the small companies fight it out in the trenches and buy them when they stumble on something promising.  Which is exactly why M&A is at a 7-year high.  

Undoubtedly, an unfavorable IPO environment keeps valuations low as evidenced by the withdrawal of Argos Therapeutics IPO.  Because of this, big pharma can protect their interests with a high number of acquisitions.

At the macro level, this means a tough job market for scientists.  Not sure what it will take for conditions to improve, but here’s to hoping things do.  Soon.

 

Quick glance at May’s stock picks:

JCP

5/16 closing price : $26.75

8/22 close: $24.50 (but not after reaching a low of $19.09.  Presumably, you would have covered your position)

GRPN

5/16 close: $13.05

8/22 close: $4.51 (like I said, massively bearish long-term)

USHS

5/16 close: $8.92

8/22 close: $12.44 

HD

5/16 close: $48.77

8/22 close: $56.55

 

Not bad.

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