Who's Sorry Now? Big Pharma Edition

Sparked by today's apology by Bayer at its Trasylol FDA committee meeting, we thought it would be fun to round up a few recent mea culpae out there in pharmaland. I'm sure we've missed some, so let us know in the comments.

• Bayer to FDA Panel: Sorry we didn't let you in on the bad news in that big Trasylol study last year, but what's a little death, kidney damage, congestive heart failure, and stroke among friends? We hope you'll leave Trasylol on the market.


• Novartis to Shareholders: Sorry we haven't been buying back a ton of shares like every other Big Pharma company. We promise to do better in the future!


• Lilly Leaker to Lilly: Sorry I sent the New York Times all those juicy Zyprexa documents last year. I hope $100k covers the damage? PS I'm not really sorry.


• JAMA to GSK: Sorry we're piling on.
  

[Ed. note: As any of you out there who are sports and pharma blog readers may already know, we freely admit to stealing this gimmick from the sports blog par excellence Deadspin. Sorry.]

Read More

Once in a Blue Moon: SGP's Stock Offering

When everyone and their pharmaceutical brother decides it's time to buy back their own stock, leave it to Schering-Plough to buck the trend.

The Big Pharma, fresh off the news it had emerged from the five-year old consent decree after righting all the wrongs at two manufacturing facilities ($500 million for the poorer, though), said it was selling a boatload of stock. The proceeds of this expected offering will cover some of the expense of its $14.5 billion cash takeout of Organon BioSciences, announced earlier this year (we covered the acquisition in depth, here).

The move marks the first time in months years decades? that a Big Pharma has decided to sell common stock to public investors (there have been plenty of debt financings and lots of cash raised via many divestments and spin offs, but zero equity offerings in a very long time as far as we can tell).

Schering-Plough is selling 50 million common shares (plus up to 7.5 million more in the greenshoe), which at yesterday's close would rake in nearly $1.5 billion toward the Organon tab. Simultaneously the company said it would sell $2.5 billion in convertible debt.

The fact is that Big Pharma rarely need to dilute shareholders since debt is readily available and they are often sitting on piles of cash that -- thanks to strong cash flow and goofy measures like the American Jobs Creation Act (oh yeah, how'd that go?) -- can resemble some of the minor peaks in the Alps. In fact most go out of their way to appease shareholders by buying back shares, the wisdom of which we question here.

But Schering-Plough has enjoyed success of late with Vytorin and Zetia, and has been growing both its top and bottom line nicely--so why not take advantage?

Read More

The Wisdom of Buybacks

Last week both Biogen Idec and Genzyme announced significant share buybacks. Wall Street was happy.

Biogen is buying back $3 billion worth of stock, or 57 million shares (16% of its outstanding share capital) via a dutch auction. Genzyme--which announced its buyback on the same day it said it would spend $345 million to buy Bioenvision--is buying back $1.5 billion worth (or 20 million shares) over the next three years.

Genzyme's efforts, the company said, are designed to reduce the dilutive effects of its share-based compensation programs and demonstrate that the company sees its shares as a good investment. Biogen too says that the move will return value to shareholders. Buybacks, according to people with more financial acumen than us, are a tax effective way of returning money to shareholders.

But IN VIVO Blog doesn't quite get it. Biogen Idec and Genzyme aren't banks, or fast food chains, or textbook suppliers. For companies aiming to generate medicines and the long-term gains that go with novel and effective drugs, buybacks seem to us a waste of money. Especially for biotech companies--who ought to be investing in R&D, alliances, M&A, basically any way that builds pipeline value (and whose investors should be in the game for a big return, not just the single-digit short term percentage gains that accompany a buyback announcement). Of course, Biogen and Genzyme maintain that they have ample free cash to both invest wisely in their pipelines and to buy back shares. Perhaps they do, and there's always debt ... though that can come back to bite companies whose share price declines before the convertible matures.

In any case it seems to us that buybacks provide investors with, at best, a short-term bounce in stock price and little long-term value. We're not financial gurus, of course, so tell us what you think. We'll talk to a few bankers and take a look at the buyback issue a little more closely in the next IN VIVO.

Read More