In Pharma Mergers, More Big Biotechs Could Get Gobbled
In the wake of a Pfizer (PFE)/Wyeth (WYE) hookup, Roche's bid for Genentech (DNA) went hostile on Jan. 30 when the pharma giant offered to pay $86.50 a share for the 44% of the company it didn't already own. With many blockbuster drugs coming off patent in the next few years, Big Pharma needs replacements fast, notes Bill Tanner, analyst with Leerink Swann, a health-care-focused investment bank. And it needs the manufacturing knowhow of big biotechs to bring new biopharmaceuticals to market. That's bad news for small biotechs hoping to be gobbled up. Already, the smallest in the Nasdaq Biotechnology Index are down 84% from their 52-week high, vs. 21% for the largest. Shares of large biotechs like Amgen (AMGN) and Biogen Idec (BIIB) could benefit from takeover speculation.
For more on this see: Biotech Stocks: Survival of the Fittest
IPOs for Tough Times
Three initial public offerings are set to venture into the market the week of Feb. 9: Changing World Technologies (CWL), which makes biofuel and fertilizer from livestock feed waste; O'Gara Group (OGAR), a security and defense contractor; and Mead Johnson Nutrition, an infant formula maker spun out of Bristol-Myers Squibb (BMY). Several intriguing companies purchased in leveraged transactions in the past few years could also return to the public markets, including Dunkin' Donuts. With the economy in turmoil, there won't be an outpouring of deals anytime soon, but that makes it a good time to hunt for IPOs, says research and money management firm Renaissance Capital.
Stocks that go public in lean times tend to be proven performers that subsequently outperform the market. Those that went public in the last major drought, 1975 to 1979, rose an average 140% in the first three years of trading. The six IPOs worldwide that raised at least $100 million in 2008's last quarter are up an average 17%. This year "will be the start of an IPO recovery, albeit a slow one, that may be very profitable for those who have not been scared off," says the Renaissance study.
How Less Delivery Could Hurt Netflix
Is the Postal Service's proposal to cut mail service from six days to five, a bombshell the Postmaster General dropped in congressional testimony on Jan. 28, good for FedEx (FDX) and United Parcel Service (UPS)? Jesup & Lamont (JLI) analyst Helene Becker says it "wouldn't be enough to move the needle." It could hurt companies that rely almost solely on U.S. mail, though, like movie rental company Netflix (NFLX). To retain more customers, Netflix has added shipping on Saturday. Fewer delivery days could hurt that effort, says Mark Argento, senior equity analyst at Craig-Hallum Capital Group.