Biotech Values

[corpstrat]

<<"MRK …to go after merger cost cuts as a way of boosting earnings for a short while." lower cost structure permanent, not temporary>>

It's a one-time earnings growth move, yet pharma stocks used to be growth stocks. The admission that they have no good ideas in which to invest may be a belated adjustment to reality but it's still pretty grim and does not justify a high P/E ratio.

As to leverage, there is of course nothing to stop them changing their debt-equity ratio without M&A. But is leveraging up a free lunch for stockholders? It obviously adds to risk. Let's hope they do their sums right about the impact of patent expiry, competition, govt price negotiation, importation etc. on their revenues, or this could end in tears.

I likened this BP going-out-of-business M&A wave to the oil industry circa Boone Pickens mid-late 80s. Load them up with debt so they have to stop investing in R&D, on the theory that the R&D investment doesn't pay. But it's also reminiscent of big steel's ugly demise. You may be able to make a quick buck off it, but it's pretty depressing. Where's the economic dynamism going to come from, the good knowledge-based jobs for our kids and grandkids?