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Marketplace Morning Report

Pharmaceuticals go on buyout binge

Sam Eaton Mar 12, 2009
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Kai Ryssdal: There are fundamentally two ways to make a business bigger. You can keep on coming up with and pumping out new products, boost your market share and grow that way. Or you can pull out your checkbook and buy your way in. The pharmaceutical industry seems to be gravitating toward option B. Today the Swiss drug maker Roche went that way. It bought up the U.S. biotech giant Genentech in a deal worth $47 billion. As Marketplace’s Sam Eaton reports.


SAM EATON: First there was Pfizer’s $68-billion buyout of Wyeth. Then Merk announced plans to buy Schering-Plough for $41 billion. Cap that with today’s news of the Roche-Genentech deal and big pharma buyouts are officially a trend. T. Rowe Price analyst Jay Markowitz says there’s good reason.

JAY MARKOWITZ: The most difficult thing to do in the pharmaceutical business is innovate.

And with highly profitable drugs like Lipitor, Plavix and Zyprexa set to go generic over the next few years, the revenues from past innovations are fast approaching their expiration dates.

MARKOWITZ: So without being able to come up with new drugs, companies have gone to plan B, which is to try mitigate the loss of those revenues through consolidation.

That way they keep the pipeline full with existing drugs while they develop new ones. And this is where not all deals are created equal. Miller Tabak analyst Les Funtleyder says today’s Roche-Genentech deal has something the previous mergers don’t: access to cutting edge research on cancer drugs, which are expected to be highly profitable in the coming years. Funtleyder says cancer drugs also tend to be approved quickly.

LES FUNTLEYDER: You get less push-back for a cure for cancer, or a treatment for cancer, than you would say for the fourth erectile dysfunction pill.

But the strategy can be risky. Acquisitions can rattle R&D departments, potentially driving away their most valuable assets: the scientists who work there.

I’m Sam Eaton for Marketplace.

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