On this day when everyone is wearing green, it seems appropriate to take a look at some cash-rich drugmakers and what they might do with their particular pots of gold. Where the company is in its lifespan determines exactly what it'll do with all that cash.
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Cash and Short-Term Investments*
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Market Cap (Billions)
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Marketed Drugs
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Pfizer (:PFE)
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$25,475
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$141
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Lots
|
|
Wyeth (NYSE:WYE)
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$13,448
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$54
|
Lots
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|
Novartis (NYSE:NVS)
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$13,047
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$106
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Lots
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Amylin Pharmaceuticals (:AMLN)
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$1,130
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$3.4
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2
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Elan (NYSE:ELN)
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$700
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$9.5
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4
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Vertex Pharmaceuticals (NASDAQ:VRTX)
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$461
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$2.1
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1
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Exelixis (NASDAQ:EXEL)
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$272
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$0.6
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0
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*In millions. Data from Capital IQ, a division of Standard & Poor's.
Let's make a deal
The large pharmaceutical companies are cash-generating machines, but they've got one little problem: Their blockbuster drugs are headed toward generic competition in the not-too-distant future -- this year, for some unlucky companies. The good news is that they've got a lot of cash to use to restock their pipeline.
It's actually rather astounding how much cash Pfizer has. At current stock prices, Pfizer could purchase the bottom four companies and still have almost $10 billion to use for its dividend.
That probably wouldn't be the best use of its cash, since it would only get seven drugs in the deal -- not to mention that Exelixis would be hard to purchase -- but the point remains. The large drugmakers with plenty of cash to burn will likely go after smaller drugmakers with drugs already on the market, or after companies with pipelines stocked with compounds in phase 3 trials.
Get into the black
For Amylin and Elan, their cash isn't there to make acquisitions but to make sure they get to the point of showing a profit. The companies could be in the black right now if they cut their R&D programs, but instead they're investing in the future and burning through cash right.
Elan expects to burn through about half of its cash next year, but it's hoping to get its EBITDA to the breakeven point by the second half of this year. If sales of its multiple sclerosis drug Tysabri continue on their stellar course, it seems that 2009 could be a cash-flow neutral year for Elan.
Amylin is probably a little further away from being cash-flow positive. It's in the process of building a plant to manufacture its most advanced pipeline drug, a once-weekly version of its Byetta diabetes drug. Until that drug hits the market in 2010, Amylin will likely be sucking up cash; fortunately, it's got a lot of it.
Develop or get eaten
For the bottom two drugmakers on my list, it's not so much a question of when they'll become profitable, but if they'll be able to. They don't have the luxury of having drugs on the market that cover a lot of their R&D costs -- royalties from Vertex's HIV drug accounted for less than a tenth of its R&D budget last year.
Vertex's potential blockbuster hepatitis C treatment, telaprevir, won't be done with its pivotal phase 3 clinical trials until 2010. Since it reported its end-of-the-year cash balance, the company has already gone back to the well for a cash infusion. With a burn rate of $320 million to $350 million expected this year, it could have to make an additional dilutive financing or sell off its royalty stream before telaprevir makes it onto the market.
Vertex does have one half-court shot that could help its cash problems substantially. It's testing telaprevir in patients that have previously failed the front-line treatment for hepatitis C. If the drug works exceedingly well in these patients, the FDA might give it a green light based solely on its phase 2 study due out in May of next year.
Exelexis is further behind in development -- thus the much smaller market cap -- but the company has a really deep pipeline, as well as some big-name partners picking up the tab for developing some of its compounds. Even with all its cash, as it moves more compounds into expensive phase 3 trials, it'll still probably need an infusion of cash, depending on how the milestone payments work out with its partnership deals.
Final green thoughts
Like leprechauns, all drugmakers need cash to carry out their R&D business. The most interesting to watch will be those with the most cash. As long as they can avoid losing it in an auction-rate securities mess, there could be a lot of interesting deals in the years ahead, given how much cash big pharma is sitting on.
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