The Debt Dogs of Pharmaceuticals

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Charlie Munger, Warren Buffett's business partner, has condemned drugs, liquor, and leverage as humanity's three biggest downfalls. The first two are your own responsibility, but if you're invested -- or are thinking about investing -- in the pharmaceuticals industry, you should know which companies in the space are the deepest in debt.

Leverage is not inherently bad for a company. A rapidly -growing company can intelligently employ debt to exploit its market opportunity. At low interest rates, debt can fund shrewd strategic acquisitions. Since it's generally cheaper than equity, debt can also lower a company's cost of capital.

But too often, companies end up abusing debt -- and as Munger reminds us, excessive leverage can lead to ruin. Let's examine a few of the most heavily indebted pharmaceuticals.


Total Debt/Capital

Interest Coverage

ISTA Pharmaceuticals (Nasdaq: ISTA  ) 9,478.3% 1.3
Jazz Pharmaceuticals (Nasdaq: JAZZ  ) 101.6% 2.5
Warner Chilcott (Nasdaq: WCRX  ) 101.4% 2.1
Elan (NYSE: ELN  ) 86.9% 0.6
GlaxoSmithKline (NYSE: GSK  ) 60.8% 11.1

First of all, look at ISTA's debt-to-capital ratio. At 9,478%, the company has nearly 100 times as much debt as it does capital. It should be no surprise, then, that the company isn't having an easy time making its interest payments; however, the company's current debt load doesn't seem as onerous when you compare it with the cash in its bank account. The company's $73 million in debt is almost entirely offset by $67 million in cash.

The one stock that doesn't quite match the profile of the others on this list is GlaxoSmithKline. This company has the largest nominal debt load of any on the list, at more than $24 billion, but Glaxo is a $96 billion company with more than $10 billion of cash on its books. With an interest coverage ratio of more than 11, it clearly isn't having any issues managing its debt. It's worth noting that Glaxo also has the cheapest enterprise value-to-EBITDA multiple on this list, at 6.1.

For an easy way to stay current on any of these stocks, add them to My Watchlist:

Alex Pape owns shares of any company mentioned. Elan is a Motley Fool Rule Breakers choice. The Motley Fool owns shares of GlaxoSmithKline, which is a Motley Fool Global Gains selection. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1449072, ~/Articles/ArticleHandler.aspx, 10/27/2016 4:57:09 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,169.68 -29.65 -0.16%
S&P 500 2,133.04 -6.39 -0.30%
NASD 5,215.97 -34.29 -0.65%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
ELN.DL2 $0.00 Down +0.00 +0.00%
Elan CAPS Rating: ***
GSK $40.42 Up +0.08 +0.20%
GlaxoSmithKline CAPS Rating: ***
ISTA.DL $0.00 Down +0.00 +0.00%
JAZZ $119.13 Up +1.57 +1.34%
Jazz Pharmaceutica… CAPS Rating: ****
WCRX.DL $0.00 Down +0.00 +0.00%
Warner Chilcott CAPS Rating: *****