Need a sign of how bad the economy's looking? Now, companies from perhaps the most recession-resistant industry -- health care -- want a government bailout of their own.
Drug developers apparently figured that if automakers like General Motors, homebuilders like Toll Brothers, and financial companies like Bank of America (NYSE: BAC) were all asking for bailouts ... they might as well stick their hands out, too. The industry's trade group, the Biotechnology Industry Organization (BIO), headed to Washington yesterday to ask for a handout for drug companies in the next stimulus package.
The bailout won't help profitable companies like Pfizer (NYSE: PFE), Biogen Idec (Nasdaq: BIIB), or Amgen (Nasdaq: AMGN). Instead the proposal is designed to lend a hand to small drug developers like Exelixis (Nasdaq: EXEL) and Seattle Genetics. Cash-strapped companies want up-front cash from the government now, in exchange for the net operating loss (NOL) credits that they would normally be able to use once they become profitable.
To make the proposal a little more palatable to the government, the exchange wouldn't be one-for-one; since plenty of drugmakers never become profitable, lots of NOLs go unused. Should the legislation go through, it'll be interesting to see whether companies on the verge of profitability, like Elan or Amylin Pharmaceuticals (Nasdaq: AMLN), forgo the initial cash to take the full credit down the road.
As an investor in drug developers, I feel conflicted about this. On one hand, the government already gives companies a research tax credit, and this new request seems like less of a handout than that. On the other hand, since when did capitalism stop applying to whole swaths of the market? With share prices in shambles, Johnson & Johnson (NYSE: JNJ) has been shrewdly adding to its suite of companies. And several other large pharma companies have the cash to either purchase their tinier brethren outright, or invest in their drug-development programs.
As a taxpayer, I wonder where and when the bailout mania will end. Next thing you know, the government will be handing out subsidies to oil companies to compensate for $50-a-barrel crude, and subsidizing beer drinkers because Homer Simpson asked them to.
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Pfizer is a pick of the Income Investor and Inside Value newsletters. Johnson & Johnson and Bank of America are also Inside Value picks. Exelixis is a Rule Breakers recommendation. Biogen Idec is a Stock Advisor selection. The Fool owns shares of Pfizer and Exelixis. Try any of our Foolish newsletters today, free for 30 days.
Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy. Mmm... disclosure. *drooling sound*