Medline with Frederick Butler

The Intermarriage of The Biotech and Pharmaceutical Industries II

The world is reeling now that Roche has encroached and intends to buy out Genentech.  It was predicted as outlined in my previous article Pharmaceutical Companies have been watching Biotech.  Big Pharma to Biotech is like IBM to Microsoft.  However, Big Pharma may be attempting to eat its young, just as IBM did not and Microsoft has done.   

On June 24th, 2008 the NBI (Nasdaq Biotech Index) started to move positively as compared to the SP, Dow and Nasdaq composite which decreased on that day.  Specifically,  On 06/24/2008 investors began to worry about the effect of high fuel costs on customers and Wall Street's profits.  The Dow Jones decreased 0.29%, to close at 11,807.43, the Nasdaq composite Index dropped 0.73%, to 2,368.28, and the S & P  500 slipped 0.28%, to 1,314.29. Crucially, crude oil prices rose 26 cents to settle at $137.00 a barrel on the New York Mercantile Exchange.

Up until the present the Nasdeq biotech index has been arching upwards, while the other indices have been trending downwards.  Pharmaceuticals are constant as life is constant, thus fuels costs are negligible.  Fuel means nothing without life.  Luxuries on the other hand will suffer.  What is necessary for life? 

The big three: Food, Clothing and Shelter.  Anything besides food, clothing and shelter is expendable and now in the midst of a mortgage crisis, poison jalapeno peppers and the trade deficit even those may be compromised.  

Americans may not want to pay for health care but they will invest in it when all else fails.  More precisely, Biotech may represent both a good investment for long-term growth but also a good investment in case of bought outs by Pharmaceutical giants. 
Roche is attempting to buy out Genentech, which is considered by most to be the Bellwether and most prominent and successful of all biotechcompanies throughout the world.  This move is consistent with the trend that I spoke of in my last article. 
Often, when a corporation buys out another corporation through stock acquisition the price of the corporation that is being purchased rises.  This rise leads to a possible profit for those individuals that own and or recently purchased the stock of the corporation that is going to be bought.

Pharmaceutical Companies have been funding biotech companies for years.  Now it appears that at least Roche wants to complete this trend by a frank buy out.  However, the question now emerges: Are Pharmaceuticals good for Biotech?  Zeus devours his mate and this leads to the next generation of Gods.  What will happen when Big Pharma devours Biotech?

Good Trading,