Pharma Trades Not Deterred by Uncertainty

Chidem Kurdas

Despite legal and market challenges, pharmaceutical and biotech stocks remain a wellspring of investment strategies. A popular play recently was to buy Amylin, which is now in the process of being auctioned off, with Novartis and Sanofi among the bidders. Big quant shop DE Shaw & Co. and activist investor Carl Icahn own Amylin stock.

Yet pharmaceutical companies and executives are subject to high legal risks. Seth Rodner, chief legal officer at Medicis Pharmaceutical Corp., says there is “vicarious liability” because of RCO enforcement in food and drug cases. That means executives who did not know of a bad act in the company and had no bad intention can still be held responsible. He spoke at the Argyle Forum.

Liability arises globally from a variety of issues. Earlier this month Europe’s regulator said it is investigating the Swiss company Roche for failing to assess 80,000 reports of drug safety questions from doctors and patients. The US Food and Drug Administration is looking into the matter.

Another source of uncertainty is that patents for major drugs are expiring while coming up with new ones is ever more expensive and risky. Because of this, firms often look to mergers & acquisitions to add new products to their roster. Hence the numerous suitors for Amylin, the maker of a diabetes drug.

Some M&A-related investments take several years. Thus Cerberus bought Talecris Biotherapeutics in 2009 and held on until Grifols, a Spanish company, acquired it last year.   As part of the deal, Cerberus got Grifols stock.

Certain big pharma names are portfolio mainstays, like Pfizer, even though its lucrative patent for Viagra expired this March. Highbridge, JP Morgan’s hedge fund business, held Pfizer.

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Tags: Amylin, Argyle Forum, Carl Icahn, Cerberus Capital, DE Shaw & Co., Grifols SA, Highbridge Capital Management, JP Morgan Chase, Medicis Pharmaceutical Corp., Pfizer, Roche, Seth Rodner