Sunday, January 25, 2009

Pfizer: Wyeth acquisition as more proof of Pfizer's failures/CAT/Mexico's Drug Cartels/ ING news

Many years ago, I gave up on Pfizer and have not owned it for several years.  I realized at the time of that decision that Pfizer was spending billions of dollars a year on research, and the only result from Pfizer's own research was the little blue pill for a long time after Viagra's introduction. 

There was a very long drought after Viagra and Zoloft where nothing was coming from the billions spent on research.  It occurred to me then that the company would have been far better off firing all of their researchers and scientists after Viagra's introduction, and investing their prodigious cash flow in U.S. treasuries. Then, Pfizer could have simply waited for an opportunity to acquire another company that had actually developed new products that Pfizer's sales force could market effectively. Pfizer was far more effective at marketing than research. 

For many years, Pfizer's major drugs did not come from the billions it spent on research but the the billions spent in its acquisitions of Warner Lambert and to a lesser extent Pharmacia.  

In my opinion, the Pharmacia acquisition was clearly a mistake, but Warner Lambert was a jewel. Now, unable to develop much from its own labs to replace drugs acquired in prior large mergers, particularly Lipitor developed by Warner Lambert. Atorvastatin 

Pfizer had embarked on yet another mega merger by offering to acquire Wyeth.

While this may be good for existing Wyeth shareholders and help Pfizer overcome the black hole that will soon be left by the Lipitor patent expiration in November 2011, it only highlights to me the failure of Pfizer to develop its own drugs in house, to replace those coming off patent the past few years and culminating with the huge hole about to be created with the Lipitor patent expiration, after spending tens of billions of shareholder monies for over the past decade and more. This signals more of a failure to me than a success. I still have no interest in Pfizer. (Celebrex was developed by G.D. Searle) I almost develop an interest in Wyeth a week ago.  

I do own a small position in Bristol Myers. If I was not in an almost total shutdown phase for buying common stocks until the S & P 500 has a monthly close above 815. I would consider adding Novartis in the 40 to 42 range.   

The report from Caterpillar is the kind of news that can be expected for months to come. Earnings were $1.08 per share, down from $1.5 in the same period a year ago, versus expectations of $1.31. 

It expects now earnings of only $2.5 per share in 2009 and plans to cut 20,000 jobs. I do not own Caterpillar and I am not yet interested in taking a nibble on it, at least prior to the 2nd quarter of 2009, an opinion previously expressed in prior posts from last year. AMERICAN INDUSTRY: END OF DAYS?Notable News for Today 10 21 2008

The photo of Bernie Madoff that the NYT continually shows is revealing of his true self. NYT 

Musicians in Mexico may have it as bad as anyone trying to play music in the Taliban controlled areas of Pakistan. washingtonpost.comNew York Times The inhumanity so prevalent in the Taliban controlled areas of Pakistan is at our doorstep across the Rio Grande and growing worse by the week. 

It looks like Dow's deal with Rohm & Haas is falling apart, which is hardly a surprise after Dow's joint venture deal with Kuwait went into the crapper. MarketWatch

I do not own ING common stock although I once did, selling the position at a profit in the high 30s somewhere. I did make some opportunistic buys of its preferred stock. ING jumped this morning after it announced that the Dutch government would provide a back-up facility for 80% of the Alt-A mortgages owned by ING. The exposure to these once AAA rated U.S. mortgage securities was a major concern to me.  ING also reported that it will take a 3.3 billion euro loss in the 4th quarter due to asset impairments. 

According to the WSJ, ING is transferring to the Dutch government the risk of 80% of its Alt-A portfolio at a discount of 10% to par value.  As I understand it, if the Dutch government has to absorb these assets, it will pay ING 90% of their par value but the current market value is around 65%. MarketWatchThe Dutch government would receive 80% of the cash flow from those securities plus an annual guarantee fee.  ING would receive a management fee.  

The ING CEO resigned. That will teach the Dutch to buy U.S. mortgage securities from the Wall Street wizards, a lesson the rest of the world has learned and not likely to forget anytime soon. Since this action by the Dutch government removes a major uncertainty about ING's solvency, it should have a favorable impact on my two holdings, IND and INZ

Other job cut news: 
Home Depot is cutting 7000 jobs MarketWatch
Sprint will cut 8000 jobs.  MarketWatch

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