Eli Lilly and Co. swept in last week to nab ImClone Systems Inc. for $6 billion to bolster its biotech and oncology presence. But the deal immediately raised eyebrows when Lilly executives revealed that as much as half the cash will be raised through debt. Last we checked, the credit markets were frozen. Not to worry, execs said, we've got lines of credit we can tap.
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Two credit rating agencies, Fitch Ratings and Moody's Investors Service, immediately looked
askance and on Monday put Lilly on review for a possible downgrade.
Now a top pharma analyst has downgraded Lilly. Catherine
Arnold of Credit Suisse Group Thursday bumped the drugmaker from
outperform to neutral in large part because of the ImClone deal.
Arnold's three main concerns:
- Lilly paid too much and will heavily
depend on the success of ImClone's pipeline.
- ImClone's compounds
aren't different enough from the competition.
- Giving up cash and
taking on debt could handcuff Lilly on future deals, which is
especially important given the patent expirations Lilly faces early
next decade.
Note that Bristol-Myers Squibb Co., Lilly's rival for ImClone, will end
up with $1 billion in cash, thanks to the 17% stake it has in ImClone.
That is, if Lilly secures the loans to complete the deal. You figure
sooner or later the credit spigot will reopen. Right?
- Alex Lash
Comments
Folks:
Finally we have the bottom of this controlled market crash.
I suggest you read the analysis note below as it relates prices of previous bear bottom to today's price.
" Bottom analysis from
http://marketwarnings.blogspot.com/2008/10/dow-sp500-october-2008-bottom-buying.html
Time to buy! What do you think?