The drug industry has launched two of the largest mergers we've seen in a long time, with possibly more to come, taking advantage of an unlikely resurgence of the debt market.

Pfizer Inc. agreed Jan. 26 to swallow fellow drugmaker Wyeth for $68 billion, fueled by a $22.5 billion bridge loan from five banks, and Roche Holding AG is turning hostile with its long-standing bid for the 44% of Genentech Inc. it doesn't already own, a $42.5 billion gambit that will reportedly require tens of billions of debt financing. Others may follow: The Financial Times reported Feb. 1 that Paris-based Sanofi-Aventis SA is exploring debt deals with banks to prepare for an M&A foray. The speculation there quickly turned to Bristol-Myers Squibb Co. as the likely target. One bank estimated Sanofi could raise over $20 billion, the newspaper reported.

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Corporate bond issues topped $100 billion in U.S. dollar-­denominated notes in January, according to research firm Dealogic, a record for January. It was globally the highest monthly bond volume since May. The record has an asterisk, with a quarter of the debt coming from firms backstopped by the U.S. government. But with little debt and generous cash flows, the drug industry elite are in prime position. "Highly rated pharma companies are not as exposed to a worldwide recession," says Arthur Wong of Standard & Poor's.

The situation remains dire for hundreds of smaller drug firms, public and private, whose access to capital is completely choked off. But for the lucky few, the bond market has a welcome sign. The first good omen was a $2 billion issue for Amgen Inc. on Jan. 13, half in 10-year notes and half in 30-year notes. Both priced at a 345-point spread and at lower interest rates than Amgen's debt offering last May, remarkable considering the economy and Amgen's woes. "We thought we'd do a smaller transaction of $1 billion, but the book built very quickly," says Amgen treasurer Pam Wapnick. The bonds ended up selling at a lower interest rate, a nice and unexpected surprise. "Clearly, this was cheaper money," Wapnick says.

Amgen's blood-boosting products Aranesp and Epogen have been curtailed by safety worries and insurance restrictions, though they still help the firm generate $4 billion of cash per year, according to Deutsche Bank AG analyst Mark Schoenebaum.

That cash, plus strong clinical data for denosumab and 18 months of cost-cutting were enough to make Amgen's debt a hot commodity.

That's good news for Roche, which has much better credit ratings and cash flow prospects, especially if it swallows Genentech whole. When Roche revealed Jan. 30 its intent to go directly to shareholders -- at a price 3% lower than it offered to Genentech management in July -- it said corporate bonds, bank loans, commercial paper and cash were all part of the expected mix. At midyear 2008, it had more than Sfr10 billion ($8.6 billion) in cash.

Pfizer is using loans, not bonds, to help buy Wyeth. But its lenders should syndicate much of the $22.5 billion quickly, Pfizer CFO Frank D'Amelio said recently. It comes at 7% to 9% interest, but refinancing with bonds could reduce the rate to 5.5% to 6.5%, wrote Credit Suisse Group analyst Catherine Arnold in a Feb. 2 report.

The loan hinges on Pfizer keeping a respectable credit rating. Its rating will get knocked down a few pegs, but not low enough to scotch the deal, barring future disasters such as the pulling of a top drug off the market.

Will a rush to issue high-grade pharma debt flood the market and reduce demand? Observers think it unlikely, since there is a ton of money on the sidelines waiting for safe investments. "Insurance companies and others need to buy something," says one healthcare banker familiar with the Pfizer situation. "Look at your choices. At this point, would you rather own Amgen or Citi bonds?"