Have we seen the high water market in government's battle with everything pharma? Is the worst over for this challenged industry?
Those were the thoughts that went through my mind watching Valeant's (VRX) deposed CEO Mike Pearson issuing a mea culpa in front of Congress for price gauging the system. When issues like this finally get to the point where there are Congressional hearings, historically it's the endpoint, not the start of an attack on what drug companies do.
Of course, that may just be symbolic, but it's a perfect jumping-off point for what I see happening in pharma at this moment.
What else drives me to the conclusion that the big drought that started with drug companies being piñatas for the presidential candidates, especially Bernie Sanders but also Hillary Clinton and Donald Trump who tweeted and trashed pharma, too, might, at last, be over?
First, we've got consolidation again, big-time consolidation, like St. Jude Med (STJ) being bought by Abbott Labs (ABT) for $25 billion at a substantial premium to yesterday's trading. I have long been a fan of both St. Jude CEO Dan Starks Abbott CEO Miles White, whom we spoke to today on "Squawk on the Street," and, boy, do I like this deal. I have felt that St. Jude has the better mousetraps, so to speak, when it comes to heart devices. But it has lacked the scale and the clout and the tax advantage to compete with Medtronic (MDT). Remember Medtronic merged with Covidien last year to create the biggest medical device company and to invert and cut its tax bill, something Starks pretty much acknowledged as an unfair advantage when he was last on "Mad Money."
The deal's spectacular for St. Jude shareholders and will be terrific for Abbott once it closes and we see the earnings accretion come through.
We've got two other sizable deals worth noting. Sanofi (SNY) makes an extraordinary hostile bid for Medivation (MDVN), another biotech with a very strong oncology franchise. The target immediately soared past the bid price.
Then AbbVie (ABBV) announced a $5.8 billion purchase of Stemcentrx, another company with an anti-cancer suite of products, to complete $45 billion in merger announcements in one day. That's incredible and a welcome sign given that all deals seemed to be dead on arrival after Treasury quashed the Pfizer (PFE)/Allergan (AGN) merger. M&A is crucial to the value underpinnings of a group that's often based on pipelines, not earnings.
Second hopeful sign? Drug companies with good earnings are rewarded with higher prices. Witness one more stunner from Cramer fave Bristol Myers (BMY), which has an amazing cancer franchise. What a horse.
But also companies that report numbers that don't exceed the consensus have done well, too. I have seen much stronger quarters than we got this morning from Celgene (CELG) and yet the stock, rather than being pummeled as it might have been not that long ago, is actually rallying. A very good change of pace.
Finally, there is Valeant itself. I don't care for the stock, but it's safe to say that it's better off with Joe Papa, late of Perrigo (PRGO), than it is with Pearson himself. I don't like the way Papa left Perrigo, which is, alas, in total disarray. But staunching the bleeding in Valeant is crucial to the healing of the entire group, especially Allergan, which I think is lumped in unfairly with the slash-and-burn company that Pearson ran. It makes me feel that would be within 10% of a bottom of the nearly-destroyed Allergan after the aborted Pfizer merger. Now, that's saying something indeed.
Can pharma go from roving bear market to raging bull status like so many other sectors? We've got an awful lot of signs that the drought is over so my conclusion is, yes, if you don't own any pharma, I'd say it's time to some buying.