Generic Drugs: In This Market, Portfolios Need Safe, Boring Medicine
We once owned Mylan (MYL). It was safe ... boring ... someplace to hide out in case the market his further turbulence. What could be safer than generic drugs? We closed our position Sept 2nd for a $300 loss near $13 - that was 5 weeks ago. I look today through an old watch list and see Mylan in the $6s - scary. This is not Mylan Coal or Mylan Biopharma or Mylan Investment Bank.
This is not the type of name I usually deal in, but we wanted to own some of these "buffer" stocks. As we've been saying, though, cash is king now. Any debt, and without concomitant cash flow to offset, you can be shot dead on arrival by shorts. This, over and above the general market action, is what is so toxic in this market right now - you can own a harmless "safety" stock and be obliterated. There is no safety. The "stock market" is a market of individual stocks - and what is happening to many of them on a case by case basis, is simply head shaking. This is what appears to be Mylan's problem. (Emphasis mine.)
- Generic drug maker Mylan Inc (MYL) defended its capital structure on Thursday and said it "could hardly be in a stronger position" to weather the credit crisis, despite a 32 percent drop in its stock this month.
- In a response to what the company described as "abnormal trading activity" in its shares, Mylan Chief Financial Officer Edward Borkowski said he believes the decline in Mylan's share price was unrelated to the company's business operations or fundamentals. "Rather, we believe the decline has been driven by the need for certain institutions to meet capital requirements and by unwarranted concern regarding our capital structure," Borkowski said in a statement.
- Mylan has $4.1 billion outstanding under a term loan facility, which the company used to finance the acquisition of Merck KGaA's generics business, the company said.
- The company faces no major maturities on its term loans for at least six years, or until 2014, and on its other borrowings until 2012, Mylan said.
So even if your debt is not due for 4-6 years, you are now a target. Wow.
Now what will Moody's or S&P do? Downgrade the debt based on stock price (the dumbest new idea ever) so credit default swaps can rise, put buying increases and we have another death spiral? I hope it's not come to that - but they did it to Constellation Energy (CEG). Maybe Mylan (MYL) will have to sell itself off to a bidder to protect itself in this type of market - if the rating agencies (who were asleep at the wheel for half a decade but now are like wolves) start their "monitoring".
Disclosure: No position
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This article has 3 comments:
- User 118015
- 276 Comments
Oct 11 08:26 PMPS I own zero shares ......MarvinMBA
- jegan ;-)
- 687 Comments
Oct 12 05:06 PMjegan ;-)
- jegan ;-)
- 687 Comments
Oct 12 05:11 PMMore by Trader Thoughts