Jim Cramer's Best Blogs

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Why the Critics Are Wrong on Pharma Deals

Originally published on 3/13/2007 at 8:37 a.m.

We've seen lots of analyst criticism of the Sierra Health (SIE Quote)-UnitedHealth (UNH Quote) and Organon-Schering-Plough (SGP Quote) deals. I think the critics will be dead wrong.

Here's why.

First, both UnitedHealth and Schering-Plough both needed to do deals; people need to know they had a pulse.

UnitedHealth has been a pariah since the options-backdating scandal, and it has failed to grow at its old pace in some of its businesses. This deal jumpstarts the corporation into faster growth, and it shows that UnitedHealth isn't paralyzed anymore. Given that the deal is for cash, I am less worried about stagnation in the common, as one of the chief reasons to own this stock is its aggressive buyback.

Schering-Plough has been criticized over and over again for not having much of a pipeline. No longer, although there's a perception that Organon doesn't have much of a pipe itself and is troubled company.

But Schering-Plough CEO Fred Hassan has had a history of acquiring troubled companies and turning them around, including the one he is at now, which is one of the few pharmas that has actually made you money in the past few years.

In fact, both companies are seasoned acquirers and are more able to create real value from deals than most. That's why these stocks did not get hit yesterday, and UnitedHealth actually traded higher.