September 27, 2016
By Mark Terry, BioSpace.com Breaking News Staff
One thing’s for sure—investors and analysts don’t let any grass grow under their feet. Only a day after Pfizer reported it will not split into two companies, investors are speculating on what the company will do next.
Since at least 2012, Pfizer has been floating the idea of breaking the company’s two units, Pfizer Innovative Health and Pfizer Essential Health, into two separate freestanding companies. Innovative is focused on newer, faster-growing products. Essential is focused on older, branded, often off-patent drugs. But the company has officially—at least for now—announced the plans are off the table.
So what’s next?
Pfizer is arguing that it has transformed its pipeline and research-and-development focus through several major acquisitions, including Hospira and Medivation . The Hospira deal boosted its portfolio of biosimilars, as well as gave it a lead into hospital sales. Medivation will give it a blockbuster cancer drug, Xtandi, for prostate cancer, but Medivation’s pipeline is small, but very promising with its talazoparib for breast cancer.
Stat writes “However, Pfizer does face some hurdles. As Barclays analyst Geoff Meacham noted, other than the Hospira operation, ‘organic growth’ in what the drug maker calls its ‘Essential Health’ unit ‘remains the weakest point from our perspective and the biggest operational challenge. Besides biosimilars, this unit includes legacy brand-name drugs, branded generics, and generic sterile injectable products.”
So Pfizer is likely to continue doing what it does fairly regularly—buy companies or products. Sanford Bernstein analyst Tim Anderson, in an investor note on Monday, wrote that, “Management has said previously that targets of all sizes are theoretically on the table. A critic could argue that Pfizer is back to being the same old Pfizer as before, relying on M&A to grow and to refill its pipeline, but at the expense of growing larger in the process, depending on the size of deals it chases.”
Not everybody thought splitting up was that great an idea. “I never saw the logic behind a split-up,” portfolio manager Les Funtleyder of E Squared Asset Management, told Reuters. “We’d rather see them do some bolt-ons in the $1-to-$10-billion range, which are easily doable for Pfizer.”
Jeff Jonas, a portfolio manager with Bagelli Funds, told Reuters that deals around the size of the Medivation acquisition, for $14 billion, or smaller, are likely. After being bitten twice when first the AstraZeneca , then Allergan deals were shot down by the U.S. Treasury Department, Pfizer seems unlikely to want to try for a third big buy.
That said, there has been plenty of speculation on who Pfizer might buy, including Amgen . Alliya Kaleem, writing for BidnessEtc. in June, noted that for Pfizer, “The declining revenue from all three units suggests that the company needs a strategic acquisition, which would boost all of the units. This target might be hard to acquire, but there are a few options which would lift into the separate units well, thereby pushing the growth rates.”
Which is why he offered up Amgen. It has an annual revenue of close to $22 billion. Its older drugs include Enbrel, Neupogen, Neulasta, and Epogen. And it has a strong and growing oncology portfolio, including Xgeva, Prolia, Kyprolis, Vectibix, and Blincyto.
Although the consensus seems to be that Pfizer will continue to acquire, only time will tell exactly who and what.
