2 Pharma Giants Pfizer Could Make a Megadeal on Soon

Published: Jul 31, 2017

2 Pharma Giants Pfizer Could Make a Megadeal on Soon July 26, 2017
By Mark Terry, BioSpace.com Breaking News Staff

After Pfizer failed to merge with first AstraZeneca and then Allergan , it seemed like the company had lost its taste for megadeals. But between 2011 and 2016, Pfizer lost patent protection on $23 billion worth of drugs, and in the next year is facing patent expirations for erectile dysfunction drug Viagra and pain medication Lyrica. In addition, its pneumococcal vaccine Prevnar 13 sales has been weakening. Although it has acquired Anacor Pharmaceuticals , Hospira and Medivation in the last two years, these aren’t enough to fend off the potential loss of sales due to generic competition. With that in mind, George Budwell, writing for The Motley Fool, looks at two possible big deals Pfizer might consider.

1. AstraZeneca

Again? It was in 2014 that AstraZeneca rebuffed Pfizer’s overtures, along with opposition from both the U.S. and U.K. governments. In the U.S., the issue was primarily that it was a tax-inversion deal, where Pfizer’s corporate domicile would move to the UK for its lower corporate tax rate. In the U.K., largely because of the likelihood of job cuts.

At the time, AstraZeneca argued that its own immuno-oncology (IO) and oncology pipelines were going to generate double-digit compound annual growth through 2023 and didn’t need Pfizer. AstraZeneca, however, has faced more competition than it expected, although its IO portfolio is probably still good enough to interest Pfizer.

Budwell writes, “In effect, Pfizer still wants to build out a top-notch immuno-oncology pipeline. Although the drugmaker has had some success with its ongoing cancer immunotherapy partnership with Merck KgaA —illustrated by the rapid FDA approval of Bavencio (avelumab) for the treatment of metastatic Merkel cell carcinoma—Pfizer doesn’t have a surefire backbone therapy in hand that can become a cornerstone of this high-growth drug market.”

AstraZeneca has Imfinizi, which is expecting a late-stage readout in non-small cell lung cancer soon, which could be a best-seller. If so, Pfizer might take another shot at AstraZeneca.

2. Bristol-Myers Squibb

Analysts like to speculate on Pfizer buying Bristol-Myers Squibb , again because of immuno-oncology. Bristol-Myers’ Opdivo is one of the top IO drugs, and the company also has a strong pipeline of cancer immunotherapy compounds.

Budwell writes, “Perhaps most importantly, though, Bristol would be a fundamentally sound bolt-on acquisition. After going through its own troubling stint with the patent cliff, Bristol has improved its operational efficiency, brought several new major medicines to market, kept its debt to reasonable levels, and continues to grow its free cash flows at a healthy clip. So as long as Pfizer doesn’t overpay, this acquisition should create immediate value for the company and its shareholders.”

But price is the tricky part. Bristol-Myers Squibb would likely cost around $100 billion. Credit Suisse has focused on Pfizer and Bristol-Myers Squibb lately, largely due to activist investor Carl Icahn taking a stake in Bristol-Myers in February, and another activist investor, Jana Partners, acquiring a stake in the last quarter of 2016.

On the other hand, Budwell points out that Opdivo may lose its advantage against other checkpoint inhibitors after “flaming out as a monotherapy for non-small-cell lung cancer. In fact, Opdivo’s days as the market share leader could be cut short if it doesn’t eventually reach the first-line lung cancer setting as part of a combination therapy down the line.”

It’s also hard to say how the political environment would affect such a deal. Pfizer’s merger with Allergan died because the Obama Administration’s Justice Department specifically rewrote some of the rules regarding tax inversions. It’s highly unlikely the Trump Administration would do that, but there’s also little indication that the Trump Administration has coherent policies in place regarding taxes and budgets.

A recent exchange between Senators Susan Collins (R-Maine) and Jack Reed (D-Rhode Island) caught on a hot mic, suggested the Trump Administration’s approach to the budget was haphazard at best, and incompetent at worst. Collins was reported to have said, “I swear, [the Office of Management and Budget] just went through and whenever there was ‘grant,’ they just X it out. With no measurement, no thinking about it, no metrics, no nothing. It’s just incredibly irresponsible.”

To which Reed, after saying he thought Trump was “crazy,” said, “You know, this thing—if we don’t get a budget deal, we’re going to be paralyzed. [Department of Defense] is going to be paralyzed, everybody is going to be paralyzed.”

None of which bodes well for M&A activity in biopharma.

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