Why Pfizer Could and Should Scoop Up Celgene in 2018

Pfizer is no stranger to taking the big gambles—note the company’s attempts to buy AstraZeneca in 2014 and Allergan in 2016. The company has made some significant acquisitions, such as Hospira for $17 billion and Medivation for $14 billion. But nothing has quite touched the scale of the AstraZeneca and Allergan takeover attempts. But Keith Speights, writing for The Motley Fool, makes an argument that Pfizer should—or could—take another swing for the fences, this time for Celgene.

Based in Summit, New Jersey, Celgene is a big player in the oncology market. It is also noted for its numerous collaborations and partnerships. It has a market cap of around $80 billion, which would make it an expensive company to buy. Pfizer, as of Oct. 1, had about $17 billion in cash with $44 billion in debt. It could probably buy Celgene, but it would be a tough financial nut to crack.

So why does Speights think it would be a good idea? Even though he recognizes that it’s a crazy idea. Three reasons.

First, Pfizer is being battered by patent expirations and its earnings haven’t been all that impressive in recent years. Celgene, however, is expecting sales growth of 14.5 percent annually through 2020. Speights writes, “Buying Celgene would boost Pfizer’s growth significantly. Pfizer is on track to generate revenue of around $52 billion this year. Celgene’s revenue should hit at least $19 billion by 2020, up from roughly $13 billion in 2017. The most impressive change, however, would be on Pfizer’s bottom line. The company will probably earn around $12 billion this year. Celgene should make close to $9 billion in net income three years from now.”

Secondly, it’s a good fit. Pfizer wants to expand its presence in oncology, and already has a couple hot cancer drugs, Ibrance and Xtandi. But its Sutent is slowing. And recently, along with Merck KGaA, there were setbacks for Bavencio in a late-stage trial in gastric cancer.

Speights notes, “An acquisition of Celgene would bring a boatload of current and potential blockbuster cancer drugs into Pfizer’s fold. There is little overlap between the two companies’ portfolios and pipelines in hematology. It’s a different story in solid tumors, since Celgene has Abraxane. However, Pfizer would probably love to have Celgene’s experimental glioblastoma drug marizomib and CC-486, which targets treatment of metastatic breast cancer and non-small cell lung cancer, in its arsenal.”

Thirdly, the timing is right. Celgene’s price would be a little lower now, after investors panicked over the pipeline setback of GED-0301. And, as Speights notes, although it’s possible that Congress’s tax plan won’t make it through the gauntlet, given its overall lack of popularity with the U.S. public, if it does—which is likely—there’s a big change in corporate taxes coming. And Pfizer has a ton of cash trapped overseas, which it would be able to repatriate at a lower tax rate if reform goes through.

Speights writes, “I think it’s obvious that Pfizer is itching to do something big. As alluded to earlier, the company tried to buy AstraZeneca for $118 billion three years ago. Pfizer scuttled its plans to acquire Allergan only after the U.S. government changed policies that minimized any tax benefits from the deal. Pfizer’s executives recently stated that they’re ‘agnostic to size’ when making acquisitions, which could be interpreted as they’re not afraid at all to make yet another attempt for a big takeover.”

A Bristol-Myers Squibb acquisition is more likely, and Pfizer and BMY have a partnership over blood thinner Eliquis. But Celgene would be a stronger growth prospect, especially in oncology.