March 9, 2015
By Riley McDermid, BioSpace.com Breaking News Sr. Editor
News that the U.S. Food and Drug Administration (FDA) will recall a suite of 4,700 Plum A+ and A+3 infusion pumps made by Hospira has many market watchers worried Monday, as they closely monitor the recent $17 billion buyout deal the company is undergoing as it is acquired by Pfizer Inc. .
The Lake Forest, Ill.–based company said the FDA had posted a Class I recall of pump that have potentially faulty alarms that might not ring if a therapy is interrupted, leading to injuries or even death. Given that this is the ninth time since January 2012 that Hospira has been subjected to a Class I recall, Pfizer investors are wary of the value and quality control the company might be bringing to Pfizer’s portfolio.
The deal has already been raising eyebrows for investors concerned about it mounting costs. The chief executive of Hospira, Inc., Michael Ball, is expected to receive more than $80 million from the $15 billion acquisition deal the company just inked with Pfizer Inc. (PFE), based on a review conducted by Crain’s Chicago Business of Hospira filings.
The newspaper reported last month that the filings detail Bell’s ownership of company stock, stock options, restricted shares and severance compensation tally up to a combined $81 million in payouts to the former CEO—though no new job with the merged company.
Lake Forest, Ill.-based Hospira will see all stock options and share awards converted into cash automatically upon completion of the deal, at the $90-per-share buyout price.
“After deducting the exercise prices of his options. Ball would collect $60 million on options and restricted shares alone,” wrote columnist Joe Cahill. “Add $90 apiece for another 148,000 shares he owns outright, according to the company’s most recent proxy statement, and his net from the deal rises to more than $73 million.”
“He also is entitled to severance pay equal to 2.99 times his annual salary and bonus if he leaves Hospira after the merger, as he is expected to do,” he said. “That comes to about $8 million, according to the proxy, bringing his grand total to about $81 million.”
Deal hungry Pfizer Inc. (PFE) may have seen $6 billion in market cap tacked on after it announced a $15 billion acquisition of Hospira, Inc. to bolster its hospital products business, but that’s no guarantee the firm will escape its perennially bad track record with M&A activity, market watchers have said, or that it’s done making buys.
Pfizer’s purchase of the injectable drugmaker last week looks like a good bet to analysts, who like the potential it has for a spin off and the more than $800 million in cost savings it could bring to the company.
“I don’t think this deal is a game changer for Pfizer but helps them build out their sterile injectables business without wildly overpaying for assets, as the company has done in the past,” portfolio manager Les Funtleyder of E Squared Asset Management, told Reuters.
But a history littered with failed deals, like the $220 billion lead balloon purchases of Lambert, Pharmacia and Wyeth between 2000 and 2009, have a few Pfizer followers worried.
“The company is, in fact, weighing a breakup in 2017 or later, continuing a pattern set by Chief Executive Ian Read. Since he took the helm in late 2010, Pfizer has sold its infant nutrition business for $12 billion and a pill production unit for $2.4 billion and spun off its animal health business,” wrote Reuters BreakingViews columnist Robert Cyran last Friday. “The company’s stock has doubled over that period, easily outperforming the S&P 500.
But, said Cyran, by 2025, “patents will expire on a huge number of so-called biologic therapies – drugs produced in living cells – prompting the loss of more than $100 billion in annual sales across the industry. Hospira is big in the fast-growing and relatively new business of making non-branded copies of those drugs.”
Indeed, the company has a recent history of failing courtships. Pressure from internal decision makers at Pfizer Inc. (PFE) pushed Read to approach Israeli drug company Teva Pharmaceutical Industries Ltd. at the end of 2014 about a possible merger, people familiar with the matter told Bloomberg News in January, but that bid was immediately rejected.
Read has said in the past that he is dedicated to building out the company’s businesses via “bolt-on” acquisitions or even wholesale takeovers.
“Certainly I feel a sense of urgency on utilizing our balance sheet and our capital to do deals that are incremental, add incremental value and certainly add revenue growth in the innovative space,” said Read on a conference call with analysts in October. “We are aggressively looking at all alternatives.”
That aggressive pursuit led Pfizer to take an unsuccessful run at acquiring British drugmaker AstraZeneca PLC for $119 billion—but that bid, too, fell apart, leaving Pfizer with a stack of cash and frustrated aspirations.
With a current market cap of $50 billion, Teva’s heavy generic drugs pipeline could have been a significant boom to Pfizer, which has a stable of legacy drugs but is likely to be pressured soon by a competitive market for biosimilars. Teva’s portfolio includes a generic drug line estimated to be worth more than $9 billion, including a knock-off of Pfizer’s own blockbuster Lipitor.
Teva also makes generics for perennial antibiotic favorite amoxicillin and well-known blood pressure drug Diovan. Its generics business is so strong that analysts have speculated Pfizer could be looking to spin out its own off-patent medicine company, a consideration it will keep at the forefront while shopping for new deals.
BioSpace Temperature Poll
Vertex Pharmaceuticals made news last week when it terminated leases on three properties in Cambridge, Mass, that freed up 313,000 square feet of space in the Genetown area. The company has spent a significant part of 2014 consolidating its operations on the South Boston waterfront, leasing 291,000 square feet of office space at West Kendall Street in Cambridge’s Kendall Square. So we wanted to ask the BioSpace community: Is Boston going to be getting more biotech leases anytime soon, or fewer tenants?
