Pfizer’s bold £60 billion ($101 billion) bid for AstraZeneca has analysts guessing not only what the companies see in each other, but whether Pfizer has the persistence to keep courting the object of its apparent affection, and whether a megamerger between the two could touch off a new wave of mergers and acquisitions in big pharma.
Pfizer was at the center of the last M&A wave in 2009, when it shelled out $68 billion for Wyeth, capping a decade of acquisitions that included Upjohn, Pharmacia, and Warner Lambert. Now, Pfizer’s sights are to be set on AstraZeneca, which has struggled to make up losses incurred as popular blockbusters fell off the proverbial patent cliff, losing protection—but which has also shown progress under CEO Pascal Soriot in refocusing and starting to fill a pipeline depleted by years of patent-cliff losses and clinical failures.
AstraZeneca and Pfizer have both declined comment—but tellingly, neither has flat-out denied the story, first reported yesterday in The Sunday Times.
Expect Pfizer to try, try again, by offering even more for AstraZeneca, two analysts said. After all, Pfizer would likely rather spend its $70 billion of cash generated by subsidiaries and now stashed outside the U.S. than repatriate the money and risk a huge tax bill from Uncle Sam.
“Historically Pfizer is aggressive in this area and will not be afraid of the sheer size of such a deal – it’s very early days, but you can’t discount it,” Gustav Ando, director of life sciences at IHS, told the Telegraph of London.
Citi analyst Andrew Baum wrote this morning: “We anticipate Pfizer to push aggressively ahead with a second approach” to acquiring AstraZeneca. In a note to investors summarized by Reuters, Baum wrote that what Pfizer finds attractive about AstraZeneca is its promising pipeline of cancer treatments, its expertise in autoimmune diseases, and the magnitude of potential savings were the companies to combine and squeeze costs even further than both have already been doing individually.
Mark Schoenebaum, an analyst with ISI Group, said in a note to clients quoted by Bloomberg that a Pfizer-AstraZeneca combination would prove highly accretive to investors because of the anticipated extent of cost-cutting possible between the companies.
Schoenebaum told Reuters that AstraZeneca’s attraction to Pfizer was its pipeline of cancer immunotherapies. AstraZeneca boosted its cancer immunotherapy pipeline in January when its MedImmune subsidiary inked an oncology research collaboration and licensing agreement with Immunocore that could generate as much as $320 million per compound developed. The companies agreed to develop cancer therapies using Immunocore’s Immune Mobilising Monoclonal T-Cell Receptor Against Cancer (ImmTAC) technology, which direct a patient’s T cells to specifically destroy only the cancerous cells, avoiding damage to healthy cells.
Later this year, AstraZeneca plans to launch a Phase III trial for a promising MedImmune cancer immunotherapy, MEDI-4376 (solid tumors), CEO Pascal Soriot said in January at the JP Morgan 32nd Annual Healthcare Conference. Last year AstraZeneca acquired cancer immunotherapy specialist Aplimmune for up to $500 million, adding it to MedImmune.
Oncology is one of three core therapy areas on which Soriot said last year the parent company would focus its R&D efforts; the other two are cardiovascular & metabolic disease; oncology; and respiratory, inflammation & autoimmunity diseases. It remains to be seen whether AstraZeneca can keep its momentum in cancer R&D and autoimmune drug sales. The company is set to report first-quarter 2014 results on Thursday.
In his note, however, Schoenebaum added that Pfizer shareholders have reason to question whether a megamerger would make sense. It remains uncertain whether AstraZeneca’s development pipeline can win regulatory approvals and generate the billions in sales needed to recoup the patent-cliff losses of aging blockbusters. And AstraZeneca’s revenue continues to erode.
Soriot and AstraZeneca have blamed patent-cliff losses and restructuring costs for the decline in 2013 profits and revenues. The pharma giant finished last year with a 25% drop over 2012 in core operating profit, to $8.39 billion, on sales that slumped 8% year-over-year to $25.711 billion. AstraZeneca is in process of eliminating 5,600 jobs by 2016, as part of a restructuring that narrowed its therapeutic areas of focus and consolidated R&D to three global hubs.
“The consensus AstraZeneca model is hugely dependent on pipeline assumptions, as the base business will deteriorate massively by 2020 as several key products go off patent,” Schoenebaum wrote.
Pfizer and AstraZeneca already work together on some drug R&D. Last week, the companies announced a clinical collaboration with Cancer Research UK for what it said was a pioneering trial allowing researchers to test up to 12 AstraZeneca compounds and up to two Pfizer candidates from the companies’ libraries at the same time. The collaboration was valued at £25 million (about $42 million)
And in 2011, MedImmune agreed to assume global development rights to the CTLA-4 monoclonal antibody tremelimumab (CP-675,206) for mesothelioma from Pfizer under a licensing deal that gave Pfizer rights to use the compound with some combination therapies. Tremelimumab has emerged as AstraZeneca’s leading molecule in its cancer pipeline.