Pfizer will acquire Hospira for about $17 billion in cash and debt, in a deal designed to enhance the buyer’s established drug business and global reach with the potential for growth in injectable drugs and infusion technologies, as well as biosimilars, the companies said today.
The deal is the first major acquisition Pfizer has announced since last year when it tried but failed to acquire AstraZeneca for £69 billion ($105.56 billion). In buying Hospira, Pfizer is seeking to add revenue growth in order to recoup expected losses as many of its top-selling drugs face patent-cliff expirations of exclusivity.
That opportunity for revenue growth, Pfizer reasons, can be found in generic sterile injectables—a market the pharma giant said is projected to reach $70 billion by 2020—as well as biosimilars, which by the same year is expected to expand into an approximately $20 billion segment of the global biopharma industry.
The companies reason they can create a leading global sterile injectables business within Pfizer’s Global Establishment Pharmaceutical (GEP) business segment. GEP would grow as Hospira’s broad generic sterile injectables product line—including its variety of acute care and oncology injectables—and its biosimilars portfolio are combined with Pfizer’s branded sterile injectables, including anti-infectives, anti-inflammatories and cytotoxics, the companies said.
“Hospira’s business aligns well with our new commercial structure and is an excellent strategic fit for our Global Established Pharmaceutical business, which will benefit from a significantly enhanced product portfolio in growing markets,” Pfizer Chairman and CEO Ian Read said in a statement. “Coupled with Pfizer’s global reach, Hospira is expected to drive greater sustainability for our Global Established Pharmaceutical business over the long term.”
Added F. Michael Ball, Hospira’s CEO: “The Pfizer-Hospira combination is an excellent strategic fit, presenting a unique opportunity to leverage the complementary strengths of our robust portfolios and rich pipelines.”
Pfizer disclosed its plan to acquire Hospira nine days after the pharma reported disappointing fourth-quarter 2014 results. That further fueled speculation about Pfizer pursuing a blockbuster M&A deal: “Given the strength of our late and mid-stage pipeline, we’ll evaluate business development opportunities biased towards deals with a potential for creating value in the near term,” Read told investors at the January 27 quarterly earnings conference call, according to a transcript posted on the company's website.
In addition to a 52% slide over the year-ago quarter in net income, to $1.228 billion, Pfizer’s Q4 2014 results also included an 11% drop in revenues for GEP, its largest revenue-generating segment of its mainstay drugs, which fell to $6.4 billion. GEP’s woes contributed to a 3% Pfizer-wide slide in revenues during the fourth quarter, to $13.118 billion.
Pfizer blamed its GEP results mainly on declining revenues from Lipitor in developed markets as a result of generic competition, as well as patent-cliff losses of exclusivity and subsequent launch of multi-source generic competition for three products: Celebrex in the U.S. as of December 2014; Detrol LA in the U.S. as of January 2014; and Aricept in Canada as of December 2013.
The boards of both companies have unanimously approved the merger, which is expected to close in the second half of 2015, subject to customary closing conditions that include regulatory approvals in several jurisdictions and approval of Hospira's shareholders. Pfizer said it anticipates the transaction to deliver $800 million in annual cost-cutting savings or “synergies” by 2018.
Pfizer plans to finance two-thirds of the deal through cash, and the remaining third through debt. At $90 per share, Pfizer’s offering price is a 39% premium above Hospira’s closing share price yesterday of $64.80. That price zoomed to $88 earlier this morning in premarket trading.
Pfizer said Hospira is expected to boost its earnings per share immediately, estimating it will be accretive by 10 to 12 cents per share for the first full year following the close of the deal, “with additional accretion anticipated thereafter.”
“The addition of Hospira has the potential to fundamentally improve the growth trajectory of the Global Established Pharmaceutical business, vault it into a leadership position in the large and growing off-patent sterile injectables marketplace by combining the specialized talent and capabilities of both companies, including enhanced manufacturing, and advance its goal to be among the world’s most preeminent biosimilars providers,” John Young, group president of Pfizer’s GEP business, said in the statement.