Will Pfizer Make a Play for Struggling GlaxoSmithKline?
Almost a year after its $119 billion offer for AstraZeneca PLC (AZN) fell apart in the face of massive opposition from regulators and internal dissent, global drugmaker Pfizer Inc. (PFE) is once again being floated as a potential buyer of another marquee-name British pharmaceutical company: GlaxoSmithKline (GSK).
A column in The Telegraph today said that while some market watchers might consider such an audacious bid “bonkers,” there are plenty of reasons deal-hungry Pfizer might want to merge with Glaxo.
First, Pfizer is still desperate to do a big deal. The company has tens of billions of pounds sitting dormant in overseas subsidiaries, cash that it cannot repatriate to America without being hit by a colossal tax bill,” wrote columnist Ben Markow. “In addition, it needs access to a bigger pipeline of new medicines. Patents on many of its top-selling drugs are expiring, including Viagra — leaving the products open to competition from generic rivals.”
Markow said that secondly, that Glaxo, despite its market cap, “looks vulnerable to a bid.”
“Although, at £75 billion, it is safely out of the reach of most in the pharma industry, it is less than half the size of Pfizer, Roche (RHHBY) and Novartis AG (NVS). Although a stretch, such beasts could still conceivably swallow Glaxo,” he wrote.
“One consequence of Pfizer’s bid for Astra, and a string of other bumper takeovers both before and since, is that suddenly almost any deal looks plausible.”
Recent history bolsters Markow’s theory. Pressure from internal decision makers at Pfizer Inc. (PFE) pushed Chief Executive Officer Ian Read to approach Israeli drug company Teva Pharmaceutical Industries Ltd. (TEVA) at the end of 2014 about a possible merger, people familiar with the matter told Bloomberg News at the end of January, but that bid was immediately rejected.
Neither Teva or Pfizer would comment on the story Monday, but 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 (AZN) 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.
“While they do a lot of share repurchases, there’s still a lot left for them to make acquisitions,” Damien Conover, an analyst from Morningstar Inc, told Bloomberg. “They’re really motivated to get some growth through some external collaborations.”
But Pfizer needs to be careful not to go overboard with the acquisitions, said some analysts, because its internal strengths are still significant and it still has a long list of strategic goals to meet.
“I think operationally there are a lot of positives that are overlooked,” David Heupel, senior health-care analyst at Thrivent Financial, told Bloomberg. “I’d rather them execute on that kind of strategy than go out and really stretch to do a big deal.”
In addition, the rumors are continuing to rumble that British drug giant AstraZeneca Plc (AZN) is likely to receive a second, higher bid for the company from its erstwhile suitor Pfizer (PFE), almost a year after its first $119 billion offer fell flat on its face last May.
Closely followed Motley Fool columnist Alessandro Passetti wrote last Wednesday that a senior banker had told him that there are “widespread rumors in the asset management community that Pfizer is considering another bid for Astra.” Passetti said that the value knocked off of Astra’s share price after it refused the bid could make it a manageable target financially, though its possibility as a tax haven has now been revoked after American regulators put the kibosh on so-called inversion deals last year.
“I think that Pfizer won’t make any comeback as tax-driven deals appear to be off the table, so there are two elements you ought to take into account right now: first-quarter results, which are due on Friday, and Astra’s pipeline of drugs,” he wrote.
“On the face of it, 2014 quarterly figures are relatively easy to beat, so I would not be surprised if good news surrounded Astra in the wake of the announcement. That may contribute to short-term upside, but it’s hard to believe capital appreciation would be greater than 1 percent to 1.5 percent on the day, regardless of how the market performs.”
Unnamed sources also said that upcoming data from the American Society of Clinical Oncology conference for Astra and competitors like Bristol-Myers Squibb Company (BMY), Merck & Co. (MRK) and Roche could clinch Pfizer’s decision to take another bite at the apple.
“Heavy investment should be a real concern, as virtually nobody in the market believes in Brilinta, and hasn’t done for a long time. If anything is going to push the stock up it’s M&A, or oncology,” a second senior analyst in London told Passetti, though its oncology assets remain tempting. “Its oncology pipeline could be a factor, and in particular its checkpoint inhibitors…anti-PD1, anti-CTLA4 and others, but here it gets a bit sciency!”
Still, it’s unlikely the British company would welcome any takeover attempt, whatever the price. In December AstraZeneca’s CEO Pascal Soriot told Swedish newspaper Dagens Industri that he personally was disinclined to entertain another offer for the company, saying he’d need to see a significant amount of improved value to tempt him back to the table.
“I can’t say it will never happen, but the probability that Pfizer returns is much less,” Chief Executive Officer Soriot said in the report.
Among the reasons are Pfizer’s massive asset swap deal with Merck KgaA (MRK) last month, that will make AstraZeneca’s pipeline redundant, and a rising share price for AstraZeneca that could make the company too expensive.
The “cooling off” period required by U.K. regulators after any failed takeover has now expired, but Soriot said he thinks it is unlikely the company will take fresh approach after its original $118 billion offer was flatly refused nearly a year ago.
“I consider it unlikely that Pfizer will return with a bid,” AstraZeneca Chief Executive Pascal Soriot told the newspaper.
AstraZeneca (and Soriot) have been feeling pretty smug after its share price has climbed as high as the original offer larger rival Pfizer Inc. had said it would pay for the company in a buyout last May.
Soriot told reporters on a conference call Nov. 6 that AstraZeneca’s closing price of $73.54 (46.20 pounds) on that day was roughly the amount Pfizer offered the company’s board when they first discussed a merger last January. At the time, the price was considered a premium and many analysts thought AstraZeneca was hasty in walking away.
“Above all our share price has risen, so we have become more expensive. Today’s share price is at a level with the first offer Pfizer made early this year,” Soriot told the paper Saturday.
Now, a year later, after one of the most bullish market climates in biotech history, AstraZeneca has shown it can create value without exiting to potential suitors, said Soriot.
“The original price was 46 pounds and it was meant to be a premium,” Soriot said in November. “Hopefully that shows the value we can make implementing our independent strategy.”
AstraZeneca ultimately rejected Pfizer’s final bid of 55 pounds per share because it felt its experimental drug company made it a valuable standalone entity. Pfizer had planned to move its headquarters to Ireland as part of the deal, hoping to capitalize on lucrative tax loopholes that have since been closed.
April 27, 2015
By Riley McDermid, BioSpace.com Breaking News Sr. Editor