Is M&A The Only Way For Pfizer Inc. (PFE)?
Pfizer Inc. (NYSE:PFE) has not been able to generate consistent year-over-year revenue growth in the last several quarters. It is primarily because some of the drugs have become generic following the expiration of the patent. That meant a sharp reduction in revenue generation from the product. The company tried to acquire AstraZeneca plc (ADR) (NYSE:AZN) for more than $100 billion last year. However, the British drug firm rejected the offer. The American drug maker wanted to ensure growth in the top line through the acquisition route since developing drugs take a long time.
During a recent investors conference, Pfizer Inc. (NYSE:PFE) indicated that its objective is to lead the oncology sector in different modalities. That was measured by reputation, patients helped, and science and on top of it by revenue. The company’s presentation also suggested that the company would continue to focus on investing in its innovative core business. The drug maker considered oncology as a critical component.
The American firm identified three growth platforms, namely, Ibrance, Immuno-oncology, and early stage pipeline. In the current year alone, Pfizer will have about six Immuno-oncology agents in development. That means that the company is the only company to engage with several IO agents simultaneously. The pharmaceutical company indicated that it expects to build momentum on Ibrance throughout the current year. The company plans to gain acceptance in academic, as well as community settings. The drug maker also presented before the ASCO reinforcing safety, as well as the superiority of Ibrance plus letrozole, compared to letrozole alone, following the subset analyses from PALOMA-1.
While the company has been discussing its tactics outside the M&A, the American firm indicated that it was willing to expand its product portfolio through acquisition also. That means that the company is open to acquisition anytime. Pfizer Inc. (NYSE:PFE) is probably the only company that pays a higher tax than most of its competitors in the United States. The company’s CEO, Ian Read, indicated recently that this should change for the better. The drug maker has also been credited for spending more money for acquisitions in the pharmaceutical sector in the past than anyone else from the sector throughout the world.
If only the drug maker were successful in acquiring AstraZeneca plc (ADR) (NYSE:AZN), it would have meant a tax-inversion of $120 billion for the American company. That was because of the possible change in the residential address to avoid paying more taxes in the United States. However, after the establishment arm-twisted the taxation rules, there has not been much headway on this front. But the speculations refuse to die down.
Bloomberg reported recently that there are other British firms as top takeover candidates. The list includes Shire PLC (ADR) (NASDAQ:SHPG), GlaxoSmithKline plc (ADR) (NYSE:GSK) apart from AstraZeneca plc (ADR) (NYSE:AZN). This apart, Mylan NV (NASDAQ:MYL)’s executive chairman reportedly told the shareholders that Pfizer Inc. (NYSE:PFE) could buy them once Mylan acquires Perrigo Co. These companies have the potential to fit into the scheme of Pfizer’s M&A, as well as reduce the tax burden through the change of address.
Addition of Products
Apart from the tax gains, the American drug maker also stands to gain from lucrative products by acquiring any of the four British drug makers. Of course, there are bound to be benefits from reducing costs through the acquisitions. What will be more interesting to see is that the current borrowing rates appeared to be at the lower level. There are also enough indications from the analysts’, as well as the Fed, that the interest rates might raise. That might force Pfizer to focus more on M&A.
However, the company appeared to be worried over the expensive valuation due to bidding wars. Also, the pharmaceutical sector has been witnessing frenzied activities on M&A for more than a year or so. In the current year, Pfizer disclosed its intention to acquire Hospira, Inc. (NYSE:HSP) for about $16.8 billion. The deal enables the company to gain access to some of the generic injectable drugs, as well as devices. That will increase the established products segment. The acquisition was in line with its focus on biosimilar that tilted the deal in its favor.
Possible To Acquire More
The acquisition of Hospira does not mean that the company will take some more time to involve itself in any other acquisition. Jefferies Group analyst, Jeffrey Holford, said that the drug maker could still make significant acquisitions. The analyst said that such acquisition would be in line with the company’s innovative-pharma side of it. The brokerage picked up Shire PLC (ADR) (NASDAQ:SHPG) as a potential candidate for takeover by Pfizer. Reports also suggest that Pfizer could make one more attempt at acquiring AstraZeneca plc (ADR) (NYSE:AZN).
There are analysts who believe that M&A will be a key factor in driving the future performance of the company. In fact that was the reason why they have been indicating the list of companies that will fit in well with Pfizer’s scheme of things. Additionally, the American company is sitting with cash of $27 billion, apart from $23 billion revolving credit. That means the drug maker has $50 billion in liquidity for any acquisition. The current market cap of Shire is less than $50 billion.
Pfizer Inc. (NYSE:PFE) has been struggling for revenue growth and M&A appeared to be an immediate vitamin to boost the top line. Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has been an aggressive buyer in the pharma sector and engaged in boosting growth through acquisitions. Though Pfizer might be pondering over the valuations given the strong M&A in the sector, it might have to adapt to M&A to boost its product profile.
Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.
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