Pfizer Inc. (NYSE:PFE)’s revenue to be marred by patent–cliff in 2017-2018 as 17% patents expire

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Pfizer Inc. (NYSE:PFE)’s more than $150 billion buyout offer for Allergan plc Ordinary Shares (NYSE:AGN) may be a bold move but not a beautiful one. It is emerging that problems that Pfizer could be facing issues that purchasing Allergan and shifting tax base to Ireland will not solve.

Pfizer Inc. (NYSE:PFE) is set to lose patents on key drugs, which will both expose it to intense generic competition and also squeeze its revenues. Because of widespread patent loss, Pfizer needs to bolster its search for more proprietary drugs with blockbuster potential. If that is the case, the culture at Allergan is unlikely to benefit Pfizer’s proprietary drugs business. Allergan is a drug company that prefers to acquire drug technology instead of investing in internal innovation.

Perhaps one might argue that Allergan acquisition makes sense for Pfizer’s generics business. However, that argument falls after you consider the health of Pfizer’s generics unit. In the initial three quarters of 2015, Pfizer’s generic sales dropped by 15% or by $3.2 billion in absolute dollar terms. Because Allergan’s business is rooted in generics, its acquisition could only compound problems at Pfizer’s already sour generic business.

Shrinking patient pool

Pfizer’s increasing reliance on fading generic sales is only a part of the problem. The company also faces the challenge of shrinking pool of the so-called high-value patients. It is difficult to understand how Allergan acquisition will help address the problem of fading high-value patient population.

Breakup after merger

Pfizer Inc. (NYSE:PFE) is mulling separating its innovations business from established business, which includes generics and drugs that have lost patent protection. One wonders why the company could not first pursue the breakup instead of seeking to acquire Allergan in a transaction that is likely to prolong or disrupt the breakup.

Shrinking generic sales, fading high-value patient pool and widespread patent loss on blockbusters appear to drain energy from the Pfizer Inc. (NYSE:PFE)-Allergan proposed marriage. It seems as though the deal is more about saving on taxes than growing the corporation.

Neha Gupta

Neha Gupta has been in the financial space for over six years now. Gupta earned her MBA degree from Symbiosis Centre of Distance Learning in 2009 and her passion for finance led her to pursue Chartered Financial Analyst (CFA) course. She has successfully completed Level II of her CFA. She is a veteran in article writing, which is depicted in her numerous pieces published on SeekingAlpha, Nextiphonenews, InsiderMonkey, MarketWatch, and Techinsider. Her crisp and eloquent writing finds its best place in Researchcows, where emphasis is given on developing rich content for various websites, products, business plans, trainings, and book writing.

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