Sector News

After new number-crunching, a top analyst sees Pfizer split as a no-go

July 19, 2016
Life sciences

When Pfizer CEO Ian Read first raised the idea of a big split 5 years ago, it was a major departure from the company’s decades-long, growth-by-megadeal strategy.

Analysts and investors salivated. Ever since, market-watchers have seen a Pfizer break-up as a question of when and how, rather than if.

But now, one top pharma analyst reads the tea leaves another way: Tim Anderson of Bernstein & Co. figures Pfizer is leaning against a split.

“We are increasingly of the view that management is NOT going to pursue a split up, at least at the current point in time,” Anderson wrote in a Monday note to investors.

Why? A recent conversation with Read, for one thing, in which the CEO hinted at a few financial drawbacks. Splitting up could disrupt cash flows and might weaken Pfizer’s balance sheet when compared with leaving the company whole, Read suggested back in June at the firm’s Strategic Decisions Conference.

Those split-up challenges probably explain why Pfizer was so intent on a tax-inversion deal, first with its epic failure to buy AstraZenec and move its domicile to the U.K., and then with its now-canceled $160 billion merger with Ireland-based Allergan, Anderson notes. With that merger kaput, Pfizer management “says that tax inversions are now effectively off the table,” he writes.

Two other number-crunching reasons: In summing up Pfizer’s two parts–innovative pharma and established products–Bernstein’s team comes up with about $36 per share. And that’s roughly in line with Pfizer’s current share price. And in analyzing Pfizer’s growth prospects now, compared with 5 years ago, the Big Pharma’s future looks brighter.

Back in 2011, with EPS growth projected at 2.6% through 2015, “dividing the company into a ‘good bank’ and ‘bad bank’ made sense,” Anderson says. Now that projected annual growth sits at an estimated 6.9%, not so much.

The analyst acknowledges that his views aren’t orthodox. “This is a new perspective for us, and it is also not consensus” among analysts, he says.

It also doesn’t fit with investor expectations, according to Bernstein’s recent survey. Among 109 respondents, slightly more than half (51%) believe Pfizer will go through with the split. One-third “were indifferent,” Anderson writes, and 16% expect the company to drop the idea.

So, what would Pfizer do if it chooses not to take the plunge? Deals, and probably big ones, if not an outsized megamerger. That’s what surveyed investors expect from Pfizer’s non-split future–an expectation that falls in line with Read’s comments at the Bernstein conference, “where he acknowledged that target companies of all sizes are theoretically on the table,” the note states.

Of course, Pfizer has already snapped up a couple of smaller companies since its big Allergan buy fell through, including its $4.5 billion buyout of Anacor. And it’s said to be in the hunt for Medivation, the maker of cancer-fighter Xtandi that’s attracted buyout interest from a host of Big Pharma and Big Biotech companies.

But the growth-by-M&A approach would be a Back to the Future sort of move–“simply an extension of the strategy the company pursued over the last 15-plus years,” as Anderson puts it. And that, of course, takes us around the board to Go, he says: “This is potentially troubling because it was this same strategy that caused Pfizer to consider splitting up in the first place.”

We’re likely to hear more from Read next week when Pfizer reports its second-quarter earnings; the potential split is always a hot topic on calls with analysts. And, in any case, the question will be answered by year’s end. That’s Read’s stated deadline for a split or no-split decision.

By Tracy Staton

Source: Fierce Pharma

comments closed

Related News

May 21, 2022

As monkeypox cases emerge in US and Europe, Bavarian Nordic inks vaccine order

Life sciences

A monkeypox outbreak is emerging in the U.S. and Europe, and at least one country is amping up countermeasure preparedness. Bavarian Nordic has secured a contract with an unnamed European country to supply its smallpox vaccine, called Imvanex in Europe, in response to the emergence of monkeypox cases, the Danish company said Thursday.

May 21, 2022

Moderna chairman Afeyan defends hiring practices after CFO debacle: report

Life sciences

Moderna’s recent chief financial officer debacle—in which Jorge Gomez departed on his second day on the job—raised questions about the company’s hiring process given its rush to global biopharma prominence. The most obvious one: How was it possible for Gomez to be hired when he was under investigation by his previous employer, Dentsply Sirona of Charlotte, N.C.

May 21, 2022

Merck to pay up to $1.4B in cancer deal with Kelun, but details are scarce

Life sciences

Merck & Co. is plucking a cancer project from the branch of Chinese-based Kelun Pharmaceutical for up to $1.4 billion, but details from the New Jersey-based Big Pharma have been hard to come by. The deal, first disclosed Monday on the Shenzhen stock exchange, has Merck handing over $47 million in upfront cash in exchange for ex-China rights to a “macromolecular tumor project.”