Sector News

Pfizer CEO thinks buys and swaps, with an eye toward future breakup

February 11, 2015
Life sciences
Pfizer CEO Ian Read not only isn’t done with deals after his Hospira purchase; he’s also looking at creative swaps, a la the Novartis-GlaxoSmithKline deals. He hints that a tax-friendly buy could still be in the offing. But don’t look for a series of small biotech plays, because those companies don’t like Pfizer much.
Here’s what Read said on the sidelines of the BIO CEO conference in New York on Tuesday. The questions are ours, the answers his, as quoted by in-PharmaTechnologist.
What’s Pfizer’s next deal move? Maybe a trade rather than a buy. The company has had “discussions with several partners looking at portfolio/geographic swaps,” he said. The current M&A challenge is price, partly because U.S. tax rules give foreign buyers the upper hand, he said: “[O]ther companies are willing to pay more because of their tax situation.”
Did Pfizer pay too much for Hospira, given the 39% premium price? Some analysts say yes. Read doesn’t think so. He gave props to Hospira’s R&D operations and its sterile injectables portfolio. Plus there are those biosimilars, perhaps the most compelling part of the deal.
“I think the value was right,” Read said, echoing comments he made in announcing the buy, when the words “prudently deploy capital” figured prominently. Morningstar analyst Damien Conover backed up that contention, saying Pfizer’s global heft will pump up worldwide sales of Hospira’s products. Investors appear to agree; Pfizer shares hit a 10-year high on Tuesday.
What about a breakup, post-Hospira buy? Still in the works, says Read, but Pfizer is still assessing whether its innovative pharma business and established products unit are each “sustainable” on their own. Citi analyst Andrew Baum figures sooner rather than later with Hospira in Pfizer’s pocket: The deal facilitates “near term separation,” he said in a recent investor note. 
Pfizer probably won’t be building up the innovative side of the business by scooping up a bunch of biotechs. “[I]t’s difficult to pick winners,” Read acknowledges. Plus, as much as Pfizer tries to be investor-friendly, “small biotechs don’t rate Pfizer very highly.”
“[M]aybe that’s because we don’t pay enough,” Read added.
Pfizer could build up both sides of its business with Actavis, a name that repeatedly pops up as a potential target, or continue to beef up in established products with a Mylan buy.
Read has plenty of thoughts–or should we say complaints–about the U.S. tax code, perhaps more of them now that President Obama has proposed to tax overseas cash. Pfizer has about $69 billion stashed overseas, and the company would face a 14% one-time payment on profits held outside the U.S., not to mention an 18% hit to foreign profits going forward. Given that keeping profits offshore is a key Big Pharma tactic for keeping tax rates low, that’s a big change.
Plus, Pfizer has complained loudly about the U.S. tax code as it stands right now. The U.S. corporate tax framework “puts all American companies at a huge disadvantage.” More reason for Pfizer to look outside the U.S. for some sort of tax-fighting buyout.
By Tracy Staton

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