Sector News

What would Pfizer do without Allergan–and Allergan without Pfizer?

April 5, 2016
Life sciences

The U.S. Treasury’s new rules might end Pfizer’s quest for a tax inversion and put Allergan back on its previous course as an independent company. The key word is “might.” But if the $160 billion merger does collapse, both companies will need new maps to growth.

Pfizer could go after a different tax inversion deal–one that would avoid the “serial acquirer” penalty that could sink its Allergan buy. AstraZeneca and GlaxoSmithKline, for instance, were already Big Pharmas when Allergan neé Actavis neé Watson Pharmaceuticals started its M&A binge.

But if the new “earnings stripping” provisions from Treasury make inversions less attractive, then, perhaps, a different type of megamerger altogether. Pfizer’s previous megamergers haven’t delivered much payoff, as industry analysts have repeatedly calculated, and they come with a slate of their own problems. That might make the idea less than attractive to investors, Bernstein analyst Tim Anderson wrote in a Tuesday note.

“[B]ig pharma mergers are generally out of fashion because they add scale when no further scale is needed, and they often disrupt critical business processes like R&D at the same time,” Anderson points out.

However, there are a variety of targets, with one obvious choice being Bristol-Myers Squibb, Anderson adds. And as ISI Evercore analyst Mark Schoenebaum points out, there are biotech buys to be had–smaller, yes, but perhaps less likely to leave a bad aftertaste.

Apart from sizable deals, Pfizer has a few options to satisfy investors’ immediate demands. One obvious choice: Accelerating its plans for a breakup, which CEO Ian Read first raised as a possibility back in 2013. Pfizer pushed back its decision deadline to 2019 after striking the Allergan deal, and it may have good reason to stick to that. The numbers on Pfizer’s constituent parts may not be good enough to make a breakup pay off the way Read wants it to, at least not right now, without some beefing up in various categories.

Still, circumstances could change that, perhaps quickly. “There is the possibility that the timing of a split decision (into innovative and established businesses) could be accelerated” to the second half of this year, Schoenebaum says, essentially pulling the decision back toward Pfizer’s original target date.

Another idea that Anderson floats is a “mega-buyback”–in the range of $50 billion, for instance, which could boost earnings per share growth into the double digits over the next five years.

As for Allergan, CEO Brent Saunders was floating a “growth pharma” strategy last year before the Pfizer bid, and despite the sale of its generics to Teva Pharmaceutical Industries in the meantime, that strategy remains valid. The Dublin drugmaker topped Q4 forecasts for both profits and revenue, powered by Botox, which charted a 43% leap and still has “a decade or more of growth ahead,” Saunders predicted on a call with investors. Plus, thanks to coverage gains for Alzheimer’s combo med Namzaric, the generic toll on now-off-patent Namenda won’t necessarily “be a material headwind in 2016,” Bernstein analyst Ronny Gal wrote late in January.

But analysts are also hopefully floating a list of potential buys that Allergan could use to take another growth leap, adding to its record as a “serial acquirer.” It has the financial firepower to pick up Massachusetts-based Biogen or even North Chicago-based AbbVie, for instance, both of which made the list of potential Allergan targets last year–and would pick up a breakup fee of at least $400 million if the deal fell apart.

Another possibility: Picking up the pieces of Valeant, which would be an ironic turn of events given the latter’s 2014 hostile quest to buy Allergan. These days, the Canadian drugmaker is fighting to keep its head above water, but it does have some segments Allergan may find useful (think eyecare, GI). And new Valeant Bill Ackman director has already suggested selling eyecare unit Bausch & Lomb could be a good way for Valeant to help climb its way out of debt.

By Tracy Staton and Carly Helfand

Source: Fierce Pharma

comments closed

Related News

March 24, 2024

Johnson Matthey to sell its Medical Devices business for $700 million

Life sciences

Johnson Matthey Plc (JM; London) announced that it has signed a definitive agreement to sell 100% of its Medical Device Components business (MDC) to Montagu Private Equity (Montagu) for cash consideration of US$700 million (£550 million) on a cash free debt free basis.

March 24, 2024

Lonza acquires biologics manufacturing plant in California from Roche

Life sciences

Lonza AG (Basel, Switzerland) announced it has signed an agreement to acquire the Genentech large-scale biologics manufacturing site in Vacaville, Calif. from Roche (Basel, Switzerland) for $1.2 billion. The acquisition will significantly increase Lonza’s large-scale biologics manufacturing capacity.

March 24, 2024

Roquette to acquire IFF Pharma Solutions to boost global excipient presence

Life sciences

Roquette plans to acquire International Flavors & Fragrances (IFF) Pharma Solutions for an enterprise value of up to €2.85 billion (US$3.09 billion). With the acquisition set to close in the first half of 2025, the plant-based ingredient and pharmaceutical excipients supplier aims to reinforce its position in the pharmaceutical industry.

How can we help you?

We're easy to reach