Just When You Thought It Safe….Another Pfizer-AZ Preview

By Louis Garguilo, Chief Editor, Outsourced Pharma

Please consider giving us a bit of credit here at Outsourced Pharma. We reported, like everyone else, the news of Pfizer going after AstraZeneca. What we did not do was inundate you with a whole bunch of conjecture and speculation on the potential deal.

A lot of attention is of course expected and needed when the biggest pharma in the world goes after an international firm that also makes a lot of news. The media coverage has indeed been informative, well thought out, and thought provoking. It has also reached levels of opining on opinions of the opinions quoted by other sources. There has been discussion of what this deal might mean for the independent companies, respectively; their separate and combined pipelines and therapeutic areas of prowess; the portents for the entire pharma industry; the impact on patients and drug prices; employees and lay-offs; the economic development, tax policies, and national pride of the U.S. and U.K. governments; and the new corporate entity that then might be split up again. And all this is happening before we know if the merger is  going to occur.

Perhaps the odds are on the side of this happening, since Pfizer has famously been through this a number of times before. So at this point, with the initial dust settled over the chapel where the bride wasn’t ready to show up, and before the groom tries another (third) approach, let’s review where things stand.

In doing so, though, we will maintain our commitment to staying streamlined. Sometimes analyzing a global megadeal that appears about to transpire is like promoting an anticipated international blockbuster movie about to be released: the reviews need to be boiled down to the essential plot lines and the key dialogue. A good approach then is to list the key attributes of this movie, excuse me, megadeal. So on to the categories.

The Hunt

• The hunter is the world’s biggest drug company from the U.S.
  • The leading role is portrayed with a perfect Hitchcock mix of good and evil
• The prey is the U.K’s 10^th largest company overall
  • The co-star is up-and-coming and trying to make it on its own
• The deal is the largest proposed foreign takeover of a British company in history
  • The plot includes the U.S. against the U.K.; can’t get much better
• The preview only lets on that the prey won’t go easy, and the hunter must be persistent

The Reason for Pursuit

• Bad U.S. tax policy
• Good U.K. economic development and better tax policy
• The hunter’s financial and strategic business strategy
• The prey’s jewels (pipeline and knowhow)
• Suspected scientific/financial synergies, new therapeutic fields

Collateral Damage

• The prey’s employees
• Some of the hunter’s employees
  • Serious repercussions to thousands of people around the world
• The U.S. (gobs of money to never repatriate)
• The U.K. (see first bullet, and pride)
• The hunter’s stockholders (potential)
• Biotechs (fewer pharma to strike out-licensing deals with)
• Business Development at CROs/CMOs (no decisions on programs while the integration drags on)

Winners

• Prey’s stockholders (potential)
• The U.K. (future potential, after collateral damage above)
• Lawyers, consultants, finance people of all kinds, HR (and we journalists)
• U.S. proponents of changing bad tax laws
• U.K. opponents of pro-business polices

The Questions

• Productivity boost to combined R&D efforts for new drug discovery/development?
• Possibility of increased future commercial success (new drugs in lucrative disease areas)?
• Good for the global healthcare consumer?
• The right financial and business strategy for both hunter and prey?
• How much longer will the capture take?
• How high will the price of eventual capture go?
• Will the U.S. federal tax code get fixed?
• Will the U.S. and U.K. go to war? (Just kidding!)

Interesting quotes

The top two quotes from Ian Read, Chairman and CEO of Pfizer, in Pfizer’s initial public statement on Monday, April 28, 2014.

• “The combination would complement our two innovative businesses and our Global Established Pharmaceutical business, allowing us to maintain the flexibility for the potential future separation of our businesses whilst at the same time broadening our pipeline breadth and potential new product launches over coming years.”

Editor’s Translation: “We are combining businesses so in the future we can divest businesses.”

• “In addition, the United Kingdom has created attractive incentives for companies to manufacture products and maintain and protect intellectual property, and we have seen that capital and jobs have followed these types of incentives.”

Editor’s Translation: “Taxes are high in the U.S.; Incentives are high in the U.K.”

From Moody's Investors Service, from their May 2^nd statements on the deal.

• Pfizer’s new proposal to acquire AstraZeneca for approximately $106 billion (comprised of 32% cash and 68% stock) is credit-positive. Credit positive elements of a combination would include greater scale and diversity, access to AstraZeneca's oncology pipeline, substantial cost reduction opportunities, reduced taxes, and significantly greater flexibility to access non-US cash and investments. A combination would create the world's largest healthcare company, with a revenue base in excess of $75 billion and strong product and geographic diversity.

Editor’s Translation: “Sounds good from here.”

From Leif Johansson, Chairman of AstraZeneca, in their May 6^th press release.

• "The increasingly visible success of our independent strategy highlights the future prospects for our shareholders. These are benefits that should fully accrue to AstraZeneca's shareholders."

Editor’s Translation: “Go hunting elsewhere, Pfizer.”

From H. David Rosenbloom, Caplin & Drysdale, quoted in Bloomberg article April 28^th.

“This is basically an opportunity to go outside the U.S. and still sell in the U.S. and strip the tax base…If we ever had a legislature in the United States, we could do something about this, but I don’t expect to live that long.”

Editor’s Translation: None necessary.

Hopefully, approaching this story with a measure of levity affords us all a moment of respite from what is a serious, industry-altering (and still potential) development. No doubt we have a few more scenes to go through before we find out how it ends. There is sure to be plenty of reviews on that as well.

Do you have thoughts on this topic? Predictions on how it will end up? Positives or negatives? Please share your comments with us!