Better drugs; lower costs. It is not easy to have both in pharma. If Pfizer resurrects its reported $100bn approach for the UK’s AstraZeneca– the first was swiftly rebuffed, according to the Sunday Times – what would be the biggest deal in the industry’s history will reflect that dilemma.
Pfizer’s bid may be late already. The rejected bid implied a 20 per cent premium to AstraZeneca’s share price of £37; the shares were nearer £30 this time last year. Partly, that reflects a stronger AstraZeneca. The company has made progress developing treatments that use the immune system to fight cancer. Pfizer lacks a similar portfolio and may fear missing out on one of the most exciting trends in oncology treatment. Citi last year estimated that AstraZeneca’s pipeline could generate £7bn in sales a year by 2022, versus overall 2013 sales of £15bn. Back then, Citi said that the market was assigning nil value to the AstraZeneca pipeline. The change since then is apparent in both AstraZeneca’s share price and in the valuation of other big immunotherapy drugmakers, such as Bristol-Myers Squibb, which trades at nearly 30 times earnings. Pfizer would be buying at the peak of excitement. Each of these experimental treatments is different and will succeed or fail on its own merits. Pfizer itself sold one such asset, the then-disappointing Tremelimumab, to AstraZeneca’s MedImmune subsidiary in 2011.
Shopping for immunotherapy assets implies commitment to diverse research and development. But that clashes with another objective of any super-size deal: cost savings. Modern Pfizer, with its $193bn market capitalisation, is cost-reduction via mega-merger made flesh. Its last big deal, $68bn for Wyeth in 2009, began with $4bn in promised savings. After a merger, R&D can be held back by fear – of projects being cancelled or of staff being made redundant. AstraZeneca for its part has a relatively new research hub in Cambridge in England. So does Pfizer. A dilemma shared indeed.
