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 They view the $100-billion gambit for AstraZeneca as
a return by Pfizer to the "mega-mergers" of the previous decade that
allowed the U.S. company to benefit from huge cost savings and
divert shareholder concern over low returns from its research and
development.
As recently as last year, Pfizer Chief Executive Ian Read had
virtually sworn off major dealmaking, wary of the criticism that
huge transactions, such as the $90 billion purchase of
Warner-Lambert in 2000, had not improved the company's prospects for
innovative products.
"Pfizer is doing this from a position of weakness," said Michael
Liss, a portfolio manager at American Century Investments who holds
Pfizer shares. "If they had enough in their own pipeline, they
wouldn't need to buy a big company; they'd be doing smaller
collaborations."
Liss still believes the deal makes sense because it could create $4
billion in annual cost-savings for Pfizer, knock down its tax rate
by rebasing the biggest U.S. drugmaker to Britain, and bring Pfizer
potentially lucrative cancer drugs from AstraZeneca that work by
stimulating the immune system.
"Pfizer's problem is they have a very thin drug pipeline," said John
Boris, an analyst with Suntrust Robinson Humphrey. "And this is a
very clear admission of that," he said, referring to Pfizer's two
rebuffed efforts since January to buy AstraZeneca.
Read appeared to head off the criticism on Monday in discussing his
efforts to reignite talks with Astra. He told investors that Pfizer
had redoubled its efforts to buy AstraZeneca after favorable data
from trials of new and experimental company drugs allowed it to act
from "a position of strength."
But industry watchers questioned that description. Pfizer had hoped
to turn a corner on its research when it won regulatory approvals
over the past three years for kidney cancer treatment Inlyta and
Xalkori for lung cancer after a decade without any significant new
drugs. But both have seen weak sales.
Two newer treatments that had been deemed potential blockbusters
with billions of dollars in sales, Xeljanz for rheumatoid arthritis
and Eliquis to prevent blood clots that can cause strokes, have
failed to take flight.
Experimental breast cancer drug palbociclib, which has been deemed
Pfizer's most exciting product in development, is now expected to
face stiff competition from more effective and safer drugs in the
same class being developed by rivals, Boris said.
HOLES IN THE PIPELINE
Pfizer has chased down and swallowed three other major drugmakers in
the past 15 years, beginning with its hostile acquisition of Warner
Lambert. The deal gave it full ownership of cholesterol fighter
Lipitor, which went on to become the world's biggest medicine, and
created opportunity for deep cost cuts that propped up earnings for
several years.
But Pfizer's profits were on the downswing by 2003, after the
company failed to come up with new products to replace aging
blockbusters. So Pfizer spent $60 billion that year to acquire
Pharmacia Corp, counting on thousands of job cuts and other cost
savings to get its earnings growing again.
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When Pfizer's laboratories remained unproductive, and the company
was faced with impending generic competition for Lipitor, Pfizer
paid $68 billion in 2009 for Wyeth.
Morningstar analyst Damien Conover said Pfizer is not facing
impending patent expirations on big medicines, with the exception of
painkiller Celebrex, so is not desperate for a merger as it was with
the Wyeth deal.
But Conover said Pfizer needs cost cuts because it will likely
generate average annual earnings growth of only 2 percent over the
next five years with its existing products, half the average likely
growth for other large drugmakers.
"They have a few potential blockbusters, but not of the magnitude of
Merck or Bristol-Myers," Conover said, which have strong immuno-oncology
programs. "So the AstraZeneca deal is really about cost cutting, and
Pfizer's need to increase growth."
Alex Arfaei, an analyst with BMO Capital Markets, said a merger with
AstraZeneca would provide Pfizer big advantages, such as slashing
its tax rate to the 20 percent range, from its current rate of about
27 percent.
Many Pfizer investors are holding onto their shares in the hope
the company by 2017 will split off two or more of its three main
divisions into separate companies, creating more opportunities for
share buybacks and higher Pfizer dividends.
One division focuses on vaccines, cancer drugs and consumer
products; another on other patent-protected medicines and the third
on so-called established products, meaning branded generics mostly
targeted for developing countries.
Brian Turner, a healthcare analyst for Levin Capital, which holds
over 11 million shares of Pfizer, said Read probably thinks the
various parts of Pfizer will be more attractive if they include
AstraZeneca's assets.
"He realizes that he ultimately needs to be smaller," Turner said,
"but maybe he thinks because of the Astra assets he could maybe
build it up and then break everything down."
(Reporting by Ransdell Pierson; additional reporting by Bill Berkrot;
editing by Michele Gershberg and Ken Wills)
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