Reuters | By Ben Hirschler
Pfizer Inc may come back to
bid for British drug company AstraZeneca Plc after its reported 60 billion
pound ($101 billion) takeover approach was rejected, since a deal could make
sense for the U.S. pharmaceuticals giant as it seeks to build up its cancer franchise.
In addition to adding
promising - though still risky - experimental medicines known as
immunotherapies that boost the body's immune system to fight tumors, acquiring
AstraZeneca could also generate significant cost savings, according to industry
analysts.
As a result, a deal at around
a 25 percent premium to the current share price funded by cash, cheap debt and
some stock could boost Pfizer earnings immediately, they believe.
Both companies have declined
to comment on a report in the Sunday Times, which cited senior investment
bankers and industry sources saying that Pfizer approached the British pharmaceuticals group about a deal. The newspaper said no talks were currently under way
after AstraZeneca resisted the approach.
Citi analyst Andrew Baum said
he believed the report was "very likely genuine" and Pfizer could
return to the fray, given the attractiveness of AstraZeneca's pipeline of
cancer drugs, its expertise in autoimmune diseases and the scope for taking out
costs.
"We anticipate Pfizer to
push aggressively ahead with a second approach," Baum wrote in a research
note on Monday, adding that AstraZeneca might seek to structure any deal as a
merger of equals as a defense strategy.
Pfizer has a long track record
of making major acquisitions, with the $68 billion purchase of Wyeth in 2009
its last major deal, after earlier acquisitions of Pharmacia and Warner
Lambert.
The drugmaker has more
recently been divesting certain operations and mega-mergers have fallen out of fashion in the pharmaceuticals industry following skepticism about how well some
of them have worked. But Chief Executive Ian Read has said he would still
consider a large deal that made sense.
Read also has an incentive to
buy assets overseas rather than in the United States since Pfizer has tens of
billions of dollars accumulated through foreign subsidiaries, which if
repatriated to the U.S. would be heavily taxed.
OTHER BIDDERS
A Pfizer move on AstraZeneca
might flush out other bidders. U.S. biotech giant Amgen Inc already has a tie
up with AstraZeneca in autoimmune medicines to treat diseases like psoriasis
and severe asthma.
Novartis AG and larger GlaxoSmithKline Plc have also been mentioned in the past as potential suitors, although
GSK has in recent years said publicly it is not interested in making a large
acquisition, while Novartis is in the middle of strategic review and already
has a presence in cancer immunotherapy.
Mark Schoenebaum, an analyst
at ISI, agreed cancer immunotherapy was likely the main lure for Pfizer, since
the field is expected to become one of the biggest areas of modern medicine in
the next few years.
However, Mark Clark at
Deutsche Bank said Pfizer would be making something of a "leap of
faith" since AstraZeneca's most exciting cancer drugs are still at an
early stage of development.
Pfizer has a highly promising
breast cancer drug in late-stage development called palbociclib but otherwise
its cancer portfolio is relatively weak.
"Notably, Pfizer appears
to be nowhere in the important field of immuno-oncology, which Bristol-Myers
Squibb, Roche, Merck & Co and AstraZeneca currently dominate,"
Schoenebaum said.
Bristol, Roche and Merck are
viewed as being ahead of AstraZeneca in the new cancer field but the British
firm believes it can make up ground by pioneering drug combinations, including
the use of a medicine known as tremelimumab that it licensed from Pfizer.
AstraZeneca and its rivals
will present the latest clinical data on promising new cancer drugs at the May
30-June 3 annual meeting of the American Society of Clinical Oncology.
DRUG PIPELINE
The London market was closed
on Monday for Easter but the talk of Pfizer's interest in AstraZeneca is likely
to overshadow dealings when trade resumes on Tuesday. In New York, Pfizer
shares were up 1.6 percent by 1318 ET, while U.S.-traded AstraZeneca shares
were up 6.2 percent.
AstraZeneca Chief Executive
Pascal Soriot, who has been credited for progress in rebuilding the company's
new drug pipeline since taking over in 2012, fuelling a rally in the shares,
will also come under pressure to address the reported Pfizer approach when he
presents half-year results on Thursday.
Speculation over such a
takeover, which would be potentially the biggest ever foreign takeover of a
British company, is likely to trigger concerns about jobs in Britain's
pharmaceuticals sector, which is viewed as a key industry by the government but
which has been under pressure.
AstraZeneca has already laid
off thousands of scientists and other staff as it shrinks its cost base to cope
with a fall in sales due to patent losses on blockbuster medicines.
With heartburn treatment
Nexium losing U.S. patent protection next month and cholesterol fighter Crestor facing patent expiry
in 2016, the decline in sales is expected to continue for several years.
In an attempt to reshape the
company, Soriot is currently moving its research and corporate headquarters to
Cambridge, England. Pfizer has also made the university city a research hub
after shuttering a large research site in Sandwich, southern England.
The Cambridge connection is
only one link between Pfizer and AstraZeneca, highlighting how the companies
know each other well.
AstraZeneca's head of
innovative medicines Mene Pangalos also used to work at Pfizer and the two
firms are familiar with each other's products from working together on
projects, such as a pioneering of a new kind of clinical trial for cancer drugs
announced last week.