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Summary

  • Pfizer needs to leave AstraZeneca alone and consider other options for acquisition.
  • Celgene should be considered for acquisition because of its cancer-fighting compounds and arthritis compounds.
  • Gilead Sciences should be considered because of its blockbuster hepatitis C drug, Sovaldi, and HIV drug compounds.
  • Pfizer can do better acquiring mid-size biotechnology companies that have steady future growth.
  • Pfizer needs to help its diminishing pipeline.

Pfizer (NYSE:PFE) had recently announced that it was unable to reach a deal to merge with AstraZeneca (NYSE:AZN). The final bid Pfizer gave was $116 billion dollars, and the company stated that it would not attempt to go hostile to acquire AstraZeneca. AstraZeneca had pressure from its investors to come to the table with Pfizer, but AstraZeneca stated that even the revised deal was not enough for the value of the company.

Pfizer has been open and stated that the reason for the deal is to get the "tax inversion", so it couldn't go with a deal past 20% of the combined company. The "tax inversion" would be to reduce corporate taxes for Pfizer on income earned. Although, we should note that this strategy was probably one part of the equation. The other part of the equation is Pfizer struggling with its R&D department.

Despite Pfizer spending $6.6 billion in R&D spending back in 2013, the company has struggled to produce new products for the company. The AstraZeneca deal would not only have helped Pfizer with its taxes, but would have also been beneficial to acquire a nice big pipeline it could enhance upon. Now that the AstraZeneca deal has fallen through, Pfizer would have to wait awhile before it can bid for the company again.

Although, we believe it is better for Pfizer to look at other companies that not only have good pipelines but also new products out on the market that are raking in billions of dollars. We have two good options for Pfizer to acquire that would be more beneficial instead of acquiring AstraZeneca. Instead, it would be wise to acquire mid-size biotechnology companies with huge future promise. Two such companies we will be exploring are Celgene (NASDAQ:CELG) and Gilead Sciences (NASDAQ:GILD). Now it won't help Pfizer with the tax situation, but it will give it a nice boost with a fresh pipeline.

For starters, let's take a look at why Celgene would be a good takeover candidate for Pfizer. Celgene has two nice blockbuster products that are making some substantial increases in terms of sales. One of the compounds is ABRAXANE, which was approved by the FDA for metastatic pancreatic cancer back on September 6, 2013. ABRAXANE was approved for other indications in previous years for non-small cell lung cancer and breast cancer respectively. Sales for ABRAXANE have still been increasing year-over-year. For instance, in 2013, sales of ABRAXANE reached $649 million, which was a 52% increase from 2012.

The other blockbuster product for Celgene would be another drug compound known as REVLIMID. REVLIMID is used to treat a couple types of blood cancers, such as multiple myeloma --plasma cells in bone marrow--, myelodysplastic syndrome -- deletion of 5q chromosome, bone marrow doesn't produce enough red blood cells-- , and mantle cell lymphoma -- rare cancer of lymph nodes. With REVLIMID, Celgene has seen amazing sales in 2013, earning $4.2 billion, which is an increase of 14 percent from 2012 full-year sales.

Pfizer should take a look at Celgene as an option, because it still continues to grow sales with its two main drug compounds REVLIMID and ABRAXANE. An acquisition of Celgene would also bring in a nice pipeline that Celgene is working on. Among the other pipeline candidates being worked on is OTEZLA, being tested in patients with psoriatic arthritis and arthritis. Sotatercept is being tested on patients with renal anemia. This, along with VIDAZA being tested in patients with AML -- acute myeloid leukemia -- and many other compounds.

Celgene would not only be a good strategic fit for Pfizer because of the revenue generated, but it would also give Pfizer something that it lacks. Pfizer lacks a nice pipeline with cancer compounds, but it does have one major cancer compound being developed for patients with advanced breast cancer. This drug compound is known as Palbociclib, and has already been given breakthrough therapy designation for patients with advanced breast cancer. By adding in Revlimid into the mix, it can have an alternative drug compound that can treat other types of cancer. That's why Celgene would be a good strategic fit for Pfizer.

Another biotechnology company Pfizer should consider acquiring might be Gilead Sciences. Gilead Science has already established itself with many drug compounds, and those compounds are expected to rise in terms of revenue over the years. For example, one of Gilead's new HIV drugs, Stribild, had quadrupled its sales for the 4th quarter of 2013 to $203.8 million. Another drug compound used for HIV is Complera, which has more than doubled its sales during 2013 to $809 million. Both drug compounds have been doing well on the market and are expected to reach revenue in the billions by 2018.

Despite substantial revenue potential here, it comes nowhere near the potential of the current hepatitis C drug from Gilead known as Sovaldi. There has been a huge craze around the hepatitis C space, because the amount of patients needed to be treated is enormous. As a matter of fact, approximately 150 million people worldwide are infected with the hepatitis C virus, which is about 3% of the world's population. Sovaldi sales have already come in at $2.3 billion for its first full quarter out on the market.

Pfizer would do well to consider this acquisition, because it will not only obtain a huge blockbuster product with Sovaldi, but would also generate a flow of revenue from Gilead's HIV drug compounds, Stribild and Complera. Pfizer would be wise to do this acquisition, because it would generate a nice stream of income and would also get it a foot in the door into the hepatitis C space. Merck (NYSE:MRK) wasted no time when it recently acquired Idenix Pharmaceuticals (NASDAQ:IDIX) for $3.85 billion. The goal for Merck is to combine IDX21437 with two other drug compounds to produce a three-drug regimen combination for the hepatitis C virus.

As mentioned above, Gilead Sciences would be a good strategic fit for Pfizer, because Pfizer lacks a hepatitis C compound. For instance, Pfizer had one hepatitis C compound known as Filibuvir that was a non-nucleoside NS5B polymerase inhibitor. The problem was that it came nowhere near the nucleoside drug compounds from Gilead Sciences and Abbvie (NYSE:ABBV). In light of this, Filibuvir was Pfizer's only hepatitis C drug, and it had been dropped by the company in March of 2013. Therefore, Pfizer acquiring Gilead would at least give Pfizer one hepatitis C drug compound in its pipeline.

Pfizer means well to acquire AstraZeneca, but it wouldn't add any substantial growth for the company. Yes, it would help Pfizer with paying less for taxes, but it needs to consider its long-term sustainability in the pharmaceutical industry. We believe that it would serve the company better to acquire other biotechs with growth on an as-needed basis to newly bolster its pipeline. If Pfizer can strategically make great acquisitions, it can once again become that big pharmaceutical company that everyone has known about for years. Not just paying investors a dividend, but to create shareholder wealth by building future revenue.

Source: Pfizer Has It All Wrong, Should Look Into New Viable Acquisitions