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Pfizer's Growth Strategies May Need More Than Just Small Acquisitions

Ed Wijaranakula profile picture
Ed Wijaranakula
519 Followers

Summary

  • After its failed attempts for a merger with Allergan and AstraZeneca to bolster its drug portfolio, Pfizer has to heavily rely on its current blockbuster drugs.
  • Pfizer's blockbuster drugs face growth challenges such as losing patent protection, competition from generics and biosimilars.
  • M&A deals are still highly critical to Pfizer, either by more small acquisitions or a mega-merger, in order to get its revenues back on a growth path.
  • A mega-merger such as with Bristol-Myers could help Pfizer create a robust global inflammation and immunology drug portfolio.

Shares of Pfizer (NYSE:PFE) have declined about 10% since August 1 along with the S&P 500 Healthcare sector down 6.5%. In late August, the company announced the acquisition of Medivation, Inc. (MDVN) for $14 billion in cash and a month later, Pfizer made a surprise decision against splitting itself up, citing that it is best positioned to maximize future shareholder value creation in its current structure. By acquiring Medivation, Pfizer will be able to expand its oncology product portfolio with prostate cancer drug Xtandi (enzalutamide), approved by the U.S. Food and Drug Administration, or FDA, in August 2012, which could immediately impact top-line growth.

Pfizer Technical Chart

Medivation and Tokyo-based Astellas Pharma Inc. (OTCPK:ALPMF) (OTCPK:ALPMY) have been collaborating on a synthetic non-steroidal antiandrogen enzalutamide (MDV3100) drug since 2009, for which both companies equally share all U.S. developmental and commercialization costs and profits, while Astellas has responsibility for developing and commercializing MDV3100 outside the U.S. and pays Medivation tiered double-digit royalties on ex-U.S. sales. In the second quarter 2016, Medivation reported non-GAAP net income of $50 million on non-GAAP collaboration revenue of $206 million.

Another recent smaller acquisition by Pfizer, announced in late August, includes a $1.5 billion deal with AstraZeneca (AZN) for part of its antibiotics portfolio, comprised of the approved antibiotics Merrem, Zinforo and Zavicefta, and ATM-AVI and CXL, which are in clinical development.

Pfizer may have already given up on a mega-merger deal, after failed attempts with Allergan Plc (AGN) in April 2016, and AstraZeneca, in May 2014, dashed hopes that the company could soon put its revenues back on a growth path as its full-year reported revenues have tumbled 27% in five years, from $67.45 billion in 2011 to just $48.85 billion in 2015. With declining revenues and earnings growth, Pfizer has little choice but to return cash to shareholders through dividends, 3.62% in 2015, and share repurchases. Since 2011, Pfizer has reduced the number of

This article was written by

Ed Wijaranakula profile picture
519 Followers
W. (Ed) Wijaranakula has been a portfolio manager for over 15 years. He has a Ph.D. in Electronic Materials and has worked with Intel, Taiwan Semiconductor, Texas Instruments, and other tech companies in the Silicon Valley, during his professional career. He was also involved with industry research projects at MIT, NC State and the University of Washington. His investment research expertise includes biotech, commodities and currencies. He has published over 800 articles and holds 14 U.S. and international patents. Tweeter @wijaranakula

Analyst’s Disclosure: I am/we are long AGN, BIIB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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