Pfizer Bidding for Bayer Makes No Sense

The rumor seems to be going around that Pfizer (PFE) might be making a bid for Bayer (aka Bayer/Schering). That sounds ridiculous to me, and if Pfizer actually does such a thing, its management is even more starved for ideas than its nastiest critics could believe.

Why all the negativity? Well, Bayer doesn’t seem to be much of a fit, for one thing. The company’s Nexavar (sorafenib) oncology drug competes head-to-head with Pfizer’s Sutent (sunitinib), and a good chunk of that revenue goes to Onyx (ONXX), anyway. (Which reminds me – I keep seeing mentions of that drug being an Onyx discovery which was picked up by Bayer, which isn’t right. That one was made at Bayer – why Onyx has a piece of it has to do with the biology, not the drug discovery). The market for kidney cancer would be completely tied up by a Pfizer/Bayer deal, which makes you wonder if the resulting behemoth would be required to divest one of the drugs.

Pfizer does like to pick up big-selling compounds by buying the whole company behind them, but Bayer/Schering doesn’t have anything in the Lipitor/Celebrex class right now. (Remember Celebrex?) They might have one coming, though, with their Factor Xa inhibitor, rivaroxaban: it’s expected to do very well in the extremely lucrative clotting market, but it’s not there yet. And besides, some of that one is already tied up with J&J (JNJ), at least in the U.S.

Then there’s the general objection: I’d argue that Pfizer is in the shape it’s in because they’ve pursued the big, big, acquisition strategy. Their own labs have been unproductive, and they unfortunately seem to spray down the research organizations they purchase with whatever’s in the air supply at the home base. OK, that’s probably unfair – but no one can deny that as a whole, Pfizer’s internal drug discovery efforts have been remarkably frustrating for many years now. And they’ve got a massive cost structure, what with all the various facilities they’ve accumulated over the years, which is what’s led to things like their mass exodus from Michigan.

More of that sort of thing is what I expect from Pfizer, not some big acquisition. (And I suppose that it should be mentioned that it’s now a widely held belief that more layoffs are coming there this fall, anyway). But if they buy something, it won’t be pretty. What they need is revenue to replace Lipitor in a few years, not people or research facilities. And that’s another reason that a Bayer purchase makes no sense – have you looked into how hard it is to lay people off or close a site in Germany? Years, it takes years, and buckets of money – just what Pfizer doesn’t need to take on.

So if you need an excuse to dump Pfizer’s stock (and why, exactly, would you be holding Pfizer stock?) a purchase of Bayer would be the perfect signal that they’ve lost their minds in Groton. I don’t think they have, though. Not completely. Not quite yet.

Comments

[Ax:]

I agree. Licensing deals is the only way out from a long term point of view. They have the distribution capabilities. That's their asset. R&D has been a lagging factor for years.

A takeover of Bayer is nuts. Two dinosaurs merging don't make a horse.

2008 Sep 10 12:13 PM