Now that Donald Trump has won the presidency, it has been widely reported that he will push for a tax holiday to allow US-based companies to bring cash back into the United States at a much lower rate than normal. Since the Republicans now control both the house and the senate as well as this aligns well with their agenda I would assume this gets done within a year. Pfizer (NYSE:PFE) has a large amount of cash stored overseas and could do a number of interesting things if they were to get access to it through a one-time tax holiday.
Pfizer has been long known for their large acquisitions and if they get access to a large cash hoard that is estimated to be over 80 billion they might go hunting for another large takeover. Before speculating about what companies Pfizer might be interested in let's look at a few of their largest takeovers in the past and what they got out of the purchases.
- Paid approximately 60 Billion.
- Consumer staples Rogaine and Nicorette were included in the purchase, later sold to Johnson & Johnson (NYSE:JNJ).
- Pharmaceuticals included were Xalatan, Xanax, Detrol, Celebrex, Camptosar, Bextra, and Eplerenone.
- Bextra was eventually pulled from the market due to safety issues.
- Overall hard to rate this acquisition as a success. When Pfizer made this acquisition, Bextra and Celebrex both looked like huge blockbusters but safety data with Bextra and a similar drug called Vioxx killed these prospects and never let Celebrex reach its once thought of potential.
- Pfizer's largest purchase at 90 billion.
- Purchased right to Nuerontin, Lipitor, Lyrica, Accupril, and Rezulin.
- Gave them Lyrica and Lipitor which have become two of Pfizer's best-selling drugs of all time.
- Lipitor alone has had over 130 billion in sales since 2010, and still had sales of 1.8 billion last year despite losing patent protection years ago.
- Purchased for 68 billion.
- Led to a cut in the dividend, which angered many shareholders.
- Sold off infant nutrition business, which was growing at a good pace.
- Rights to Zosyn, Effexer, Prevnar, Benefix, and Tygacil.
- When bapineuzumab which was being developed for alzheimer's was cancelled, many considered this purchase a bust; however, Prevnar has performed better than anybody could have expected. Also Pfizer gained access to Wyeth's biologic manufacturing technology, which developed into Pfizer's biosimilar program. If Pfizer's big push into biosimilars is a success, this purchase could be rated a success despite bapineuzumab's failure.
Potential future buyout candidates
- Pfizer would gain rights to Eliquis outright, which it currently shares with Bristol-Myers, Eliquis is becoming a blockbuster medication.
- Bristol-Myers' stock price has come down making an acquisition more affordable.
- Pfizer is making a big push into immuno-oncology and Bristol-Myers is one of the leaders in the industry with nivolumab and ipilimumab.
- Merck is an industry leader in vaccines and has a strong immuno-oncology presence as well.
- Merck's vaccine portfolio consists of Gardasil, MMR, Varivax, ProQuad, and Zostavax. These would go well with Pfizer's Prevnar franchise as well as Pfizer's Cdiff and MRSA vaccines that are in development.
- Personally, I like this company the best as an acquisition target considering they are very strong in vaccines and immuno-oncology, which Pfizer is transitioning itself towards.
- One of my favorite authors DoctoRx laid out a compelling case for Pfizer to consider Gilead if you want to read it here.
- Has considerable cash flow.
- One of the best in the industry in antiviral research; could possibly pair well with Pfizer's numerous antibiotics.
After Pfizer's failed attempt to buy AstraZeneca (NYSE:AZN) and Allergan (NYSE:AGN), they started looking at smaller companies and bought Anacor and Medivation. They could follow this approach and snap up a couple of smaller market companies, although there are too many targets to mention them all but there are a few that stick out to me.
- Portola has developed an antidote to Eliquis, one of Pfizer's fastest-growing drugs.
- The major disadvantage Eliquis has compared to Warfarin is the non-availability of a reversal agent, Portola's andexanet alfa should change that.
- Andexanet alfa should be approved soon.
- I anticipate Pfizer is going to be making a huge push into biosimilars over the next few years.
- Pfizer already has extensive biologic manufacturing experience and could be helped by Momenta's technology that characterizes biologic structures.
- Collaborations with Sandoz and Mylan could complicate a deal.
Kite Pharma (NASDAQ:KITE)
- Kite specializes in using a patient's own immune system to fight cancer; Pfizer is trying to become a major player in this market.
- Their lead candidate KTE-C19 has been given breakthrough status by the FDA.
- Access to Pfizer's cash could allow Kite to fund more clinical trials and erase their cash burn concerns.
Lastly, although the least exciting, Pfizer could use all this cash to pay a special one-time dividend, buy back shares, or pay off some debt. None of these would be as sexy as a big purchase but might be a more prudent approach if Pfizer can't find anything worth buying from a value standpoint.
To conclude, it is obviously good that Pfizer will get access to their cash stored abroad but shareholders should be diligent in watching what Pfizer does once they get access to their overseas cash. A huge acquisition that doesn't mesh well could destroy shareholder value in the long run.
Another negative of a huge purchase would be the possibility of a cut in the dividend again like during the Wyeth buyout. As an investor, my preference would be for Pfizer to continue to buy back shares and make a few small purchases that align well with their future in oncology and vaccines. While these smaller companies' products take longer to yield results, they are usually more innovative and easier to absorb.
Disclosure: I am/we are long PFE, MNTA.
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.