Pfizer's recent bid to acquire AZ has inspired a lot of feedback from various fronts on the meaning of the potential merger and its possible effects. First and foremost, various government officials (in opposition to the apparent PMs backing) are worried that Pfizer will take jobs away from the UK. This is specifically based on the knowledge that Pfizer is trying to save money in even pursuing the merger, and on its history post-Wyeth acquistion of whacking 1700 R&D jobs in Sandwich. PM Cameron has also sought assurances that both R&D jobs would stay in the UK and that Pfizer would finish the AZ research hub going into Cambridge right now. Pfizer's CEO Read has provided such assurances in a letter to the PM. But the M.P.s still plan to grill Read on this issues next week in an appearance before Parliament. See Fierce Biotech and In the Pipeline.
Analysts have noted as the price for AZ rises then so must the number of cuts that Pfizer will make to pay for them. Estimates now are that Pfizer will need to find $3 B annually to make the deal work and that figure could climb to $3.5 B if the price keeps going up and Pfizer is forced to part with more cash as part of the deal. Given this scenario, the analysts see R&D sites in both Sweden and in the US as potential closure victims as Pfizer seeks to save money to pay for the deal. These cuts are unlikely to occur in the UK, for the reasons cited above, and by the fact that Pfizer is actually looking to cut its taxes by centering its operations to the UK. See Bloomberg.
Not to be outdone, AZ is touting that it has begun a wonderous turnaround and investors would be crazy not to hang on for the ride to prosperity. AZ says its new pipeline is so promising that within the next 5 years it could be spinning off as much as $63 B in peak sales. Apparently, we should ignore all the failure and R&D ineptitude of its recent past -- not to mentioning the sackng of its former CEO and R&D head. Just give us a little more time. See Fierce Biotech.
There are also some suggestions that Congressmen in the US could re-examine US tax policy to discourage these type of tax inversion deals in the future. Fierce Biotech reminds us however, that while this may have been a more credible threat that Congress could employ in the past, the virtually disfuntional group we have now can't pass gas and is basically toothless. So while amendments to th etax code may happen at some point, don't hold your breath. See Fierce Biotech.
Also, there was an interesting article in this morning's Xconomy talking about the peril that smaller biotech's might be facing if they are dependent on deals they have with either Pfizer or AZ. Francois Nader (biotech veteran and primary interview) says that in his experience these type of deals cause the acquirer to evaluate the pipeline and the smaller biotech deals can fall by the wayside -- whether the product is good or not -- as the Big Pharma player may not have the bandwidth to deal with the project anymore. Worst case though, is that they hang on to the deal and simply don't do anything with the property. He recommends getting clarity around the Big Guy's intentions as soon as possible and if you end up taking your property back managing the communications around the return so it doesn't look like Big Pharma just dumped a bad project (regardless if that's the case or not and it may not have anything to do with potential either).
Posted by Bruce Lehr May 8th 2014.