Spurning Merger Approaches, AstraZeneca Pursues Own Path
The British drug company AstraZeneca said no to a tie-up with Pfizer, turning down the possibility of one of the biggest drug mergers in recent history.
Whether such a deal would have made sense is another matter, because the British drug maker is trying to improve its fortunes on its own and Pfizer in the past has found that big acquisitions can sometimes prove more distracting than helpful.
In recent months, Pfizer made a number of informal takeover approaches to AstraZeneca, according to a person briefed on the matter who is not authorized to speak publicly about internal discussions. One of those tentative approaches valued the smaller pharmaceutical company at about £60 billion, or nearly $100 billion, according to The Sunday Times.
At that level, the deal would be one of the biggest ever in the pharmaceutical industry, surpassing Pfizer’s $90 billion takeover of Warner-Lambert.
Pfizer would probably have used some of the cash and short-term investments on its balance sheet — about $32.4 billion as of the end of the year — as part of the deal.
A takeover of its British competitor would also have made use of cash that Pfizer holds overseas, since buying an American rival like Bristol-Myers Squibb would incur a big tax bill. Pfizer said that it had about $69 billion in earnings from international subsidiaries as of Dec. 31.
But the board of AstraZeneca viewed the approaches as opportunistic and ill timed, with too small a takeover premium, the person briefed on the matter said. As of Friday, the company’s market value stood at just under £48 billion.
The two are not in talks, according to people briefed on the state of the discussions. Representatives for both companies declined to comment.
To Pfizer, AstraZeneca may be attractive because of its portfolio of cancer drugs, an area that the American company has also made a priority as it seeks to restock its product pipeline. The company’s shares have fallen 1.4 percent over the past 12 months.
AstraZeneca hopes to begin late-stage clinical trials this year of at least one drug that works by unleashing the body’s immune system to attack tumors. This is one of the hottest areas in oncology, with doctors predicting a revolution in treatment and securities analysts predicting billions of dollars in sales for successful drugs.
The company is considered to be behind Bristol-Myers Squibb, Merck and Roche in the race to bring such drugs to market. But the market is expected to be big enough for several participants.
AstraZeneca hopes to win approval for olaparib, a new type of drug to treat ovarian and breast cancer.
Meanwhile, Pfizer is no stranger to big deals, having struck three enormous ones over the past decade: the takeover of Warner-Lambert in 2000, the $60 billion purchase of Pharmacia in 2002 and the $68 billion acquisition of Wyeth in 2009.
But rather than seek out a merger partner, AstraZeneca has been trying to improve its fortunes on its own over the past few years. It has suffered declining revenue and profit because of the loss of patent protection on some of its best-selling drugs, while it has experienced setbacks in developing new drugs.
Its revenue in 2013 was $25.7 billion, down 8 percent, while what the company calls core earnings per share, which excludes restructuring and certain other costs, fell 26 percent to $5.05. The company is projecting further declines in 2014.
Pascal Soriot has been trying to cut costs, speed up decision making, and focus drug development on selected diseases since he became AstraZeneca's chief executive in 2012.
AstraZeneca, via Reuters
Pascal Soriot has been trying to cut costs, speed up decision making, and focus drug development on selected diseases since he became AstraZeneca’s chief executive in 2012.
In 2012, the company named Pascal Soriot, formerly the head of pharmaceuticals at Roche, as its new chief executive. Mr. Soriot has been trying to cut costs, speed up decision making and focus drug development on selected diseases.
AstraZeneca has made a number of small acquisitions to bolster its pipeline. Perhaps the most significant was its agreement to pay at least $2.7 billion to buy out Bristol-Myers’ share of a diabetes joint venture, leaving AstraZeneca with sole control of a portfolio of products.
One new product that AstraZeneca has been counting on for growth, the clot-busting drug Brilinta, has not gained much traction in the United States. Mr. Soriot has said that sales in the United States were being slowed by an investigation by the Department of Justice, which is believed to be looking into whether the results of a clinical trial were manipulated to make Brilinta look better than the comparison drug, Plavix, in preventing heart attacks and strokes.
Shares in AstraZeneca have risen 13 percent over the past 12 months.
Not all analysts and investors believe a deal for AstraZeneca makes sense. Timothy Anderson, a pharmaceutical analyst at Sanford C. Bernstein & Company, noted on Monday that the American drug maker has been working to split itself up into separate, smaller units.
“Acquiring AstraZeneca would take Prizer in a direction that is the polar opposite of what management has been discussing for about the past three years,’’ he wrote. “Many investors and industry observers alike feel that Pfizer is in its currently difficult position precisely because of prior mega-mergers.”
Mr. Anderson added: “Nearly every big drug company that has undergone large mergers now laments how disruptive transactions like these are to important business functions such as R.&D. Pfizer has said the same.”
In a quick survey of institutional investors conducted by Mark Schoenbaum, an analyst at the ISI Group, 51 percent said that the deal did not make sense from Pfizer’s point of view. Some 49 percent of the 194 respondents said the rumored price of $80 a share would be fair, 41 percent said it would be too high and 10 percent too low.
Mr. Schoenebaum himself concluded that such a deal would add shareholder value for Pfizer and would give it access to the important new type of cancer drug.
“Growing bigger (and, in PFE’s view, better) doesn’t at all mean PFE can’t split up,’’ he wrote in a note on Sunday, referring to Pfizer by its ticker symbol.
