There is a misconception among investors that Pfizer (NYSE:PFE) was only trying to acquire AstraZeneca (NYSE:AZN) to gain access to a country with a corporate tax rate of 21 percent, far lower than the 35 percent rate in the U.S. While this rate was a huge role in attracting Pfizer, it alone did not validate the $117 billion that Pfizer was willing to pay. Therefore, as you dig deeper, it’s clear that Pfizer lost more than just a tax rate.
Pfizer belongs to a group of pharmaceutical companies known as “big pharma,” a group that has suffered in recent years due to patent expirations. Specifically, Pfizer’s stock is still lower by more than 15 percent over the last decade, as the loss of the cholesterol drug Lipitor has been irreplaceable for the company.
If losing Lipitor, among other drugs, weren’t bad enough, Pfizer faces patent expirations on countless other blockbuster products.
|Drug||U.S. Patent Expiration||U.S. Sales||Europe Patent Expiration||Worldwide Sales|
|Lyrica||2018||$1.9 billion||2014||$4.59 billion|
|Celebrex||2015||$1.9 billion||2014||$2.9 billion|
|Zyvox||2015||$688 million||2016||$1.35 billion|
Moreover, the drug Viagra, which earned worldwide sales of $1.8 billion last year will lose exclusivity in 2017 to Teva Pharmaceuticals, due to a previously announced agreement. Therefore, Pfizer not only desired a lower tax rate, but needed revenue and profits as well.
AstraZeneca has Crestor and Nexium, which have annual revenue of $5.6 and $3.8 billion, respectively. It also has the blockbusters Symbicort and Seroquel, then beyond those products is a pipeline full of dreams.
The company has five different PARP inhibitor trials, which have been proven effective in treating cancer, in treating ovarian, breast, and gastric cancers. The ovarian trial has already been filed with the FDA while other programs are expected in 2016.
Then AstraZeneca has three late-stage MEK inhibitors – remember these inhibitors are highly successful both alone and in combination – to treat non-small-cell lung cancer, thyroid cancer, and melanoma. The company has other late-stage candidates in oncology, including Caprelsa, which recently launched to treat medullary thyroid cancer.
Finally, aside from Phase 3 and recently approved oncology products, AstraZeneca has a leading class of drugs for cardiovascular and metabolism disorders. This includes two recently launched drugs, one FDA approved, and another that just filed with the FDA that combined could create billions and drive top-line revenue for AstraZeneca.
The bottom line is that Pfizer, a company with continued patent woes, could have not only lowered its tax rate substantially, but also acquire a deep late-stage pipeline and newly launched products along with several blockbuster drugs. Clearly, Pfizer lost more than a tax rate, and it’s for this reason that you shouldn’t be surprised to see Pfizer’s “final offer” for AstraZeneca be just the start of its attempted acquisition. Because when the dust settles, and you look at what Pfizer has at the core of its business, it deeply needs AstraZeneca.