Pharma Drama: Pfizer Fails to Woo AstraZeneca; Valeant Pursues Allergan

It seems Pfizer Inc.’s (NYSE:PFE) attempts to woo AstraZeneca (NYSE:AZN) have failed, as AstraZeneca has rejected an offer from the world’s largest pharmaceutical company, according to a report from The New York Times. Had the merger gone through, it would have been one of the largest pharmaceutical industry mergers in recent historysurpassing Pfizer’s previous $90 billion takeover of Warner Lambert.

Analysts are divided about whether AstraZeneca would have benefitted from a potential acquisition by Pfizer. London-based AstraZeneca is hoping to grow on its own, and Pfizer has sometimes found major acquisitions to be more distracting than helpful.

The New York Times reports that AstraZeneca’s board viewed Pfizer’s approaches as “ill-timed,” and with too small of a takeover premium.

Analysts say they expect Pfizer to approach AstraZeneca a second time, although it’s possible the company, worth about $87 billion, could decide to merge with another, similarly sized company, such as Amgen Inc. (NASDAQ:AMGN), in an effort to avoid Pfizer. Analysts at Albert Fried & Co. say Dublin-based Shire (NASDAQ:SHPG) would be their pick for such a merger, and others have suggested Bristol-Myers Squibb Co. (NYSE:BMY) as more suitable merger candidate for Pfizer, according to Bloomberg.

Pfizer and AstraZeneca are both approaching sticking points: Pfizer because patents for its best-selling drugs will soon expire, and AstraZeneca because its current cancer pipeline, though promising, is still miles away from U.S. Food and Drug Administration approval.

“Everybody’s scrambling for these assets,” Sachin Shah, a special situations and merger arbitrage strategist at New York’s Albert Fried, said to Bloomberg. “When you have these large transactions back to back, it just begs the question of what do the big pharma guys think about this? Right now, Pfizer’s probably coming to the conclusion that it needs to have a ‘buy’ mentality.”

Some analysts say AstraZeneca could still be a good fit for Pfizer. “This deal could make a lot of sense,” Alex Arfaei, an analyst with BMO, told the news service. “First, it would significantly improve Pfizer’s pipeline, particularly immuno-oncoology. Second, obviously there would be significant operating synergies.”

Other analysts, though, say the move would be too counter-intuitive for AstraZeneca. “Acquiring AstraZeneca would take Pfizer in a direction that is the polar opposite of what management has been discussing for the past three years,” said Timothy Anderson, a pharmaceutical analyst with Sanford C. Bernstein & Co., in an interview with The New York Times. “Many investors and industry observers feel Pfizer is in its currently difficult position precisely because of prior mega-mergers.”

That said, Pfizer isn’t the only pharmaceutical company out to conjure up a deal. On Tuesday, Novartis (NYSE:NVS), GlaxoSmithKline (NYSE:GSK), and Eli Lilly & Co. (NYSE:LLY) closed a series of deals worth as much as $28.5 billion, according to The New YorkTimes. Valeant Pharmaceuticals International Inc. (NYSE:VRX) also announced on Tuesday that it had made an offer to buy Allergan Inc. (NYSE:AGN), perhaps best known for its anti-wrinkle treatment Botox; the deal between Valeant and Allergan is worth about $46 billion.

And Valeant’s not messing around, either: CEO Mike Pearson said that he aims for Valeant to be one of the world’s top five largest drug makers by the end of 2016 — no easy feat. The company needs to increase is market value by more than $150 million in order to meet its mark, according to The New York Times.

To accomplish that goal, the company’s strategy thus far has been to aggressively acquire companies that it views as having unnecessarily high expenses. Valeant then systematically lowers that company’s overhead, integrates it, and moves on to the next deal, Bloomberg reports.

Analysts say the threat of a hungry up-and-coming drug maker like Valeant, which was previously known primarily for its generics business, may push other companies such as Pfizer and AstraZeneca into making deals. “You’ve got Valeant out there saying ‘We’re coming after you guys,’” Shah said to Bloomberg. If Pfizer and AstraZeneca were to join in, she added, “that’s going to wake everybody up in the industry.”

Correction: The correct value of Pfizer’s takeover of Warner Lambert was $90 billion. The error has been fixed.

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