A View From The City: Market Forces Must Decide Pharma Fate
Updated: 10:49am UK, Tuesday 06 May 2014
By Savvas Neophytou & David Buik, Panmure Gordon
Panmure Gordon's senior pharmaceutical analyst Savvas Neophytou and its market commentator David Buik write on the issues surrounding Pfizer's sight for AstraZeneca:
In recent weeks the pharmaceutical sector has been the subject of potentially frenzied 'M&A' activity.
Not just Pfizer and AstraZeneca. Glaxo, Novartis, Shire, Allergan, Sanofi-Aventis and Johnson & Johnson have also been in the melting pot.
A drug company's pipeline is a key component of its valuation, as once the patent runs out, that drug only has generic value.
Astra's CEO Pascal Soirot believes Pfizer has greatly under-valued Astra's pipeline and all the encouraging scientific developments associated with its Cambridge operation and Pfizer is more than aware of the added value as well as the tax advantages with a presence in the UK.
Pfizer's CEO Ian Reid has been plainly told by Astra's board that the £50 a share offer, valuing the company at about £60bn, with a 32% cash component, is wholly inadequate, despite the fact Astra shares have leapt from £35 since January, when Astra was first approached, to £48 last Friday.
Pfizer's profits, posted yesterday, were down 15%; so to tempt Astra to come to the negotiating table it may cost the US drug titan £55 a share.
Pfizer does enjoy the luxury of a $70bn cash surplus. At present Pfizer is best known for Viagra and Lipitor and Astra for Crestor, Prilosec and Nexium. However it is in the arenas of oncology, other cancer drugs and vaccinations, that Astra provides a superb platform for expansion and added value.
One fears that political interference waits in the wings.
Free enterprise, the bastion for the creation of democracy, wealth and therefore employment, is fast disappearing, there being far too much protectionism in so many parts of Europe, with France and Germany the main protagonists.
Both countries have been wilful in refusing to allow the takeover of a company by an international predator. Not only does this fact make Europe an increasingly less attractive place to rely on for business reciprocity, but also if the free enterprise system is not allowed to flourish, international trade could become adversely affected.
In recent years the following companies have fallen in to overseas hands or those of private equity - Boots, British Airports Authority, Blue Circle, Corus, Laporte, ICI, Hanson Trust, Mercury Asset, 02, Rowntree's, Scottish & Newcastle, Abbey National and Cadbury's.
Apart from Corus, through natural wastage and some economy of the truth when Kraft bought Cadbury's, these acquisitions have created wealth and jobs, thus beneficial to the UK economy.
There really is some unnecessary froth being churned up by the prospect of an overseas takeover. If it makes good business sense then let market forces charge what the traffic will bear.
We suspect Pfizer employees are likely to suffer more than the 7000 employed by AstraZeneca in this country.
There could be cost savings of £2/3bn.
If the world is going to be a healthier place as a result of this merger of pharmaceutical titans, then as Leslie Crowther said all those years ago 'Come on down if the price is right!'
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