The Goofy $100B Pfizer/AstraZeneca Rumor — How It Came To Be — A “Novella” Involving Ian Read’s “Unpringing” Here

April 23, 2014 - Leave a Response

Okay — it’s a slow Merck news morning so. . . this one was inspired by the musings of a very cogent commenter, right here on the site, asking after whether I thought Pfizer — given the splash Novartis made yesterday — would actually become a net “buyer” (i.e., get bulkier) in the near future.

I really doubt it. Pfizer is still officially considering a three way split — or getting skinnier, on all fronts. The newly emergent trend (see WSJ pull quote below) in pharma is toward leaner, faster and sharply-focused offerings (being No. 1 or No. 2 in a few select high margin markets). So, the rumor would be — at best — strongly counter the trend, and Pfizer’s own announced strategic review.

Now. . . let us consider why Mr. Read might have (however fleetingly) entertained the rumored deal — about six months back. This is all pure speculation — but recall that Ian C. Read grew up as an operations accountant, in internal audit, at Pfizer — ever since 1978. Operations. Operations. That is to say his seminal experience base, at the big blue “P” pill, was to see — first hand — how Pfizer creatively used US GAAP rules to maximize overall enterprise profiability — and, in the lowest tax jurisdictions, to boot.

So — I am willing to bet that Mr. Read was initially attracted to the idea of buying AstraZeneca in order to cut Pfizer’s overall global consolidated tax rates, by re-domiciling the resulting behemoth in the UK — such a transaction is called an inversion. [He also would have loved to be able to efficiently redeploy the $70 billion or so, in parked foreign earnings Pfizer holds, without paying US "deemed dividend" taxes on it.] So — the idea was likely floated by a banker (pitched over dinner in mid-town Manhattan(?) — to Mr. Read) to buy AstraZeneca, invert Pfizer’s domicile in the UK, and then. . . begin lopping off huge chunks of the resulting leviathan, and dumping them over the side. In the end though, once some capable antitrust lawyers raised their hands — to point out that it would be rather a lot of dumping, and a lot of that comprising the core assets of both, all as required by the relevant authorities. . . well, the discussions likely quickly cooled off. I bet. Of course, all of this could be dead-wrong — but I bet it is pretty close to the truth. At least in the broad outlines. So, don’t bet on the rumor coming true — not without some very significant accompanying divestitures, pre-close.

Here is this morning’s Wall Street Journal ($$$ Subs. Req.) — confirming much the same as I mention in the second paragraph above:

. . . .A new flurry of drug deals shows how the global pharmaceutical industry is reversing course, as companies narrow their focus after decades of diversifying their drug portfolios.

Swiss drug giant Novartis AG and the U.K.’s GlaxoSmithKline PLC on Tuesday were the latest to illustrate that about-face, announcing more than $20 billion in deals. Novartis will sell its animal-drugs business to Eli Lilly. . . .

So while anything is possible, I think a $100 billion acquisition by Pfizer is. . . remote. Said another way, the germ of the idea to do it, was likely more “financial engineering” than actual, organic operational “value creation“. [Mr. Reed is smarter than that, now.] But if Ian Read were to make a buy of that size, he’d immediately (pre-close, even) shed large chunks of the constituent companies — pruning the bush, as it were. And the EU and US antitrust authorities would likely require him to cut off major branches — ones that he’d rather. . . not. Just my $0.02 — that deal never gets announced, let alone closed. So, be very careful out there, oh you “merger arbitrage” bettors. Smile. . .

Gilead’s Solvadi® Hep C Cure Sold $2.27 Billion In First Full Quarter On Market — In US. WOW!

April 22, 2014 - Leave a Response

This easily eclipses Vertex’s launch of Incivek® (telaprevir) — a prior gen Hep C treatment — as the richest launch of all time, in the history of the pharmaceutical business world wide. Q1 2014 sales were just about double what Wall Street expected. Amazing — that doesn’t happen every day.

I am certain no other drug ever sold near $2 billion in its first full quarter on-market. But that’s what Gilead just pulled off with Solvadi®. At $1,000 per pill — $84,000 for a full 12 week course. Wow. From the Gilead’s Q1 WSJ release-reprint then:

. . . .The higher-than-expected sales reflect Sovaldi’s use by about 30,000 patients with the liver disease since the drug was introduced in December, and a price tag of $1,000 per pill, or $84,000 per patient for a standard 12-week treatment.

Analysts said they believed it was the highest sales total ever for the first full quarter of a new drug. In comparison, the most recent fourth-quarter sales for the top-selling drug in the world— AbbVie’s Humira® arthritis treatment, on the market since 2002 — were $3.04 billion. . . .

I guess the question may turn out to be whether Merck’s MK-5172 will have multiple millions of insured people, erh. . . left to treat by the time it reaches market, given this roaring start for Gilead.

Trivial, But “No Surprises Here” Department: Ex-CEO “Fast Fred” Hassan (Or His Family) Backed Later Ventures By Former Notorious Hedge Fund Bio-Science Short Seller.

April 22, 2014 - Leave a Response

Far be it from me to throw rocks at Fred Hassan’s all glass houses. Hah. R-i-i-i-i-i-ght.

It is trivial, I grant you that. But this one deserves mention, just the same. Do go read the BusinessWeek article. Start to finish — truly. This young man is apparently trying to convert from the dark side — to the innovator role, in branded bio-science. I wish him well. But the company he has kept, since 2004, apparently — is rather telling. Do go read — here’s a bit:

. . . .In 2011, Shkreli used $3 million raised from MSMB investors to start Retrophin. In addition to Blanton, Retrophin’s initial financial backers included the family of Fred Hassan, former CEO of pharmaceutical giant Schering-Plough, to whom Shkreli introduced himself at a pharmaceutical conference in 2004.

To realize his aspirations with Retrophin, Shkreli had to grow up in more ways than one. . . .

Just read the article. I think the two were cut from the same cloth. I’ll stop there. Have a great evening, one and all!

In Q1 2014, Merck Cut Its Lobbying Spend In Half — Will Decrease Persist?

April 22, 2014 - Leave a Response

Here it is, fresh from the Senate’s public Forms LD-2 database, overnight.

Even at this surprisingly reduced spend level (off election cycle?) — it is notable that Merck is still lobbying on biologic exclusivity periods, and patent “pay for delay” policies, as well as the more robust extra- territorial enforcement of its patents — primarily, in India. Still, the decrease is rather remarkable. So I am. . . remarking. With a spruced up graphic ,too. [Heh.] Here is some more detail from the form — just filed overnight:

. . . .Alzheimer’s education (no specific bill); 340B (no specific bill); National Diabetes Clinical Care Commission Act (H.R. 1074, S. 539); Eliminating Disparities in Diabetes Prevention, Access and Care Act (H.R. 3322); Hepatitis C education (no specific bill); adult vaccine policies (no specific bill); medication adherence (no specific bill); DISARM (H.R. 4187). . . .

Comprehensive tax reform (no specific bill); transfer pricing of intangibles (no specific bill); territorial tax system (no specific bill); deferral of taxation of foreign earned income (no specific bill); tax base erosion (no specific bill); R&D tax credit (no specific bill). . . .

Non-interference in Medicare Part D (no specific bill); Medicaid-style rebates in Medicare Part D (no specific bill); Low Income Subsidy Copays in Part D (no specific bill); Independent Payment Advisory Board (S. 351, H.R. 351); sustainable growth rate (H.R. 4302). . . .

Trans-Pacific Partnership (no specific bill); biologic data exclusivity (no specific bill); trade promotion authority (no specific bill); treatment of intellectual property in India (no specific bill); Playing Fair on Trade and Innovation Act (HR 3167); additives in beef cattle (no specific bill); trade adjustment assistance (no specific bill); international trade barriers for beta-agonists (no specific bill). . . .

Deficit reduction (no specific bill); ADAP funding (no specific bill); omnibus appropriations; Patent reform (H.R. 3309, S. 1720 ); education on beta agonists (no specific bill). . . .

That last little bit, bolded, on beta agonists is lobbying to reintroduce Zilmax® (the cattle feed additive is a beta agonist, just like Merck’s Foradil® inhaler contains — but I strongly suspect this is not about people breathing easy!) in the US. Now you know. But I’d not bet that the overall Merck lobby-spend will be at half of last year, when the full year is tallied.

Suddenly, Merck’s Animal Health Businesses May Be. . . UNDER-Sized (Too). . .

April 22, 2014 - Leave a Response

A quick follow-up, then — to this. The Pfizer spinoff Zoetis is still clearly No. 1.

But if Lilly, Glaxo and Novartis can pull all this transactional conjuring off, Lilly holds the No. 2 spot in Animal Health. That puts Merck at No. 4 or worse (unless Whitehouse Station acts — in turn). Of course, it will be mid-2015 before all of this is closed — but Merck will, in all probability, do something dramatic between now and then.

I think that which was luminous, pre dawn — just became clear(er) — with the Novartis early morning announcements.

Despite my running the graphic anew, at right — I do not expect a revival of the 2009- to 2011 era Merial Sanofi JV discussions. But could Merck or Sanofi do something (collaboratively) to ensure robust competition persists — in Animal Health, globally? I now think the EU Competition Commission might be more open to the idea, given how much more incrementally concentrated the Lilly-Novartis AH deal will make these markets. [US FTC/DoJ Hart Scott analysis -- in a separate post -- at day's end.]

Will Merck add to its Animal Health core, bulking up? Or will it effectively exit, via a spin-off or sale? We shall see. [It is absolutely true now that the GSK-Novartis JV will control the No. 2 spot in Consumer Health world-wide (behind only J&J) -- Merck's legacy Schering-Plough Consumer Health operations are waifish, and in need of some real help -- or an exit plan.] More later — daylight duties are now calling yours truly.

Much As Expected, Novartis In Three Party Deal With GSK & Lilly; Not A Merck “Straight Swap”

April 22, 2014 - Leave a Response

UPDATED — for a few thoughts, on what the Lilly part of it means to Merck. More — including graphics — in a bit. So, a straight swap with any one player of size was always going to be DOA, due to antitrust concerns — just as I repeatedly said. But today’s announcements add a little pressure, narrowing (if slightly) some of Whitehouse Station’s options — and amplifying the urgency — under Merck’s ongoing strategic business review.

More to the point, this series of deals makes Lilly No. 2 in Animal Health behind only Zoetis, the Pfizer spinoff. And including three parties makes the antitrust analysis/compliance plan a more manageable set of equations. From the London papers then — a bit:

. . . .Basel-headquartered Novartis said separately that it will sell its animal health division to U.S. firm Eli Lilly for $5.4 billion.

Glaxo called the linked deals a “major 3-part transaction” while Novartis revealed that the multibillion-dollar deal may affect up to 15,000 of its employees globally. . . .

The two drugmakers [Novartis and GSK] also are creating a new consumer health care business through a joint venture. It combines Novartis’ over-the-counter drug business with GSK’s consumer business to create a new entity that would generate $10 billion a year in revenue. Novartis would own 36.5 percent of the new business, focusing on pain management, coughs and colds and dermatology. . . .

So this also affirms the notion that more modest (post-2008 meltdown) valuations I’ve been suggesting will be the norm — for Merck — as well. Told ‘ya so.

Now we see if Reckitts has bid enough to get Merck’s Consumer Health businesses, or whether it will be spun-off to shareholders — or kept. I do think this (on balance, albeit marginally) leaves Merck with fewer options related to its two units under review.

New post in a second, on what the post Novartis/GSK/Lilly deal landscape may mean to Whitehouse Station — assuming Novartis can get all of this closed pretty much intact, after European Competition Commission, and FTC/DoJ Antitrust Hart Scott reviews, and requests.

Before We Completely Abandon The Topic Of The Topic Of The “Pfizer Buys AZ For $100 Billion” Rumor. . .

April 21, 2014 - Leave a Response

MRK-PFE-EU-ALT I made only a passing shorthand mention yesterday, as I ran out to brunch, of the magnitude of the likely antitrust impediments, should such a rumored deal ever actually get announced. I’ll not dissect the deal market by market, or geography by geography — but the overlaps are fairly. . . staggering. At least inside the EU.

Thus, the primary driver of the antitrust required divestitures (or JVs or outlicensings) — in any such a deal — would be the European Competition Commission, not the US FTC/DoJ Antitrust Divisions (though these too, would have to have a Hart-Scott say). In Europe, AstraZeneca and Pfizer compete head to head in many markets and therapies. And untangling these potentials for monopolist power, by geography, and by therapy — is no small notion, in a mythical $100 billion deal that gives No. One or No. Two (or No. Four, depending on how you measure Pfizer) control of No. Seven (or No. Nine), in Europe.

Suffice it to say that should such a presently-mythical deal get annouced, it would be tough to close. And it would, with near certainty, result within a few years in a combined entity that scantly resembled the constituent companies. The number of required divestitures, joint ventures and licenses to preserve “robust competition,” in the view of the relevant EU authorities, at least, would take several years to complete, and might end up gutting the best of the two companies, as standalones — leaving only the weaker parts of the then combined new “whole“.

So, on balance, never say never — but even Ian Read isn’t so patrician as to try to unilaterally impose his whims upon the EU Competition Commission.

As I said yesterday, this deal never gets done as a hostile — and thus very likely never gets done — at all. AZ has declined to acquiesce — and no additional talks are scheduled or are contemplated. Here effectively endeth the rumor. Or at least our dissection of it. Have a great Monday, one and all!

Interesting, Yes. . . But I’d Not Bet On A +$100 Billion Pfizer Takeover Of AstraZeneca

April 20, 2014 - Leave a Response

UPDATED — for Monday morning musings. This will likely be one Easter Egg hunt that turns up. . . nothing. It is purely a rumor piece — and an outdated one – at that.

While it is true that such a deal would allow Pfizer to deploy most of that parked unrepatriated earnings, in a UK asset, to boot — creating nice natural foreign exchange hedges in the process, such thinking cannot overcome the obvious and persistent downramp in AstraZeneca’s sales (nor Pfizer’s, either — truth be told). [It is a lead-pipe cinch/certainty that since AZ rebuffed the reputed overture of a few weeks back, a hostile deal would simply not be possible -- not finance-able -- not on this scale, post 2009. . . .]

And we haven’t even looked at antitrust. But that would be a bearcat. Here is a bit of Reuters, repeating the two-week old rumor — do go read it all, just the same:

. . . .In the past Swiss drug firm Novartis and larger British peer GlaxoSmithKline have been mentioned as potential suitors, although GSK has publicly said it is not interested in making a large acquisition in recent years.

AstraZeneca, which announces first quarter results on Thursday, has a market valuation of around $80 billion, compared with Pfizer – valued at $193 billion, according to Thomson Reuters data.

Earnings at AstraZeneca fell 6 percent in the fourth quarter of 2013, and the drugmaker has said it expects them to keep falling in 2014 as generic competition to Nexium, its popular heartburn and ulcer drug, takes a big bite out of U.S. profits from late May.

AstraZeneca has suffered a dry period in drug discovery in recent years and badly needs to find new medicines to replace blockbusters such as Nexium and Crestor, a treatment for high cholesterol that will lose patent protection in a few years. . . .

All in, then — this rumor has only scant meaning — for the fortunes of Merck, and her Whitehouse Station/Kenilworth denizens. Separately, do recall that it is a near certainty AZ will announce Thursday it will take Nexium rights back in 2014 from the Merck joint venture. Happy Easter to one and all — I’m off grid for the balance of the holiday (yep, egregiously over-eating).

I’ll Stick With My Guess On Peak Sales Of $250 Million. . . But Stallergenes Update, Via Comments

April 18, 2014 - 2 Responses

But first, some of what was going on at St. Pete’s, this afternoon:

I love crowd-sourced knowledge. So efficient!

Here is exhibit A — from my readership. Do read it all.

. . . .Anonymous said. . .

I don’t believe that Stallergenes has a ragweed product at the FDA right now. Checking the FDA site only turns up a grass tablet.

Yes, the current Stallergenes approved product for SLIT is a multi-perennial grass extracts (Sweet Vernal, Orchard, Perennial Rye, Timothy and Kentucky Blue Grass Mixed Pollens Allergenic Extracts).

However, these grasses share immuno-crossreactivity. It is not clear that you need to do all or that 1 will cover for all.

Either way, neither cover ragweed. Hence, the development of the Merck product.

Both companies are working on house dust mite therapies. And Stallergenes is also pursuing tree pollen.

April 18, 2014 at 1:56 PM

Condor said. . .

I now bow before you!

Fabulous! Thank you Anon.!

Love my readership. . . .

This is likely a new post, when I catch a breather — likely Saturday. . .

Even so, I stick by the idea that Ragwitek will max out around $250M a year in peak sales. . . as there are already injections on market.

Just my gut — but as I was wrong about Stallergenes — I could be wrong here too. . . So there is no sub-lingual ragweed product approved anywhere in the world? Wild!

Thank you so much — as ever,

Namaste

April 18, 2014 at 2:21 PM. . . .

Here is a link to the remainder of this comment thread. . . as it evolves. Peace – during this season of renewal, repair and rebirth — to all.

Ragwitek® Gains FDA Nod; Peak (2016) Annual Sales: ~ $250 Million?

April 18, 2014 - Leave a Response

We shall see. This is good news to be sure for Whitehouse Station — but immaterial, especially given Stallergenes’ market lead (background here). Now, let’s get some church up in here:

. . . .have a meaningful Good Friday, one and all — as “this too shall pass away”. . . .

That is Kirk Franklin’s “Hosannah” — from Men of Gospo. . . .

Enjoy.

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