Drug giant Pfizer (PFE) and Britain’s second-largest pharmaceutical company, AstraZeneca (AZN), continue to play a game of cat-and-mouse. Both companies’ shares rose sharply on Monday after PFE upped the ante to $99 billion in an attempt to buy the UK firm. Shares of AZN rose 12%, while PFE ended the day up 4%.
AstraZeneca appears to be playing hard to get, urging shareholders to reject the deal it perceives as an undervaluation of the company. The $99 billion already represents a 15% premium over Pfizer’s bid last Friday, still below the 30% average for pharmaceutical takeovers of at least $1 billion over the past five years, according to Bloomberg. This potential marriage would create the largest health-care company by revenue based on trailing 12-month financials.
The biggest boost to Pfizer would come as a result of AstraZeneca’s portfolio of early-stage cancer-treating drugs that use the body’s own immune cells to attack malignancies. This acquisition would add to the $127 billion of mergers among pharmaceutical companies already in place this year. Pfizer has until May 26 to make a new offer.
The latest wrinkle
Meanwhile, Valeant Pharmaceuticals (VRX) offered to buy Allergan (AGN), the maker of the Botox wrinkle treatment, last week for a reported $46 billion. That is the second -highest bid behind Pfizer’s in the health care industry since 2009, according to Dealogic.
Shares of both companies shot up, with VRX gaining 7.5% and AGN soaring 15%.
You can’t blame Valeant for pursuing the $49 billion company. Although the patent on Botox expires this year, opening the door for generic versions, Allergan just landed three patents in effect until 2024 for the active ingredient in Restasis. Sales of the chronic dry-eye treatment crossed the $900 million mark in 2013, about a sixth of the company’s total product sales.
Allergen also makes breast implant products, lap-band stomach shrinking devices and eye lengthening products. According to the American Society of Plastic Surgeons, there were just over 15.1 million cosmetic procedures in 2013, up 3% from the prior year.
Part of the reason for AGN’s success is its commitment to research and development, which could change drastically under Valeant’s watch. The company has a reputation for acquiring firms with successful products, like Allergen, and then cutting way back on R&D. Valeant said it would spend “at least $300 million in annual R&D,” but that represents a 70% reduction in current expenditures.
So it stands to reason that Allergen is trying to stave off the bid by revisiting a merger with biopharmaceutical producer Shire (SHPG). As the story usually goes, shares of SHPG were up 6.5% on Monday after the news came out, while AGN lost 1.2%.
There’s a lot to like about Shire. It has zero debt, industry-beating revenues, and phenomenal earnings growth of 1172% in 2013, good for an 81% surge in the stock.
Shire’s nervous system and rare-disease drugs
Some 70% of Shire’s revenue comes from two broad classes: central nervous system and rare diseases. Shire built upon the success of Adderall XR for treating ADHD with newcomer Vynase. Most other companies have reverted to generic drugs for ADHD so it is the only one actively marketing a brand name in this arena. Vynase has showed promise as a treatment for binge eating and could add $500 million to sales.
Add to that Shire’s commitment to rare disease drugs such as Elaprase for Hunter Syndrome, Replagel for Fabry, Vpriv for Gaucher, Firazyr for acute hereditary angioedema, and Cinryze for hereditary angioedema prophylaxis, Shire could potentially bring in more than $2 billion in revenue in 2014 with very little competition.
Among other M & A deals in the works among pharma stocks and the healthcare industry, Novartis (NVS) agreed to buy London-based GlaxoSmithKline’s (GSK) cancer drugs for as much as $16 billion. Novartis also will sell most of its vaccines division to Glaxo for $7.1 billion and its animal-health unit to Eli Lilly & Co. (LLY) for $5.4 billion.