Earlier today, pharmaceutical giant Pfizer confirmed that it made peer AstraZeneca a merger proposal in a deal valued at $US100 billion.
In a note to clients last week, Morgan Stanley’s David Risinger addressed the deal rumour and explained why Pfizer would want to pursue it.
Strategic rationale. Astra Zeneca would dramatically boost Pfizer’s presence in primary care (incl. respiratory and diabetes), oncology (in particular immuno-oncology candidates), and Emerging Markets, among other areas. It would also offer significant cost rationalization opportunities — Pfizer mgmt has a track record of delivering above-forecast merger cost savings. However, size works against R&D productivity because large entities often stifle innovation.
As with any merger, this deal would certainly increase the combined company’s geographic footprint and addressable market. Also, you’re looking at cost-synergies (e.g. layoffs, combined offices).
But that last point on R&D is a bit depressing. The combined company would likely become one who’s R&D department would lurch unlike the ones belonging to the smaller nimble companies whose lives depending on the success of what’s coming out of the R&D pipeline.
Interestingly, becoming bigger goes against a strategic shift Pfizer had been pursuing for years.
“Pfizer mgmt has been seeking to downsize in order to grow faster off a smaller base later this decade,” noted Risinger. “Pfizer recently exited its Nutritional and Animal Health (Zoetis) businesses, and mgmt has stated publicly that it could consider exiting certain Established Products (off-patent drugs).”
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