Pfizer to acquire Hospira for $17 billion

Transaction will significantly enhance Pfizer’s Global Established Pharmaceutical business

Lloyd Dunlap
NEW YORK and LAKE FOREST, Ill.—Pfizer Inc. and Hospira, Inc. announced on Feb. 5 that they have entered into a definitive merger agreement under which Pfizer will acquire Hospira, the world’s leading provider of injectable drugs and infusion technologies and a global leader in biosimilars, for $90 a share in cash for a total enterprise value of approximately $17 billion. The boards of directors of both companies have unanimously approved the merger, which is expected to be immediately accretive upon closing; accretive by $0.10 - $0.12 per share for the first full year following the close of the transaction with additional accretion anticipated thereafter.
 
"The proposed acquisition of Hospira demonstrates our commitment to prudently deploy capital to create shareholder value and deliver incremental revenue and EPS growth in the near-term," said Ian Read, chairman and CEO, Pfizer. "In addition, Hospira’s business aligns well with our new commercial structure and is an excellent strategic fit for our Global Established Pharmaceutical (GEP) business, which will benefit from a significantly enhanced product portfolio in growing markets. Coupled with Pfizer’s global reach, Hospira is expected to drive greater sustainability for our GEP business over the long term."
 
This strategically complementary combination will add a growing revenue stream and a platform for growth for Pfizer’s GEP business. The expanded portfolio of sterile injectable pharmaceuticals, composed of Hospira’s broad generic sterile injectables product line, including acute care and oncology injectables, with a number of differentiated presentations, as well as its biosimilars portfolio, combined with GEP’s branded sterile injectables, including anti-infectives, anti-inflammatories and cytotoxics, will create a leading global sterile injectables business. The combination also reinforces GEP’s growth strategy to build a broad portfolio of biosimilars in Pfizer’s therapeutic areas of strength through the addition of Hospira’s portfolio that includes several marketed biosimilars. Pfizer will also use its existing commercial capabilities, global scale, scientific expertise and world-class development capabilities to significantly expand the reach of Hospira’s products, which are currently distributed primarily in the United States, to Europe and key emerging markets, where GEP has a significant presence.
 
"The addition of Hospira has the potential to fundamentally improve the growth trajectory of the Global Established Pharmaceutical business, vault it into a leadership position in the large and growing off-patent sterile injectables marketplace by combining the specialized talent and capabilities of both companies, including enhanced manufacturing, and advance its goal to be among the world’s most preeminent biosimilars providers," said John Young, group president, Pfizer Global Established Pharmaceutical business. "We're excited to combine Hospira’s expertise and key talent with that of Pfizer to create a leading global business that will deliver an even broader portfolio of important and life-saving sterile injectable medicines to patients around the world."
 
Both sterile injectables and biosimilars are large and growing categories. The global marketplace value for generic sterile injectables is estimated to be $70 billion in 2020. The global marketplace for biosimilars is estimated to be approximately $20 billion in 2020.
 
"The Pfizer-Hospira combination is an excellent strategic fit, presenting a unique opportunity to leverage the complementary strengths of our robust portfolios and rich pipelines," said F. Michael Ball, CEO, Hospira. "I want to recognize and thank our 19,000 employees around the world for their tireless efforts to deliver more affordable healthcare solutions, increase patient access to high-quality care and drive sustained growth for our shareholders."
 
Despite having helped engineer the offer from Pfizer, which is valued at nearly 40 percent more per share for Hospira's stock than it was worth just a day before the deal was announced, early speculation from analysts say Ball is not likely to stick around. “I would be really shocked to see him stay on at Hospira,” said Michael Waterhouse, an analyst at Chicago-based Morningstar.
 
According to Adam Dion, MS, GlobalData’s Healthcare Industry Analyst, “While Hospira’s generic specialty injectables product line will be seamlessly integrated into Pfizer’s GEP business, Hospira’s biosimilar activities are also of key importance to Pfizer’s strategic objective. Hospira currently markets three biosimilars in Europe – Retacrit (erythropoietin zeta), Nivestim (filgrastim), and Inflectra (infliximab), the first biosimilar monoclonal antibody to be approved in Europe. Meanwhile, Hospira also has a number of biosimilars in its late-stage pipeline, including trastuzumab (Herceptin), currently in Phase III, which is being evaluated for breast cancer. This is hugely complementary to Pfizer’s own ongoing activities in biosimilar development, with biosimilars of Herceptin, Rituxan and Remicade currently in the pipeline. Although biosimilars have been available in Europe and elsewhere for several years, the US FDA only recently created an approval process for the drugs, which will fuel demand for biosimilars as patents on expensive brand-name biologics expire. Pfizer hopes that by adding Hospira to its portfolio, it will be better positioned to capture a share of the biologics market.”
 
“It remains to be seen what Pfizer will do with its GEP business after the integration of Hospira. The Hospira deal will add significant value to Pfizer’s GEP segment, a vertical which has been rumored to be sold or spun-off as a separate entity. This somewhat mirrors Pfizer’s strategic objective to focus on core growth platforms in the branded drug market while divesting its ancillary operations, similar to when it carved-out its Animal Health business (Zoetis) and brought it public. The Zoetis initial public offering was preceded by Pfizer selling its Nutrition business and Capsugel pill unit, mobilizing significant capital for investment in its core growth areas. However, given Pfizer’s desire to retain its pharma leadership and move into biosimilars, it may decide against a split in favor of maintaining a level of operational independence between its innovative and mature portfolios.”
 
Pfizer expects to finance the transaction through a combination of existing cash and new debt, with approximately two-thirds of the value financed from cash and one-third from debt. In addition, Pfizer anticipates the transaction to deliver $800 million in annual cost savings by 2018 and analysts say the only way to get there will be through trimming jobs.
 
On a conference call with analysts on the day of the announcement, Pfizer executives didn't offer specifics about how many of Hospira’s 19,000 employees worldwide might be eliminated.
 
The transaction is subject to customary closing conditions, including regulatory approvals in several jurisdictions and approval of Hospira's shareholders, and is expected to close in the second half of 2015.
 
Pfizer's financial advisors for the transaction were Guggenheim Securities, J.P. Morgan and Lazard, with Ropes & Gray LLP acting as its legal advisor and Clifford Chance LLP advising on international regulatory matters. Morgan Stanley served as Hospira’s financial advisor, while Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates served as its legal advisor.
 
(We will have additional coverage of this story in our March issue of DDNews to give you more context about the implications and directions for this deal)

Lloyd Dunlap

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