Roaring back…but more modestly

Pfizer makes first M&A deal since failing to land AstraZeneca, committing to $17 billion for Hospira

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NEW YORK & LAKE FOREST, Ill.—There’s at least one thing that Pfizer shared in common with Valeant Pharmaceuticals last year: going all-in with a huge takeover offer for a major company ($117 billion offered by Pfizer for AstraZeneca and $54 billion offered by Valeant for Allergan), and ultimately failing in that bid. And, much like Valeant (see story on page 42), Pfizer is confidently getting back on the saddle in recent weeks with a smaller but still multibillion merger and acquisition (M&A) agreement—in this case, a $17-billion dollar deal under which Pfizer will buy Hospira Inc.
The two companies announced Feb. 5 that they have entered into a definitive merger agreement under which Pfizer will acquire Hospira, a leading provider of injectable drugs and infusion technologies and a global leader in biosimilars, for $90 per share in cash.
“The proposed acquisition of Hospira demonstrates our commitment to prudently deploy capital to create shareholder value and deliver incremental revenue and EPS [earnings per share] growth in the near term,” said Ian Read, chairman and CEO of 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 building up Pfizer’s GEP business. The expanded portfolio of sterile injectable pharmaceuticals includes acute care and oncology injectables, with a number of differentiated presentations, as well as a biosimilars portfolio that is expected to reinforce GEP’s growth strategy to build a broad portfolio of biosimilars in Pfizer’s therapeutic areas of strength.
“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, GEP group president.
According to Pfizer, the global marketplace value for generic sterile injectables is estimated to be $70 billion in 2020, and the 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 of Hospira.
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,” Michael Waterhouse, an analyst at Chicago-based Morningstar, told Crain’s Chicago Business.
And he may be very far from the only one leaving, too, once the deal is done. Pfizer anticipates the transaction will deliver $800 million in annual cost savings by 2018. Market-watchers seem to think that can only come with layoffs, among them Ronny Gal, a senior research analyst at Sanford Bernstein, who told Crain’s, “I don’t see how they do that without firing [people]…Some of it will come from their business, presumably, but I don’t see how they would do that without taking out a lot of the cost structure of Hospira.” Kevin Kedra, an analyst at Gabelli & Co., agreed that “there will obviously be some degree of layoffs.”
Pfizer dodged the question of the potential scale of layoffs at Hospira, which has around 19,000 employees globally, when it conducted its conference call with investors after announcing the M&A deal. But Pfizer’s Ian Read did say during the call, “We are very well aware that Hospira has a lot of talented individuals and have been very successful, as our organization has been successful, so we look to create a combined organization that has the best talent from both organizations,” which certainly seems to suggest a significant number of pink slips are on the way.
“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,” according to Adam Dion, GlobalData’s healthcare industry analyst. “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.”
Dion also notes that while Hospira’s generic specialty injectables product line will be seamlessly integrated into Pfizer’s GEP business, the newly acquired company’s biosimilar activities will also be 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, currently in Phase 3, 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,” Dion says.
Right after the announcement of the M&A deal, Seamus Fernandez and Aneesh Kapur of Leerink Partners wrote that “Compared to recent pro-formas we have evaluated (among them Pfizer/AstraZeneca, Pfizer/Shire and Pfizer/Bristol-Myers Squibb), Hospira is more accretive in the near term and ought to drive a higher valuation on a DCF [discounted cash flow] basis.”
Just a day before that, the two Leerink analysts had also written positively about Pfizer and hinted at M&A possibilities, noting, “Ibrance’s early approval and disclosed $9,850/month pricing supports our expectations of a $3-billion to $5-billion market opportunity for CDK4/6 inhibitors in first-line advanced ER+/HER2- breast cancer. We expect brisk uptake with the potential for Ibrance (palbo) to exceed our $150 million 2015 estimate … We continue to expect Ibrance’s expansion into the recurrent disease and early breast cancer setting, building up to our $4 billion-plus forecasts in 2020. Despite an important Ibrance readout in recurrent breast cancer in 2015, we are more intrigued by building strength across Pfizer’s mid-stage vaccines, immunology and immuno-oncology pipeline and/or accretive M&A.”

Hospira, Pfenex team up for biosimilar
SAN DIEGO & LAKE FOREST, Ill.—Just a few days after Pfizer and Hospira announced their M&A deal, biotechnology company Pfenex Inc. and Hospira announced an agreement for the exclusive development and commercialization of PF582, Pfenex’s biosimilar of Genentech’s Lucentis (ranibizumab injection). Per the terms of the agreement, Hospira will make an upfront payment to Pfenex of $51 million once the collaboration secures antitrust approval. In addition, Pfenex will be eligible over the next five years and beyond to receive a combination of development and sales-based milestone payments worth up to an additional $291 million, as well as tiered double-digit royalties on net sales of the product. The agreement also allows for the possibility of additional future product collaborations.
The two companies will share the costs of the Phase 3 equivalence clinical trials, with Hospira assuming responsibility for manufacturing and commercialization of PF582 worldwide. An executive steering committee, formed of equal representation from both companies, will govern the collaboration. The agreement is subject to regulatory review under the Hart-Scott-Rodino Antitrust Improvements Act.
“We are excited to be entering this collaboration with Pfenex for its biosimilar candidate to Lucentis, which we expect will expand Hospira’s biosimilars pipeline to include a new therapeutic area. Pfenex has established expertise in the development of biosimilars, leveraging its proprietary expression technology together with differentiated bioanalytical characterization capabilities,” Dr. Sumant Ramachandra, senior vice president and chief scientific officer at Hospira, said in a press release. “We look forward to working closely with the Pfenex team to offer patients, physicians and healthcare systems a more affordable treatment option for retinal diseases.”
Pfenex is currently investigating PF582 in a Phase 1b/2a clinical trial of 24 patients; the participants have been randomized to receive either monthly intraocular injections of PF582 or Lucentis for three doses and ongoing patient follow-up for one year. The primary objective of the trial to to determine the safety and tolerability of PF582, while the secondary objectives consist of comparative pharmacokinetic and pharmacodynamic evaluations to aid in demonstrating the compound’s biosimilarity to Lucentis.
“We are extremely pleased to announce our collaboration with Hospira, a recognized world leader in biosimilars. This collaboration further validates the product development strength and capability of Pfenex as we continue to advance our pipeline of biosimilar candidates,” Bertrand Liang, CEO of Pfenex, commented in a statement regarding the agreement.

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