There are big questions facing some of pharma's key players this year, like whether the Pfizer ($PFE) and Allergan ($AGN) deal will get done and why Allergan thinks that is its best route. Or what Mylan ($MYL) intends to do since it spurned a buyout from Teva ($TEVA) but failed to close on Perrigo ($PRGO). At least some of those can be expected to be answered next week when nearly all of pharma, large and small, convene in San Francisco for the JP Morgan Healthcare Conference.
Everyone will be looking for something from the companies they watch, whether as investors, suppliers or competitors. All of the analyst firms have been preparing questions. The specialty pharma analysts at Bernstein, in fact, have put together an 18-page report of questions for the big ones.
For them, probing the $160 billion Pfizer and Allergan tie-up is top of the list. The two companies will be presenting together and will need to talk about when, or even if, the deal will close. The "if" is all about whether there is something that the U.S. Treasury, which is opposed to tax inversions for obvious reasons, might still do to kill the deal? Bernstein wants the companies to parse out the "impossible from the unlikely."Pfizer CEO Ian Read
The big benefit in the deal of dropping its tax rate to about 18% from the current 25% is obvious for Pfizer. Beyond that, the upside for the combined companies centers to a large degree on Allergan's future. Investors will be looking to hear about whether the 10% growth its aesthetic franchise has experienced is likely to continue and how soon a next-gen Botox might be in the offing. Part of the answer to that question may lie in Allergan's announcement today that it will pay $90 million plus milestones to buy clinical-stage pharmaceutical company Anterios for its technology to deliver neurotoxins through the skin instead of through injection, which is how Botox is administered.
To the analysts, the risk for investors in the "Pfizergan" deal, besides the deal being scuttled by Treasury, has to do with whether the payer and political pushback on pricing of branded drugs might now change the upside on the combination. A new report from Deutsche Bank warns that 2015 may be the watershed year for big increases and that percent increases fell in Q4 2015 compared to the same quarter a year ago.
As Bernstein sees it, pricing is also a key factor for generic drugmakers, and no more for anyone than for Mylan, which generates 75% of its revenue from knockoffs. They point out that Mylan actually had a good operating year in 2015, has seen growth in its Epipen business and has some products in the pipeline that could pay off handsomely in 2017 and 2018. But some of that was overshadowed by what Mylan did and didn't do.
What the generic drug company didn't do was agree to be swallowed up by the world's largest generic drugmaker, Teva Pharmaceuticals, which offered to buy Mylan for more than $40 billion. It said that its intended buyout of over-the-counter specialist Perrigo ($PRGO), would set it up for bigger things. So Teva instead struck a deal with Allergan to buy its generics portfolio for about $40 billion. But then Perrigo shareholders rejected Mylan's offer in November, leaving Mylan to face its future alone.
The Bernstein analysts point out that Mylan still has the cash to do a deal of about $4 billion and so they want to know if any M&A, large or small, is on Mylan's mind right now. But they are also curious about whether Mylan sees more competition coming from the fact the FDA is approving generic drugs at a faster clip.
Of course, that is a sampling of the many questions for just three companies. There are many more companies and many more questions. What is the upside for Shire ($SHPG) if it makes a deal with Baxalta ($BXLT) and where is Bayer headed now that it has sold off some assets? In just a few days, some of those may start getting answered.
- here's the Anterios release
Pfizer finally gets its inversion with $160B Allergan megamerger agreement
How badly does Pfizer need a tax inversion? Depends how you parse the numbers
Mylan fails in hostile quest to buy Perrigo
Forget Mylan: Teva inks $40B-plus pact for Allergan's generics biz