Pfizer grabs AZ antibiotics in $1.5B deal. Pre-split prep or just another sales-boosting buy?

Pfizer

It’s been a busy week for Pfizer. Fresh off its $14 billion deal for Medivation, the drug giant is snapping up a portfolio of AstraZeneca antibiotics for up to $1.5 billion--a portfolio that just happens to include four products shared with Pfizer’s most recent megamerger prospect, Allergan.

The AstraZeneca small-molecule drugs will join Pfizer’s Essential Medicines business, the division that now includes Hospira and its biosimilars as well as a range of older Pfizer brands--the very division that would go solo if the company decides to follow its split-up path.

Two of the drugs shared with Allergan, Zinforo and Zavicefta, are highly powerful antibiotics intended for resistant infections. The other two are late-stage pipeline meds in the same vein. Rounding out the purchase is another marketed brand, Merrem, an ultra-broad-spectrum antibiotic approved back in 1996.

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Does Pfizer know something AstraZeneca doesn’t? After all, AstraZeneca needs new drug brands and pipeline meds as much as any company in Big Pharma. Merrem may be a declining product, but it still brought in $241 million last year. The company didn’t break out Zinforo revenue, but EvaluatePharma lists its 2015 sales at more than $100 million. Meanwhile, Allergan has been reasonably enthused about the newer suite of antibiotics and its prospects in the U.S., where it markets them under the brand names Teflaro and Avycaz.

Avycaz, a.k.a. Zavicefta, in fact, has hit the U.S. market running, in fact. After early scripts outpaced expectations, analysts suggested peak sales estimates of $300 million might be too low. The drug brought in $13.2 million for Allergan in the second quarter, for a first-half haul of $22.1 million. Teflaro delivered more than $68 million for the first half.

Plus, the early success of Avycaz "bodes well" for other gram-negative antibiotics that are making their way through the pipeline--"especially the ones that work on bugs for which all current options fail," Evercore ISI Group analyst Umer Raffat wrote in an investor note. That would include Zavicefta and the two pipeline meds that are part of this deal.

So, for $550 million up front, $175 million more in 2019, and up to $850 million in potential milestone payments, Pfizer gets one set-to-launch drug that’s made a solid start in the U.S., suggesting strong potential in EU markets as well. It gets a more seasoned med that’s launched in 34 countries, according to AZ’s annual report. It gets an older drug that’s on the decline, but still delivering dollars. And it gets a couple of pipeline meds that, if approved, could address the growing problem of antibiotic-resistant infections--one of those significant unmet needs that drugmakers look to fill.

But AstraZeneca has been offloading product portfolios one after another in similar deals, structured with up-front payments and sales- and development-based milestones down the line. So many deals, in fact, that AstraZeneca now breaks out revenue from those deals as an “externalization revenue” line item in earnings reports. Last quarter? $684 million.

It’s all part of AstraZeneca’s effort to restructure and refocus, and CEO Pascal Soriot obviously has strong opinions about which areas the company needs to zero in on--respiratory, diabetes and cancer among them--and which products don’t fit that vision.

Is this deal designed to further Pfizer’s own restructuring prospects? Pfizer could well be folding these meds into its Essential Health unit to further beef it up in advance of a split. It’s the side of the company that would go its own way, should Pfizer CEO Ian Read decide to move forward with the big split he’s been discussing for years. That decision is expected by year’s end; Read said earlier this week that the $14 billion Medivation purchase wouldn’t delay it. Though the split-up had been seen as a foregone conclusion for years, Read has recently hinted--and analysts have calculated--that a split might not be in the near-term cards.

Just how does this latest buy fit into the Essential Health unit? It only includes one truly aging brand, Merrem. But as the company “reshapes” its Essential Health business, Pfizer is focusing on global public health needs, and its own expertise in various therapeutic areas, John Young, group president of Pfizer Essential Health, said Wednesday in a statement. The company already sells 60 anti-infectives and anti-fungals around the world, he said.

“The addition of AstraZeneca’s complementary small molecule anti-infectives portfolio will ... enhance our global expertise and offerings in this increasingly important area of therapeutics, in addition to providing the opportunity for near-term revenue growth,” Young said.

- see the release from Pfizer and AstraZeneca

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