Deal-hungry Pfizer will likely overpay for M&A, analyst predicts

By Carly Helfand Oct 13, 2016 3:46pm

With its decision not to split up made and its Allergan deal scuttled, Pfizer’s biggest catalyst for growth down the line may come in the form of more M&A. But it’s a risky time to be counting on buys, according to one analyst.

"Whilst management may find attractive targets to acquire, we believe that the environment for M&A is very competitive right now and there is a high risk that Pfizer may overpay for assets," Jefferies analyst Jeffrey Holford wrote in a research note seen by Investor’s Business Daily.

A Pfizer spokeswoman declined to comment on the note.

Pfizer’s already experienced--and prevailed over--some of that fierce competition. In August, it beat out a slew of reportedly interested drugmakers--including Amgen, Gilead, Celgene, Novartis, AstraZeneca and Sanofi, which had already made a public hostile bid--for cancer drugmaker Medivation, agreeing to shell out $14 billion to seal the deal.

And some industry watchers might argue that that move constituted Pfizer’s first overpayment. At $81.50 per share, the price topped analyst estimates of a "best-case" deal for Medivation, coming in at 180% more than Medivation's stock price when deal talk first began. "This is a hefty bid," Bernstein analyst Tim Anderson wrote at the time. And it could take years to fairly judge on whether that bet paid off, with some of that premium accounting for the potential of a closely watched PARP drug that's still in Medivation's pipeline.

It hasn’t been all that long since Pfizer thought it’d be taking on a whole new look. Last November, it agreed to a record-breaking $160 billion pact to pick up Allergan--a move that would bolster the company’s innovative products division ahead of a potential two-way break-up.

But the U.S. Treasury spoiled that plan in April, and a few months later, the pharma giant announced the company divide wasn’t happening, either.

And the way Holford sees it, Pfizer’s now in the lurch. Sure, it has a pair of hot sellers in breast cancer drug Ibrance and vaccine star Prevnar 13, which have been posting red-hot growth numbers over the past several quarters. But in the case of Ibrance, “recent prescription trends indicate that the U.S. opportunity is becoming saturated,” and stiff competition--from Novartis and Eli Lilly--is on the way. And Prevnar has similarly already penetrated its U.S. adult market, he noted, as he downgraded Pfizer’s stock.

Of course, Pfizer’s no newbie when it comes to dealmaking, and Medivation’s deal proxy shows that it was the New York drugmaker’s strategy--in addition to its price--that helped it take home that prize. Just days after Medivation brought in investment bankers to advise on a sale--and before Sanofi went public with its own bid--a Pfizer SVP got in touch, helping set his company up for victory months in advance.

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