What’s next in Pfizer’s M&A ramp-up?
Despite record earnings, a rock bottom valuation and a top-notch dividend yield, Pfizerit is (DFP 1.17%) shares have fallen 17.3% since the start of the year.
The Pfizer share price has been under pressure this year for a variety of reasons, including but not limited to the following:
- The company’s potential liability arising from ongoing litigation over the heartburn drug Zantac.
- Pfizer and Bristol Myers SquibbEliquis, Eliquis’ megablockbuster blood-thinning drug, faces a potential generic threat as early as 2026.
- Pfizer’s fast-growing Vyndaqel/Vyndamax franchise, a drug indicated for a rare form of heart failure, is expected to face new competitors soon.
- The drugmaker’s COVID-19 franchise, consisting of the antiviral drug Paxlovid and the mRNA vaccine Comirnaty, is expected to peak from a sales standpoint this year. As a direct result, Wall Street expects Pfizer’s revenue to fall 20.7% in 2023.
Pfizer’s response to these headwinds was to go shopping
Over the past two years, the drugmaker has dramatically ramped up its deals with the goal of adding $25 billion in risk-adjusted revenue by 2030. Here are Pfizer’s biggest deals during this time:
|Company Name||Price tag||Key assets|
|Arena Pharmaceuticals||$6.7 billion||Advanced stage ulcerative colitis drug etrasimod|
|Biohaven Pharmaceutical||$11.6 billion||Migraine Drug Nurtec ODT/CGRP Inhibitor Portfolio|
|Global Blood Therapeutics||$5.4 billion||Oxbryta, sickle cell drug, and other pipeline candidates|
|Reviral||$525 million||Respiratory syncytial virus candidates|
|Trillium Therapy||$2.3 billion||CD47 Cancer Therapies|
Are these transactions sufficient to meet Pfizer’s financial goal?
Estimating the net present value (NPV) of these recent acquisitions is virtually impossible at this stage as there are multiple moving parts at play in each of these transactions (e.g. key pending clinical trials, label extensions possibilities, uncertain competitive landscapes, etc.).
As it stands, however, these deals could represent anywhere from $5 billion (worst case) to possibly $30 billion (best case) in sales by 2030. higher than this speculative income forecast is probably not realistic, however. Here’s why:
- Arena’s investigational ulcerative colitis drug is about to enter a highly competitive space.
- Biohaven’s migraine drug is doing well so far, but it’s operating in a saturated market.
- The drugmaker’s newly acquired sickle cell assets – through the acquisition of Global Blood Therapeutics – will likely have to compete with cutting-edge gene therapies in the near future.
- ReViral’s RSV pipeline is a high risk, high reward endeavor. After all, RSV product candidates have a very high failure rate in late-stage testing.
- Trillium’s CD47 candidates are under scrutiny after rival therapies stumbled into the clinic earlier this year.
The main finding is that Pfizer likely fell short of its stated financial goal of adding $25 billion in risk-adjusted revenue by 2030.
The healthcare giant’s surge in mergers and acquisitions (M&A) is sure to continue. On that note, Pfizer may choose to accelerate its revenue hunt by moving up the price ladder. In doing so, Pfizer could target rare disease giants like Alnylam Pharmaceuticals and or BioMarin Pharmaceutical. Both of these companies sport high-growth franchises with formidable competitive moats – traits that would go a long way to boosting the pharmaceutical titan’s long-term prospects.
Alternatively, Pfizer could simply continue to recruit small and medium-sized companies under a so-called “string of pearls” strategy. This route, however, is unlikely to do much for its share price in the near term. Wall Street, after all, is clearly unimpressed with its recent string of high-value deals. So, to change investor sentiment around its stock, Pfizer may have to go big in its next round of acquisitions. Alnylam and BioMarin are the most logical targets in this next rung of the pharmaceutical acquisition price ladder.
George Budwell has no position in the stocks mentioned. The Motley Fool holds posts and recommends Alnylam Pharmaceuticals and Bristol Myers Squibb. The Motley Fool recommends BioMarin Pharmaceutical. The Motley Fool has a disclosure policy.