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AstraZeneca Survives

So Pfizer has officially called off their quest to acquire AstraZeneca. I didn’t expect things to end like this – up until now, what Pfizer has wanted, Pfizer has gotten (well, except in the clinic). There may well have been other behind-the-scenes overtures that we never heard about being rejected over the years, but this is the first time I can remember someone actually fighting off an open Pfizer attempt.
Now comes the hard part. AstraZeneca’s management did this by convincing their major shareholders that they’d be better off this way, and now they have to deliver. Delivering, though, is far from straightforward in this business. The worry is that AZ’s prospects may have been oversold during the takeover defense, in which case reality may not be welcome when it shows up, as it will. Too many doses of it, and Pfizer may be back in six months, with an even lower bid. Let’s hope not. AstraZeneca, over the years, has not always been an ornament of the R&D universe – for some years, they spent more money for fewer returns than anyone else. But they still didn’t deserve what was in line to happen to them if the Pfizer deal went through.
Pfizer, for its part, still has the same tax problems it had before, and will presumably still be looking for ways to solve them. Getting results in the accounting department is still a lot easier than getting results in the lab, so I’d be surprised if the company doesn’t come up with something else in that line.

15 comments on “AstraZeneca Survives”

  1. davesnyd says:

    I’m still not sure I understand the point of this merger. If it was to have a British site in order to have a UK headquarters for tax purposes, then why shut down Sandwich? Why not use it instead?
    If it was about having incorporation papers in the UK, couldn’t they have reincorporated as a UK company based in Sandwich?
    Or are we now into the arcane details of tax law that mere mortals can’t hope to understand?

  2. davesnyd says:

    Also– Derek writes:
    “Pfizer, for its part, still has the same tax problems it had before, and will presumably still be looking for ways to solve them. Getting results in the accounting department is still a lot easier than getting results in the lab, so I’d be surprised if the company doesn’t come up with something else in that line.”
    Does that mean acquiring another UK company in the same size category as AZ? Or another EU company (or non-US)?
    I’m looking at: http://en.wikipedia.org/wiki/List_of_pharmaceutical_companies and wondering what that means for GSK. Or, potentially, Sanofi, Novartis, or Roche?

  3. londonlawyer says:

    @davesnyd – As I understand it, in order to get the relevant U.S. tax treatment, newco Pfizer needed to have significantly different shareholders to oldco Pfizer. I don’t think simply reincorporating in the UK would do the trick – they had to buy a UK company large enough to give them a new shareholder base. There was only one.

  4. Andy says:

    Hopefully this will give a chance for the UK Government to tweak the laws to discourage this sort of purely-for-tax-reasons takeover attempt happening before Pfizer tries again.
    If not, we can always blame the Romanians.

  5. dearieme says:

    If all they want is a tax trick, why take over a drug company? Buy Diageo or Barclays Bank or something. Perhaps not Imperial Tobacco, though.
    Come to think of it, why didn’t HMG offer them Royal Bank of Scotland? Win, win, win, win, win.

  6. Cato the Elder says:

    “what Pfizer has wanted, Pfizer has gotten (well, except in the clinic)” ….OH SNAP!

  7. Broadwing says:

    ‘Buy Diageo’? That’s perfect. Then they could rename the pharma operations to Distillers Biochemicals, to use a well-remembered old name… oh, wait.

  8. Dr. Manhattan says:

    Pascal Soriot has claimed that in just 16 months, he has reengineered the AZ pipeline for delivery. This was one of the Big Reasons given to stockholders to keep AZ independent of Pfizer. According to AZ, Pfizer was undervaluing AZ’s pipeline.
    As Derek point out, now comes the hard part for AZ, delivering on those promises. He may indeed have set new goals & directions and revamped priorities, but we all know that changes in direction take a decade or so to work through the system into marketed products. And, are those changes the correct one? Time will tell. In the meantime, any compounds that emerge in the next 5-7 years were “baked in” before Soriot walked in the door.

  9. Anonymous says:

    Regarding toughness of delivering, LaMattina said in Forbes:
    “Ironically, to reach his sales target, Soriot himself may need to do a merger.”
    http://www.forbes.com/sites/johnlamattina/2014/05/21/can-astrazeneca-live-up-to-ceos-growth-plans-a-look-at-its-pipeline/

  10. Anonymous says:

    AZ really were in a ‘no win’ situation from the outset. Kudos for fighting the good fight, but I can’t see a successful way out for them. Their pipeline is just as weak now as it was a month ago, but now investor expectation has been pumped beyond all recognition. As you say, Derek, just one or two disappointments in the clinic will turn the screw hard. Will Pfizer be back? Maybe. Will they be offering as much money again? Doubt it.
    The fundamental truth is the industry continues to be too big, too lumbering and too unproductive. It must contract whether it be via the Pfizer / Borg assimilation route, or good ol’ internal layoffs and cuts. Both shitty choices, but inevitable nonetheless. What a mess.

  11. emjeff says:

    They could always buy GSK -“Sir” Andrew Witty would be glad to entertain an offer – he’s always looking for a quick infusion of short-term cash…

  12. Integrin says:

    @3. londonlawyer
    What if Pfizer started doing stock-only acquisitions? Would this bring down the cap size of the UK company they would need to acquire to get the tax benefits?

  13. Hap says:

    Contracting only works if you can generate more drugs per dollar in smaller form than in current form, and no one’s figured out how to do that. Maybe that argues for cutting anyway – if you don’t know how to make finding drugs more effective, and people want more profits than you can usefully generate, then maybe contraction is the only reasonable way to go, so that people can get their money and put it into other things they find more profitable or useful.
    However, what contraction won’t do is make drug discovery better, or get you more drugs. If people don’t think it’s worth their money, then it won’t (and shouldn’t) be done, but the destruction won’t miraculously create something from nothing – more like nothing from something. There seems also the question of who the benefits of contraction go to – if it’s the stockholders, then that’s okay, because it’s their money. However, the benefits of contraction don’t seem to to go to them, and since no one knows how to improve productivity by contracting (so that future revenues will drop), the stockholders still around will likely take it in the shorts. That doesn’t seem particularly helpful, either – why invest so that someone else can take your money and leave you with a pile of…something undesirable?

  14. Anonymous says:

    What if Pfizer started doing stock-only acquisitions? Would this bring down the cap size of the UK company they would need to acquire to get the tax benefits?
    This was one of the issues AZ had with Pfizer’s offer. They wanted more cash and less stock.

  15. AZ R&D employee says:

    It’s of course hard to tell where AZ will be in say 4-5 years but at least we don’t have David Brennan now at the helm – he couldn’t recognize a drug even if he was in a pharmacy. In addition, his love for meaningless metrics and counter-productive “key performance indicators” also led AZ to the mess it was when he left. I’m really content too we weren’t gobbled up by Pfizer for many reasons one being their reputation among many, many investigators involved in clinical trials.

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