Hello Friends today we take a look at a couple of high flying deals that have occurred in the biotech industry in one week. This in part has been one great week for biotech, and these deals should keep the momentum going for quite some time (not for eternity although that would be pretty cool haha). All these deals are big for the pharmaceutical industry because these companies needed to make these deals to stay afloat. We say that because a lot of these big pharmaceutical companies have been closing in on patent cliffs ready to fall off the edge, yes “cliff” sounds a little harsh to me as well. That is that these big pharma companies have expiring drug patent compounds in which generic companies can come in and mass produce the same compound at a lower price. So as you can see this takes away from the big pharmaceutical company’s bottom line. Today we look at these deals more closely to evaluate why they are beneficial.
The First close call deal we are looking at today was where Pfizer (NYSE: PFE) attempted to purchase AstraZeneca PLC (NYSE:AZN) for $100 billion dollars in cash. Both companies have been watching declining sales as a lot of their drug compounds have hit the patent cliff. For instance once of Pfizer’s best selling drug Lipitor has seen its sales decline by a huge margin this past year, and will continue to decline because of generic competition. For instance sales of Lipitor dropped as much as 54% in 2013 to only $432 million dollars. AstraZeneca is in a similar situation as it has generic competition launching a drug in May on its way against Nexium which is a heartburn and Ulcer drug. That will hit Astrazeneca in a big way! Also the company is expected to lose out on another big selling drug known as Crestor which is used for patients with Cholesterol which is a huge market. AstraZeneca lost $2.2 billion dollars this past quarter because of losing exclusivity for its drugs going off patent. They each have someone to gain from one another so we think this deal would have made sense especially since both are lacking in the innovation space. Astrazeneca wants a cancer pipeline that it truly lacks, and Pfizer wants to gain some cardiovascular compounds that it has exclusivity too. The deal was rejected by AstraZeneca, so now it leaves these companies with very little options. But what we think would help would be for these two big pharma companies to seek out smaller cap biotech stocks that are in the stages of innovation. Maybe they could even target well established biotech stocks like a Gilead Sciences (NASDAQ:GILD) or Celgene (NASDAQ:CELG).
The second deal that is being proposed to go through is the deal that Ackman and Valeant Pharmaceuticals (NYSE:VRX) are attempting to acquire Allergan (NYSE:AGN). Both Valeant and Ackman bid $45 billion dollars to take over the company together. Ackman was already a large shareholder of Allergan so it made sense to make a bid for Allergan with Valeant Pharmaceuticals. Allergan is the maker of dermatological botox treatments and has been very profitable in doing so. While I would agree that Allergan shareholders may be happy with the deal it leaves a significant problem in the eyes of Wall Street. The problem is that a lot of people are willing to consider what Ackman did as insider trading. Is it right for a large shareholder of a company to make a deal with another biotech company to buy said company? I mean Ackman knows with Valeant that the deal will go down soon, so can we say that it is insider trading? It all depends on who you ask but in our opinion this should be looked at more deeply, a lot of investors are already having trouble investing in the stock market, and seeing things like this go down doesn’t add any more flavor into an already eroding investor base.
The final deal that took place this week deals with a bit of what we like to call a swap of assets (Sounds kind of bad , but it is really good lol). Novartis has agreed to buy Glaxosmithkline’s cancer drug business for $14.5 billion dollars, and an additional $1.5 billion dollars if other milestones are met at a later time. In exchange for this deal Glaxosmithkline received most of Novartis’ Vaccine business for $7.1 billion dollars plus some royalty fees included. Novartis wasn’t gonna let go of everything, they kept the flu vaccine portion of the vaccine business. We think this is a good deal for both companies as they realign their businesses to become profitable in the future.
We think that these deals are just the beginning for M&A (Merger and Acquisitions) in the pharmaceutical industry. Look to additional buying/merging of other stocks in the coming months as these companies deal with their declining pipelines. We think that these big pharmaceutical companies should seek out small-cap biotech stocks that are innovating in the industry. For instance cancer biotechs creating immunotherapy, or the big popping of RNAi biotechs with new technologies and treatments. These are gonna be the real future game changers in the biotechnology industry. Let me know what you think about this article? Any comments you may want to add will be appreciated. Invest Wisely and Remember “Due Diligence Creates The Best Picks In The Biotech Sector”!