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Pfizer's Potential Buys, Big and Small

Adam Feuerstein

Pfizer(PFE Quote) CEO Jeff Kindler says the drug giant is open to acquisitions large and small, so let the deal-making guessing game begin.

Might Pfizer buy Amgen(AMGN Quote) or Gilead Sciences(GILD Quote) to boost its biotech street credibility? How about another Big Pharma mega-merger with Bristol-Myers Squibb(BMY Quote) or Wyeth(WYE Quote)?

Kindler, in an interview with the Financial Times published Sunday, said Pfizer would consider a major acquisition as a way to improve the company's financial health. The "real goal is to grow revenues ... We are open to opportunities and constantly looking at those which are big, small and in between," Kindler told the paper.

Pfizer has big needs, namely a drug or several to replace the projected loss of revenue coming in 2011 when its leading anti-cholesterol drug Lipitor goes generic. Lipitor sales currently top $13 billion annually.

Pfizer does have about $20 billion in cash to spend, so Kindler has something to play with if he wants to go shopping. Drug and biotech sector observers have long anticipated a time when one of the Big Pharma companies, Pfizer included, would step up their mergers and acquisition activity, whether that be through another round of "mergers of equals" to further consolidate the drug group or through acquiring one or more of the large biotech firms.

"The industry is between a rock and hard place, solid and improving near-term EPS [earnings per share] are not being rewarded, as investors are looking out to the patent cliff period and appropriately questioning earnings persistency," said Deutsche Bank drug sector analyst Barbara Ryan in a November 2008 report calling on Big Pharma to ramp up M&A activity.

"In our view, improving the revenue and earnings visibility in that period will require aggressive M&A -- including consolidation," Ryan added.

A Pfizer acquisition of Amgen would help wean Pfizer off its Lipitor dependence by adding a significant cancer drug franchise. Pfizer would also gain access to Amgen's star pipeline product, the long-acting osteoporosis drug denosumab, which is already predicted to be a multi-billion-dollar blockbuster but could thrive even more with a Big Pharma-esque marketing push. Last, Pfizer would benefit from Amgen's biologic manufacturing capacity.

Pfizer has begun to make a small push into the antiviral disease market and has one new HIV drug, Selztentry, on the market. An acquisition of Gilead Sciences, the dominant HIV player, would considerably boost Pfizer's standing in the HIV/antiviral treatment market.

A Gilead deal might be considered something "in between" for Pfizer, but "big" could mean another merger of equals, perhaps with Bristol-Myers Squibb, which would boost Pfizer's oncology and HIV programs, or Wyeth, which would help Pfizer add a large vaccines business as well as biologic manufacturing capacity.

Any mega-merger between Big Pharma giants would also bring about big merger cost synergies in terms of general spending and research and development.

In an early December research note to clients following a meeting with Pfizer's CFO Frank D'Amelio, Merrill Lynch (now Bank of America) drug analyst David Risinger said that "we believe Pfizer will be more aggressive with respect to streamlining the company and pursuing more external transaction activities in the future."

If Pfizer chooses not to buy, it could continue to pick up hot new drugs through partnership and licensing arrangements similar to the deals signed with Auxilium Pharmaceuticals(AUXL Quote) and Medivation(MDVN Quote) in 2008.