12:00 AM
Nov 09, 2015
 |  BioCentury  |  Strategy

Pfizer's growth spurt

How Allergan would fit with Pfizer

Eighteen months ago, flat-to-flagging growth across Pfizer Inc.'s innovative and established products businesses suggested the pharma needed a major acquisition to shore up the units before it could move forward with a much-discussed potential breakup. But what a difference a year and a half makes.

As a result of bolt-on acquisitions, new approvals and pipeline progress, it now appears that Pfizer could be on track for a breakup with or without the object of its new M&A interest - Allergan plc.

That's a very different position than when Pfizer was courting AstraZeneca plc last year in a failed bid that appeared to be more about financial engineering than pipeline. While AZ products would have provided some small boost to Pfizer's growth trajectory, apart from a PD-L1 inhibitor there was limited fit in terms of therapeutic areas. AZ resisted the deal, which fell apart after the U.S. Treasury threatened to crack down on U.K. inversions.

Since then, on the established products side, Pfizer has bulked up through the September acquisition of Hospira Inc., which gave the pharma a trio of marketed biosimilars, nearly doubling its disclosed biosimilar portfolio to seven "distinct" candidates, and established the company as the largest global provider of sterile injectables.

On the innovative side, Pfizer has launched breast cancer drug Ibrance palbociclib, and revenue for its pneumococcal vaccine Prevnar 13 has increased thanks to an August 2014 recommendation by the CDC.

The progress is evident in Pfizer's top line, where the rate of decline for established products has slowed to 8% in 3Q15 from 14% in 2Q15, with the expectation that it will start to grow now that the Hospira deal is complete (see "Establishing the Business," page 2).

For the first nine months of 2015, the innovative business reported an 18% increase compared with the same period last year, driven in part by Ibrance and Prevnar.

Pfizer also found itself another PD-L1 inhibitor via a partnership with Merck KGaA and is now squarely in the cancer immunotherapy space, with three immunotherapies of its own in the clinic.

The pharma is also starting to see many of its rare diseases programs advance into Phase II and III. The result is three late-stage programs added via licensing deals and eight advanced from Phase I into late-stage development since last May (see "Pfizer's Pipeline Progress," page 4).

The potential acquisition of Allergan, which Pfizer announced it was considering on Oct. 29, would add more than 14 marketed products with 2015 global pro forma revenues of $15.5 billion.

At least seven of the products are early in their launches and would slot into Pfizer's innovative core, bringing double-digit growth rates with them. The remainder would help boost the established products business.

Perhaps the most immediate benefit of the deal would be revenues to offset expected near-term declines in the innovative drugs unit when biosimilars of autoimmune drug Enbrel etanercept come to market, and in the established drugs unit, which is suffering the loss of patent protection for neurology drugs Lyrica pregabalin and Celebrex celecoxib.

Split decision

Pfizer has been reporting separate financials for the innovative and established drugs businesses since 1Q14. Last month, the pharma said it would decide no later than 4Q16 whether or not to proceed with a breakup, and management gave some more color on how it would decide.

On the company's 3Q15 earnings call on Oct. 27, Chairman and CEO Ian Read said the decision would depend on four criteria: "Are the businesses doing well inside Pfizer? Are they likely to be successful outside of Pfizer? Is there trapped value? And do we believe we can realize that trapped value through a split?"

If the answer to all four questions is yes, the company will split, added Frank D'Amelio, EVP of business operations and CFO.

Pfizer reported nine-month revenues of $34.8 billion, up 3% excluding the impact of currency translation from the same period last year. Pfizer's top line was dragged down by its established products business for which 3Q15 revenues were $5.2 billion, an 8% decline from 3Q14.

Nine-month sales were $15.3 billion, an 11% drop from the prior year's period. The decrease is driven by declining sales of Celebrex and Lyrica. Generics of Celebrex were introduced in the U.S. last year, while Lyrica has faced generic competition in Europe since February.

However, the decline in established products revenues is slowing. For 2Q15, revenues were $5.1 billion, a 14% drop from 2Q14.

In contrast, the innovative products business had 3Q15 revenues of $6.8 billion, up 21% from 3Q14....

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