Amgen, Inc. Fits Into Pfizer’s Restructuring Plans Perfectly

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Amgen, Inc. Fits Into Pfizer’s Restructuring Plans Perfectly

Pfizer Inc. (NYSE:PFE) is currently considering acting on its plans to reorganize. The drugmaker announced that it would be restructuring itself to focus entirely on some of the key growth businesses, while trimming some of the units.

The restructuring process started after the sale of Pfizer’s infant nutritional products division, in a deal worth nearly $12 billion, to Nestle in 2012. The sale was closely followed by Pfizer’s decision to spin off its animal health unit, Zoetis, into a separate company. Zoetis was spun off in January 2013 in an IPO worth $2.2 billion. After that, the drugmaker tried to acquire AstraZeneca in 2014. Though the deal wasn’t in essence part of restructuring, it was the company’s attempt to escape US tax laws, which make it difficult for companies to repatriate cash held oversees. In Pfizer’s case, the major portion of its cash is stuck abroad. Though the acquisition didn’t go through, it didn’t keep the company from pursuing other inversion deals.

Last year, Pfizer signed a $160 billion deal to acquire Allergan. The inversion deal was blocked by the US Treasury Department, which announced reforms making it nearly impossible for US companies to invert successfully. However, the company maintained that inverting wasn’t the motive for the pursuit for Allergan.

Pfizer has been reporting declining sales since the past few years, as some of its top revenue generating products lost their patents, landing a dent on the company’s revenues. Some of the items to contribute to the sales decline include Lipitor, Celebrex, and Xalatan/Xalacom.

The acquisition deal was signed by Pfizer to get its hands on Allergan’s high growth assets, which would boost the acquirer’s growth rates. After the termination of the deal, Pfizer announced it would keep looking for high growth assets. Moreover, the company announced that it would be evaluating its plans to split into two separate businesses.

After the Allergan deal failed to go through in April last year, Pfizer CEO Ian Read said: “We plan to make a decision about whether to pursue a potential separation of our innovative and established businesses by no later than the end of 2016, consistent with our original timeframe for the decision prior to the announcement of the potential Allergan transaction.”

Pfizer is planning to split its Global Established Products (GEP) business from the rest of the company. The said business, also called Pfizer Essential Health, consists of the already established and off-patent drugs. Pfizer would then comprise the other two major business segments, Global Innovation Products (GIP), and Vaccines Oncology and Consumer (VOC). The drugmaker’s plan of a potential split surfaced a few years back, and the final decision is expected to be announced by the end of 2016.

Particulars of each business segment
Pfizer has already started preparing for the split, and initiated the reporting of financials from all three of these units separately. The major chunk of revenue is generated by Pfizer Innovative Health, which consists the GIP and VOC units.

GIP consists Pfizer’s newer drugs, also act as its cash cows, including Lyrica, Enbrel, Xeljanz, and Eliquis. The unit pulled in sales of as much as $3.6 billion for the first quarter this year, accounting for nearly 30% of the company’s total revenue for the period. Sales for GIP are expected to reach $14.6 billion for 2016. The analysts’ consensus puts EBITDA for this year at $7.6 billion, and EPS at $0.92 per share.

The VOC segment generated sales of $3.4 billion for the first quarter this year, accounting for nearly 29% of the total revenues. The major sales growth drivers for the unit were its best-selling vaccine franchise, Prevnar, and cancer drug, Ibranc. Analysts are expecting the unit to reach sales of $14.7 billion in 2016. EBITDA for the unit is forecasted to reach $8.1 billion, while EPS is expected to climb to $0.95 per share, as per estimates compiled by analysts at Jefferies.

The GEP business consists Pfizer’s older and already-established products, most of which have already lost their patents. During the last quarter, GEP reported sales of $5.9 billion, accounting for 45% of total revenues. Analysts are expecting annual sales from the unit to reach $23.4 billion, and EBITDA to amount to $13.7 billion in 2016. The EPS for the unit is expected to reach $1.61 per share this year.

The declining revenue from all three units suggests that the company needs a strategic acquisition, which would boost all of the units. This target might be hard to acquire, but there are a few options which would fit into the separate units well, thereby pushing the growth rates.

How Amgen Fits Into Pfizer’s Equation
Amgen Inc. (NASDAQ:AMGN) is one of the most suitable targets Pfizer could possibly consider. With revenue of nearly $22 billion, Amgen has drugs and pipeline candidates which complement all of Pfizer’s segments.

The biotech has older well-established drugs, including Enbrel, Neupogen, Neulasta, and Epogen, which generate a major chunk of revenue for the company. These drugs combined pulled in sales worth more than $3 billion. However, these items, and several other key products are nearing patent expiry, and would be a perfect fit for Pfizer’s GEP.

Apart from that, the company has a bunch of cancer treatments which are relatively farther from the patent expiry dates, and still have room to grow. These include Xgeva, Prolia, Kyprolis, Vectibix, and Blincyto. The cancer drugs have been forecasted to be potential growth drivers for Amgen. If Pfizer plans to pursue Amgen, these drugs would build upon Pfizer’s VOC segment.

Amgen’s cardiology and metabolism drugs would easily blend in with Pfizer’s GIP unit. It also has a rich and robust pipeline, which would also add to Pfizer’s GIP’s development pipeline, strengthening its future outlook. The drugmaker has candidates being developed to target conditions comprising several therapeutic areas, including CNS/neuroscience, Osteology, and inflammatory, which might be much needed to drive the company’s future sales.

Right Time To Strike A Deal?
Pfizer’s free cash flows stood at $13 billion at the end of 2016. It may not be difficult for Pfizer to strike a deal of this scale, since it has a history of signing mega-deals.

Amgen stock has fallen nearly 7% so far this year, and more than 5% in the past 12 months. The stock has mostly outperformed its biotech peers, and the iShares NASDAQ Biotechnology Index (IBB), which shed more than 23% this year. However, the stock can be expected to further strengthen, as the company continues to put on an impressive show. This a probably a great time for Pfizer to strike a deal. By Aliya Kaleem :

26/06/2016 – Categoria: – Da: [email protected] – 245 letture





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