With this transaction, Pfizer strengthens its commitment in the field of rare diseases. GBT’s main product is a drug for sickle cell anemia, an inherited disease characterized by deformed red blood cells and the resulting anemia and circulatory disorders.
This is the third such deal for Pfizer this year. At the beginning of May, Pfizer had agreed to take over all of its partner Biohaven for $11.6 billion, in which the pharmaceutical giant had previously held a smaller stake as part of a sales partnership. Biohaven has developed a novel migraine drug that is already being marketed by Pfizer as part of the partnership.
This was preceded by the takeover of the small research company Reviral, which works on drugs against infectious diseases, including in particular infections with the respiratory syncytial virus (RSV). Pfizer had already strengthened its position last year with the purchase of the cancer research specialist Trillium and the takeover of the biotech company Arena, which is pursuing various projects in the field of inflammatory and autoimmune diseases. All in all, the acquisitions of the industry leader in the pharmaceutical sector since the middle of last year add up to around 26 billion dollars.
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But it will hardly stop there. Because in view of the goals they have set themselves and the huge income from the business with Covid vaccines and drugs, CEO Albert Bourla and his strategy chief Aamir Malik are unlikely to be satisfied with the previous shopping spree.
Further takeovers in sight
The declared goal is to generate organic growth of around six percent annually by the end of the decade with the traditional business and through in-house research outside of the Covid area, while at the same time creating additional sales potential of 25 billion dollars by 2030 through acquisitions. The pharmaceutical giant is still a long way from that with the previous deals.
For the products of Reviral and Biohaven, the Pfizer management sees a peak sales potential of 6.5 billion dollars together. According to the group, the sickle cell anemia drug Oxbryta and other development projects by GBT could bring up to three billion dollars. However, significant achievements are still needed. In the first quarter, the drug brought in proceeds of just $55 million.
Investors have high expectations for Pfizer’s growth.
(Photo: Reuters)
In the most recent analyst call, Malik left little doubt that there was interest in further takeovers. “We turn almost every stone when it comes to finding new opportunities,” says Malik. The company continues to be confident of successfully expanding the business and is agnostic about the size and structure of possible deals.
Financially and commercially, the US group is in an absolutely special position that offers it considerable leeway. Because the Covid vaccine Comirnaty, developed together with Biontech, and the Covid drug Paxlovid, which was developed in-house, are currently bringing Pfizer record sales and earnings.
In the first half of the year, the two products contributed significantly to a sales increase of 62 percent to $52.7 billion and a profit increase of 70 percent to $17.8 billion with revenues of more than $31 billion. According to its own forecasts, Pfizer is heading for sales of around $100 billion and adjusted net income of up to $37 billion for the full year. Free cash flow should be similarly high.
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The exit from the consumer health group Haleon, in which Pfizer still has a stake of almost a third, could also bring in an additional double-digit billion amount. The British company, which Pfizer formed together with the British pharmaceutical group GSK two years ago, has recently been listed on the stock exchange as an independent company and is currently valued there at almost 35 billion dollars.
Financial firepower in excess of $100 billion
In view of the high liquidity inflows and the already solid balance sheet structure, analysts have long treated Pfizer as a top candidate for larger acquisitions. Some experts see the group’s financial firepower at well over $100 billion. In any case, it seems clear that the possibilities with the previous deals are far from exhausted.
On the other hand, Pfizer is also under some pressure to ramp up its product pipeline beyond Covid-19. For long-term development, the pharmaceutical giant cannot rely on the Covid products. Most analysts expect sales in this segment to shrink significantly again from 2023 onwards.
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In the meantime, Pfizer is growing only moderately in its traditional pharmaceutical business. Excluding Paxlovid and Comirnaty, revenue stagnated at $21 billion in the first half of 2021. Important sales drivers such as the cancer drug Ibrance and the blood thinner Eliquis will also lose their patent protection from the middle of the decade. Against this background, the growth targets seem relatively ambitious from the point of view of many investors.
This in turn also explains the still rather moderate valuation of Pfizer on the stock exchange – despite the success of Covid: Measured against the earnings forecast for 2022 of $6.30 to $6.45 per share, the group is currently trading at a price-earnings ratio (P/E) is trading at less than eight, while most major peers are trading at P/E’s of between 10 and 20.
The significantly smaller competitor Eli Lilly is currently valued at a P/E ratio of around 40 due to its stronger growth prospects and thus has a slightly higher market capitalization at 287 billion dollars than the Pfizer group, which is a good four times as large.
Against this background, it will be very important for the US group to actually create new growth opportunities with acquisitions and to convince the capital market of this.
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