Weekly Pharmaceuticals Notes: Pfizer, Bristol-Myers, Squibb, Merck And Roche

It was another fairly quiet week for big pharmaceutical companies, except for a few announcements. For investors, it will be worthwhile to assimilate that idea that Pfizer (NYSE:PFE) may not make another bid for AstraZeneca again considering recent change in tax rules. Also, while it is just a beginning, Bristol-Myers Squibb‘s (NYSE:BMY) efforts to expand the presence of its Hepatitis C drugs are noteworthy. In addition, Merck (NYSE:MRK) announced an extension of one of its manufacturing partnerships while Roche Holdings (NASDAQ:RHHBY) declared that it will invest in a diagnostics manufacturing facility in China. Interestingly, the pharma stocks were slightly up or traded in a narrow range during the last week.

Pfizer

AstraZeneca’s management recently stated that it is highly unlikely that Pfizer will make another bid to acquire the company considering the U.S. government’s recent tightening of tax rules to discourage tax inversion deals. Pfizer had earlier hoped to reduce its taxes by acquiring AstraZeneca and shifting its base to Britain. However that’s not all Pfizer wanted. AstraZeneca has exciting cancer drug pipeline which Pfizer may be interested in. Also, Pfizer has mentioned that despite the change in rules, it will still consider potential tax inversion deals to unlock more value for shareholders. ^[1] In another development, Pfizer received the approval of Bombay High Court to merge its India operations with those of Wyeth. ^[2]

We estimate revenues of around $49.65 billion for Pfizer in 2014 and non-GAAP diluted EPS of $2.15. We maintain a $35 price estimate for Pfizer’s shares, which is more than 15% above the market price. The company’s shares traded in small range during the past week.

Bristol-Myers Squibb

Bristol-Myers Squibb has extended its existing biologics manufacturing contract with Lonaz, a Switzerland based contract manufacturer for pharmaceutical products. ^[3] This move includes the manufacturing of another of Bristol-Myers Squibb’s biologics at Lonza’s mammalian manufacturing facility in Portsmouth, New Hampshire. The two companies have collaborated since 2003. Unlike small molecule drugs, biologics tend to be more targeted and attach themselves to specific cell receptors associated with specific disease  mechanisms, and have been the primary research areas for many companies including Bristol-Myers Squibb.

In a separate development, the company has begun talks with health authorities and governments in many countries to come up with tiered pricing for its Hepatitis C drug, and pursue licensing deals. ^[4] This is an attempt to increase the access to its drug globally and compete better against rivals such as Gilead Sciences.

We estimate revenues of around $17.5 billion for Bristol-Myers Squibb in 2014 and non-GAAP diluted EPS of $2.07. We maintain a $36 price estimate for BMY’s shares, which is around 30% below the market price. The company’s shares traded in small range during the past week.

Merck

Merck has recently announced a partnership with Bind Therapeutics for developing two early-stage cancer drugs. Through this alliance, Bind will gain access to Merck’s kinesin spindle protein inhibitor and a polo-like kinase 1 inhibitor. The company will focus on improving these drugs’ efficacy. Cancer has become the primary research area for several big pharmaceutical firms battling with patent expiries.

We estimate revenues of around $42.3 billion for Merck in 2014 and non-GAAP diluted EPS of $3.38. We maintain a $52.50 price estimate for Merck’s shares, implying a slight discount of more than 10% to the market price. Merck’s share price increased by more than 2.5% during the last week.

Roche

Swiss pharmaceutical giant Roche has announced that it will invest 450 million Swiss Franc or $463 million (at current exchange rates) to set up a new diagnostics equipment manufacturing facility in China. ^[5] The facility will focus on developing equipments and kits for clinical laboratory testing, and will be fully operational by 2018. However, we believe Roche’s ambitions are not just limited to this as Asia Pacific region offers ample growth opportunities for multiple segments of medical devices and diagnostics market.

We estimate revenues of around $52.75 billion for Roche in 2014 and non-IFRS core diluted EPS of $1.98. We maintain a $38.50 price estimate for Roche’s shares, implying a premium of about 5% to the market price. The company’s shares were up 2% during the last week.

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1. Pfizer Hasn’t Ruled Out Potential Inversions, Chief Says, The Wall Street Journal, Oct 28 2014 [↩]
2. Pfizer gets Bombay HC nod for merger of Wyeth, Moneycontrol, Nov 1 2014 [↩]
3. Lonza and Bristol-Myers Squibb expand manufacturing pact for biologics, Business Standard, Oct 31 2014 [↩]
4. Bristol-Myers Plan to Widen Access to its Hep C Drug is Criticized, The Wall Street Journal, Nov 3 2014 [↩]
5. Roche to invest 450 million Swiss Francs in new diagnostic manufacturing facility in China, Fierce Pharma Manufacturing, Nov 5 2014 [↩]