Pfizer Continues To Strengthen Pipeline With Deals

Pfizer (NYSE:PFE) continues to implement its classic strategy of forming R&D and marketing alliances, and making acquisitions. Recently, it agreed to make an upfront payment of $87.5 million to acquire a stake in Dutch biotech company AM-Pharma. ^[1] The deal also includes an option to buy the company. If Pfizer decides to do so, it will also infuse more than $500 million, assuming AM-Pharma successfully completes phase 2 trials of a drug intended to treat acute kidney injury. A couple of weeks ago, it was reported that Swiss pharmaceutical company Swedish Orphan Biovitrum AB is in talks with potential buyers, one of which is Pfizer. ^[2] It is clear that Pfizer is leaving no stone unturned to strengthen its drug pipeline and move past the patent cliff that has plagued its results in recent years.

Our price estimate for Pfizer stands at a little over $36, implying a premium of about 5% to the market.

See our complete analysis for Pfizer

Significance Of This Deal

Pfizer has clearly seen some potential in AM-Pharma’s therapy. The drug under trials is going to be an injectable for those suffering from acute kidney injury, and an oral medicine for ulcerative colitis. Acute kidney injury refers to kidney failure when kidneys suddenly lose their ability to filter waste products from blood. The condition is more common among hospitalized people, especially those under critical care.  The most common cause is bacterial blood infection. In the U.S., Europe and Japan, about 700,000 people die due to acute kidney injury. Hospital-acquired acute kidney injury impacts about 2 million patients in these regions annually. As the fatality rates are generally high in this case, an effective therapy is likely to be well-received and could help Pfizer and AM-Pharma established a strong foothold in this market. However, these are still early stages and it may be difficult to ascertain the revenue potential. AM-Pharma still needs to clear some research milestones.

Besides New Deals, Pfizer Is Also Confident About Its Own Pipeline

Pfizer is confident about its R&D pipeline with renewed focus on growth products. Currently, the company has around 10 drugs in phase 3 trials and 12 in phase 2 (important ones). Phase 3 status is interesting as Pfizer is currently testing some biosimilars for Remicade, Rituxan/MabThera and Herceptin. All these three drugs are blockbuster biologics. While Remicade clocked $6.65 billion for Johnson & Johnson, Herceptin earned close to $6.9 billion for Roche and Rituxan/MabThera brought more than $7.54 in revenues. If biosimilars are approved worldwide, Pfizer could be looking to target a market of more than $15 billion with its phase 3 biosimilars. This assumes that biosimilars will be priced 30% below patented drugs. However, at present, only Europe has an established process to approve biosimilars, though there has just been a single approval in the U.S. As such, the timeframe for approvals is even less clear than normal. Overall, we expect Pfizer’s pipeline drugs to bring close to $5-$6 billion over the course of next four years.

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1. Pfizer continues its deal spree with a $600M option pact to buy AM-Pharma, FierceBiotech, May 11 2015 [↩]
2. Pharmaceutical company Sobi said to be open to sale -Bloomberg, Reuters, Apr 26 2015 [↩]