Pfizer May Be Happy With Anacor

It is no secret that Pfizer (NYSE:PFE) has traditionally relied on acquisitions to a great extent to bolster its growth and drug pipeline. The company acquired Hospira last year and this year completed the acquisition of Anacor and Medivation. Additionally, it attempted to merge with Allergan, but eventually had to terminate the proposed deal in the wake of new tax laws that negated tax inversion benefits. With the potential for financial engineering diminishing, Pfizer will have to focus on boosting its drug pipeline through its own R&D and small acquisitions. One such acquisition was Anacor, which was completed earlier this year. With the FDA approving Anacor’s eczema drug recently, Pfizer seems to have received a quick gratification. ^[1]

Our price estimate of $36 for Pfizer is nearly 10% above the market.

One of the motivating factors behind the Anacor deal was crisaborole, which was in the latter stages of clinical trials. An FDA review had been initiated for the treatment of mild to moderate atopic dermatitis, which is one of the categories of a skin condition commonly known as eczema. Now the FDA has approved the drug and the estimates peg the peak sales at somewhere around $2 billion. Pfizer has a strong presence in the primary care and pediatric treatments, which is what the drug will target. Assuming that it takes 6-7 years for the sales to peak, and 10 year period of patent protection, we may be looking at a drug that’s worth nearly $3 billion based on 7% cost of capital that our valuation model for Pfizer has. Pfizer paid upwards of $5 billion for the entire deal so getting nearly 60% of that back in form of a single drug isn’t bad by any standards.

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1. Pfizer Announces FDA Approval of EUCRISA™ (crisaborole), Pfizer Press Release, Dec 14 2016 [↩]