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Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: Twitter: Dereklowe

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April 28, 2014

Pfizer and AstraZeneca: What the Hell.

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Posted by Derek

What the hell is Ian Read thinking? Pfizer is apparently going hostile with their attempt to buy out AstraZeneca, all but ensuring that the deal, if it goes through, will take place at the highest price and in the messiest fashion that it possibly could. And for what? Update: Matthew Herper asks the same question, in detail.

This news developed over the weekend, with an article in the Financial Times as Pfizer's public shot across the bow. This morning, a press release from AZ gives their side of the story:

On 26 April 2014, Ian Read, Chairman and CEO of Pfizer, contacted Leif Johansson, the Chairman of AstraZeneca for the first time since January 2014. In this discussion, the Chairman of Pfizer did not make a specific proposal regarding an offer to acquire AstraZeneca, but nevertheless Pfizer requested that both companies issue a joint statement, prior to the market open on 28 April 2014, announcing that they had entered into discussions regarding a combination. The Board of AstraZeneca considered this request and concluded that, absent a specific and attractive proposal, it was not appropriate to engage in discussions with Pfizer.

The release says that the companies discussed a possible deal back in November, but that AstraZeneca's board concluded that Pfizer's proposal valued the company far too cheaply (not an uncommon conclusion for a board of directors to take, to be sure). So now we have a big public grab instead. Here are overviews from Reuters and the New York Times. As Reuters has it:

Pfizer's declaration turns up the heat under AstraZeneca Chief Executive Pascal Soriot, who has been in the job since October 2012 and who made clear last week he saw an independent future for the group, flagging spin-offs of two non-core units as one option to create more value.

Soriot has been credited with reviving AstraZeneca's previously thin pipeline of new drugs, which is badly needed to offset a wave of patent expiries on older drugs.

However, his overhaul - including an ambitious plan to move the company's research and corporate headquarters to Cambridge, England - is still a work in progress and he has also come under from some shareholders over executive pay.

That should give you some idea of the innate silliness of the business coverage of the pharma industry. It's 2014 - how can someone who's been CEO since 2012 revive an internal drug pipeline in that time frame? Neither Reuters nor the Times mentions something that Adam Feuerstein brought up on Twitter - that Pfizer has, potentially, all sorts of opportunities in the biotech/small pharma sector with that kind of money, but they're not having any. They'd rather buy another behemoth instead.

What is that? Both of those writeups go on to mention a hidden factor for this deal - taxes. Buying a non-US company would allow Pfizer to avoid repatriating a large amount of money (nearly $70 billion) from its foreign operations and exposing it to US taxes. Of course, if Pfizer wanted a substantial operation in the UK to put money into, they might have thought about not closing their large site in Sandwich back in 2011, but hey, that was all of three years ago, and who remembers such things? And not being an accountant, I can't tell you if they'd have been able to do that without running the cash past the US jurisdiction, anyway.

But that makes a person wonder what Pfizer would do with AZ if they got them. Take the drug pipeline, close down everything in the UK again, and just leave a corporate structure intact for the tax break? Stop that whole move-to-a-new-research-site-in-Cambridge idea before it gets any further? (After all, if Pfizer wanted to have a new research site there, they could have built one themselves when they vacated Sandwich). I hate to say it, but those seem like the most likely alternatives, especially given the company's past behavior in these situations. Pfizer's statement that the new company would be incorporated in Great Britain fits that view alarmingly well.

So there's the answer, perhaps, to the question I asked in the first paragraph. What the hell is Ian Read thinking? He's thinking about getting someone else's late-stage pipeline, because that's how Pfizer finds things to sell. He's thinking about working the tax laws to save the company billions of dollars, because Pfizer's innovations, in recent years, have mostly been financial ones. And he's thinking about ripping up yet another large patch of the drug industry in a continuing effort to keep Pfizer going, while causing vast disruption and loss of productivity along the way. Because that's what Pfizer does.

Update: Matthew Herper listened to Pfizer's conference call this morning, and here's what they plan to do with AZ's drugs if they get them.

A personal footnote: I've written a lot of fairly negative things about Pfizer over the years, since they have been very generous with the opportunities to do so. Every so often, people say to me "Well, you're never going to get a job with them, are you?", and I would just laugh. (The only time I might have been in the market for that, they were firing PhD chemists left and right, so it wasn't something that would have ever happened). I do know quite a few people who work at Pfizer, though - they have a lot of good people there, when you take them one at a time. But the corporation itself? No, I don't think they'd ever offer me a job. And what a relief that is.

Comments (76) + TrackBacks (0) | Category: Business and Markets


1. A Nonny Mouse on April 28, 2014 8:25 AM writes...

....which will be a uniform rate of 20% for big and small companies from next year, and reforms by this government which mean UK-based multinationals pay no UK tax on dividends they receive from their overseas operations.....

From the BBC News website; this may explain the purchase and the proposal to headquarter the joint business in the UK. I suppose that, had they not shut Sandwich, they would not need to go after A-Z.

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2. No one on April 28, 2014 8:26 AM writes...

This is as bad as it gets, however, not surprising.

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3. Quintus on April 28, 2014 8:27 AM writes...

I wonder if this is Martin Mackay's way of getting back at AZ for firing him? BUT, wait he also worked for Pfizer!

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4. small biotech CEO on April 28, 2014 8:35 AM writes...

$100B = about 100 acquisitions of small biotechs. This could give Pfizer awesome new technologies and products for their pipeline at many different stages of development in many different sectors.

Such a wasted opportunity!

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5. petros on April 28, 2014 8:40 AM writes...

Talking about this with assorted other chemists last Thursday no one could think of any logic behind the deal, except that it would be bad news for what is left of pharma R&D in the UK

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6. rogi on April 28, 2014 8:44 AM writes...

I do believe you might have just the skills we at Pfizer need. An ombudsman's position is being created and we could use your skills to bullsh..., oh, we meant advocate for our forward looking business plan. Oh, by the by, we are underwriting the cinema sequel to "Independence Day". Should come out chronologically in concert with our merger.

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7. Hap on April 28, 2014 8:48 AM writes...

This looks ugly, as destruction doesn't have to be pretty, and as noted before, the workings of capitalism don't have to be pretty - they simply have to generate value that didn't exist before.

As also noted, though, all destruction isn't creative, and Pfizer's destroyed an awful lot of drug development capacity without creating much of worth. This seems like a larger example of their M.O. Given that, is this better than it looks (by converting A-Z into startups or some other form of pharma that can create better things? by converting them into money that can be better spent elsewhere), or is it in fact as bad as it looks (destructive to nearly everyone but M+A firms and Pfizer management)? And if it's bad, is it a cost worth paying for other things that the financial system brings, or it is a harbinger of more virus-like behavior where value bulit up in generations is subsumed so that more value can be subsumed elsewhere until we've spun a useful economy into an oligopoly where nothing worthwhile actually makes money)?

The aliens in "Independence Day" (or "Aliens") seem to have a lot in common with Pfizer's management, unfortunately. Ripley's comment in the latter movie ("At the least they [the aliens] don't %&$# each other over for a percentage.") seems also relevant in that analogy.

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8. Anchor on April 28, 2014 8:52 AM writes...

Like I said in my previous postings, Pfizer is a serial rapist in a pharmaceutical World and want to "have it," desperately! They just do not give it a damn to what others think of them as long as they get what they want!

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9. dearieme on April 28, 2014 8:53 AM writes...

This is all just a rotten conspiracy to stop AstraZeneca driving up the value of our house. Our heirs will never forgive Pfizer.

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10. Anonymous on April 28, 2014 8:59 AM writes...

I think this would be bad news for UK med chem, at a time when it really doesn't need it....

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11. Anonymous on April 28, 2014 9:00 AM writes...

Best wishes to everyone on the ground at AZ. The fact it's a tax dodge, and will be welcomed with open arms by the spineless British government, makes it all the more sickening

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12. Roberto Ros on April 28, 2014 9:10 AM writes...

If this really happens, I am sorry for all AZ guys, it will be Wyeth all over again, take the pipeline and make tens of thousands redundant.

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13. Fat Old Man on April 28, 2014 9:15 AM writes...

Wow! What déjà vu.

I was a participant in the last acquisition. So I would say the following: if you're in small molecules plan ahead now. I have useen probabilities of 90% that this will happen. Remember Warner Lambert resisted at 1st. It didn't do them any good. Pfizer is now very efficient at integration like transfers of projects and employee exits. I was real sad to see the destruction of the equipment they couldn't move/sell (like small reactors) reminding me of the Romans and Carthage.
. Expect to see a flood of equipment on the auction sites.

I must say Pfizer was good to me with my exit package. I hope a lot of other people will be able to say the same.

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14. Rock on April 28, 2014 9:32 AM writes...

Pfizer did maintain a presence in Cambridge England after they shut down the Sandwich site. It is their pain research group (in combination with the ion channel company they bought Icagen). The unit is now called Neusentis.
Surely, the SEC will finally put a stop to this takeover nonsense......bwaaahahahahahaha....

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15. steve on April 28, 2014 9:46 AM writes...

The tax angle is an interesting one but I think this is really a cancer play for Medimmune/AmplImmune.

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16. PharmaHeretic on April 28, 2014 9:46 AM writes...

And it just keeps on getting better and better.

"Welcome to Thunderdome. Two men enter, one man leaves."

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17. The Aqueous Layer on April 28, 2014 9:49 AM writes...

I think the Ian Read has been watching too much Game of Thrones.

Pfizer is coming.

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18. UK Chemist on April 28, 2014 9:50 AM writes...

Having just seemingly got through the patent expiry of Lipitor, why would you want to go through Nexium and Crestor?

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19. NoDrugsNoJobs on April 28, 2014 9:51 AM writes...

They are so big they don't even understand nor how to launch their newly enhanced pipelines after mergers. Their marketing management of Wyeth's Women's Health Plan pipeline product has been atrocious because Pfizer had no clue about that area nor the innovation that was involved. Their last several drug launches have crashed and burned, they can't recognize innovation and have little capability to manage the assets they are acquiring in their demolition of company after company. Imagine the pharm world without Pfizer; all of the mid size companies that were so much more productive still doing their thing. Imagine the opportunities for med chemists in that environment compared to now. I look at Pfizer's still declining revenues and poor stock performance and think really, all this destruction to build this? I'm not saying the challenges of our industry would all be solved, just saying it would be a better place than it is now - and that's for workers, patients and shareholders if Pfizer had not become an eat and crap it out company.

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20. Justin on April 28, 2014 9:52 AM writes...

Just when you thought you had Pfizer figured out...oh, wait a minute.

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21. Shocker on April 28, 2014 9:53 AM writes...

#3 Quintus - Having just seen Mackay give a smooth talk last week at the World Orphan Drug Congress on behalf of his new employer Alexion, he seems to have converted to the rare disease side of things..and based on what I saw of Pfizer rare disease unit at the same meeting- it may be a while before they start buying into that space in a bigger the return of Mackay may be a ways off.

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22. PPedroso on April 28, 2014 9:54 AM writes...


If Pfizer is the Winter, who the hell is Daenerys and their fiery dragons?

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23. John Wayne on April 28, 2014 10:08 AM writes...

@17 Pfizer seems to insist on paying 'the Iron Price' for all of its assets; business brutality has a simpler ROI than basic research

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24. Anonymous on April 28, 2014 10:09 AM writes...

This has nothing to do with improving R&D.

Pfizer has 60Billion sitting offshore and it either donates it to the US government or spends it buying a late stage pipeline for the glory of shareholder value - just read the press release.

AZ or the British gov can not stop them so they will. AZ board will extract top dollar but PFE will pay - what else is there to do with the money? It is still good value at top dollar and is better than paying taxes, investing the remnants in research and hoping in 20 years they get something. PFE still does spend 6Billion plus on R&D and has little to show for it - the board ask ' we spend 6B on R&D and get little, why spend another 6B?'

Yes, this is about short term investor gain. AZ will be pillaged - PFE realised after WL that extracting value from other companies R&D lines was pointless. A few bits will be left for political reasons for a few years (see Neusentis) but everything else will go. At least AZ redundancy packages are better than most. PFE will then need another target in a few years time to do the trick again. I'm looking at you GSK...

Drug Discovery will be dead before I am. I'm advising my kids to take an interest in science but get a job as a tax accountant.

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25. Yancey Ward on April 28, 2014 10:09 AM writes...

While I won't comment about the wisdom of Pfizer buying Astrazeneca, I take the bid and the market's reaction as a sign of a late stage market mania. Seriously- both stocks are up significantly this morning. Simply unreal.

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26. Quintus on April 28, 2014 10:12 AM writes...

@Shocker: yes he was always a slick presenter but so far not much has materialised. In fact he de-materalised jobs at AZ before his went!

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27. oldnuke on April 28, 2014 10:17 AM writes...

I suppose that AZ will probably close its remaining R-D in the United States then? They just sold their relatively new office space in Wilmington (DE) to Chase-Manhattan. Several big lab buildings have been sitting vacant for several years, some of the lab equipment was donated to local education.

Sorry to see -- it is like watching DuPont (up the street) imploding. Maybe it's in the water supply in Wilmington.

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28. Anonymous BMS Researcher on April 28, 2014 10:25 AM writes...

I already have friends who own Pfired coffee mugs. I guess more people will be joining them.

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29. Doctor Memory on April 28, 2014 10:28 AM writes...

Talk to me like I'm stupid:

If the primary goal in buying A-Z is to acquire a UK company such that they can park financial assets away from the prying eyes of the US IRS, wouldn't it be easier to accomplish that by buying... almost any other company?

To the best of my knowledge, there's no requirement in US or UK tax law or corporate regulations that acquired companies must be in a similar line of business: they could just as easily acquire a corner chip shop in London, rechristen it "Pfizer's Fries" and promptly park £30B in its bank accounts. They wouldn't even have to make the counterman redundant, and the chip shop would probably even be net profitable quarter over quarter.

What's the actual upside in buying AZ instead of the chip shop?

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30. Anonymous Big Pharma Researcher on April 28, 2014 10:33 AM writes...

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31. wowchem on April 28, 2014 10:42 AM writes...

Crazy. I always laugh at the tax rationale. They have 70B off shore and will end up paying like 20% or 14B after breaks and welfare. They could take the rest and give big bonuses and dividends. Instead they "don't want to pay taxes" and will spend all 70B plus more on AZ, lawyer costs, accounting costs, severance packages, figuring out what to do with all the redundancy ect.

I know several people that "don't want to pay taxes" so they buy a house and pay 2X-3X larger mortgage. But hey no taxes, except you're broke!
its illogical

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32. oem chemist on April 28, 2014 11:36 AM writes...

it's all about money, buy AZ, move HQ to UK. no tax on Pfz money in US. perfect accounting sense. unlock money for shareholders.

we have lawyers, accountants, sales reps. we have modern equipment, fancy lab coats with our corp logo. but we dont have a damn clue how to plan for the future. after all, 7yrs is too long to wait for success

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33. Bring the Movies on April 28, 2014 11:45 AM writes...

Hopefully this will end those stupid-annoying- cutsey Nexium commercials.

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34. Hap on April 28, 2014 11:47 AM writes...

@24: If they can't get anything of value from their R+D, then 1) why keep spending lots of money on it and 2) why keep buying other companies so you can destroy their R+D? If you're in a business that depends on your ability to do R+D well (because Pfizer's spent a long time proving that buying what you can't make doesn't work so well), and you can't do R+D, why are you there?

The only reason for 1) and 2) that comes to mind is a massive Ponzi scheme - the only way current investors can make money is for Pfizer to swallow another company and feed on it; they can't do that so cheaply without an R+D infrastructure, and the merger frenzy allows them to get out before the new investors realize they still don't have anything to sell. Don't Ponzi schemes work really badly for almost all involved?

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35. Bioorganic Chemist on April 28, 2014 11:52 AM writes...

Has anyone quantified the total number of scientist jobs, and the total annual R+D spending per year, that Pfizer has destroyed? (So far...)

I'm eternally annoyed by (fellow) academics who are single-mindedly obsessed with the effects of static NIH budgets and loss of TT positions as the primary threat to the biomedical work force ("industry is just an alternative career"...). Yes, those are very significant (as the bulging grant applications folder on my computer will attest). However, in total jobs lost and in dollars terms, the destruction of research capacity by Pfizer alone is probably greater than the effect of static (declining after inflation) NIH budgets. And the dramatic loss of research jobs in industry is doing more to hurt future scientific advances in this country than anything the federal government is or is not doing, since the top students are far less likely to be drawn to science and more likely to go to things that are safer, like medicine or business. That is Pfizer's biggest long-term effect.

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36. David Formerly Known as a Chemist on April 28, 2014 12:06 PM writes...

A laughable, though ultimately sad, quote reported in FiercePharma this morning:

"One big reason why some analysts are all for the deal is one reason why AstraZeneca might not be. In a word? Synergies. Pfizer sees big opportunities for cost cuts; ISI Group analyst Mark Schoenebaum ballparks that expectation at 25%