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.