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DBL%20Hendrix%20small.png College chemistry, 1983

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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May 21, 2014

Pfizer/AstraZeneca: The Arm-Wrestling Phase

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Posted by Derek

Don't forget - you can bet that the people at AstraZeneca aren't forgetting - that Pfizer still has until May 26th under UK securities law for their takeover offer. Today's Wall Street Journal reports that some institutional investors are pressuring AZ's board to accept the offer (or at least open negotiations), while others are standing with the company's management. (Here's a summary at FierceBiotech if you don't have WSJ access). My guess is that the current deal won't go through, but if there's any mis-step in AZ's turnaround plans during the rest of the year, Pfizer will be right back at the door.

Comments (15) + TrackBacks (0) | Category: Business and Markets


1. Dr. Manhattan on May 21, 2014 9:32 AM writes...

Thanks for posting this! While I do hope that AZ manages to stay independent (based on Pfizer's terrible post merger track record of lost value/lost positions), I think that it is much too early to be talking about a Soriot engineered turnaround. As Derek has pointed out, he has not been there long enough to have had any impact on the near term pipeline. And, have they truly solved the problems that have plagued their late stage pipeline in the past? Time will tell, but only if Pfizer does not succeed in acquiring them.

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2. Olaf the Snowman on May 21, 2014 9:45 AM writes...

As Derek has pointed out, he has not been there long enough to have had any impact on the near term pipeline. And, have they truly solved the problems that have plagued their late stage pipeline in the past? Time will tell, but only if Pfizer does not succeed in acquiring them.

Problem with this is, if he hasn't solved the problems, AZ is going to be in even worse shape than they are now, and might not be worth acquiring at all. That's what shareholders who are dissenting are trying to determine. Do they want to risk their money based on a history of less than stellar results versus a premium on the stock they may never see again.

Pfizer and AZ are two struggling research organizations that are trying to save themselves. Maybe the industry would be better off with one mediocre company rather than two bad ones. I hate to say this especially since it would mean tens of thousands of jobs being lost, but pharma can't continue to poorly plow hundreds of billions of dollars into to void for the diminishing returns they are seeing.

Pharma is at the tipping point. If it goes through, is the Pfizer/AZ saga the start of a larger transformation?

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3. Anonymous on May 21, 2014 9:55 AM writes...

Just a thought: Could Pfizer's announcement (that it won't make a hostile bid) be a deliberate attempt to manipulate (drive down) AZ's share price and strengthen it's own negotiating position before making a hostile bid only to AZ's major shareholders in private? Is that even legal?

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4. annonie on May 21, 2014 11:11 AM writes...

If AZ's rejuvenation is dependent on the success of the majority of late phase compounds in their portfolio, it certainly would seem that Pfe will be at the door again, and possibly at a lower offering price by then as AZ has less to base any negotiation. Considering both the overall success rates of later phase studies along with AZ's track record, it seems that a buyout or merger will have to be in their future, if it's with Pfe or another.

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5. luysii on May 21, 2014 11:17 AM writes...

Stock tip:

Now that I'm doing something socially useful, instead of taking care of the sick (e.g. buying an selling stocks to get a better return than 1% on a lifetime of savings), the readership might be interested to know how I made some serious money this week on the Pfizer/AZ dustup this week.

You can (nearly) always make money from hysteria in the market. Such was the case when AZ turned down Pfizer's offer earlier this week. Volume increased 7 fold and AZ was down 12% on the day. To be noted was that the price held stable in the last hour or so, despite all the selling. So I bought what for me was a lot of AZ 1/2 hour before the close of the US market, and sold it the following day as the hysteria abated. That trade had nothing to do with it's rise today, which apparently is due to a brokerage recommendation, one of those things impossible to predict without inside knowledge.

There was a similar opportunity a few years ago on Mead Johnson (which I didn't take). There was a report that an infant had become ill with some bacterial infection taking one of their baby formulas. The child lived somewhere in the Ozarks (pace Derek), and I thought that the problem was likely to be sanitation rather than Mead Johnson. The stock dropped 10% on the day, and quickly bounced back. So that was some medical knowledge added to the mix, which the readership doesn't have.

However, it wouldn't be a bad idea for you all to look at the large percentage losers each day and see what the story is, and act accordingly. I never look at the winners, because I never short stocks (the potential loss is unlimited).

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6. PorkPieHat on May 21, 2014 12:04 PM writes...

Reminiscent of the automobile heyday of the late 1800s & early 1900s. Thirty American manufacturers produced 2,500 motor vehicles in 1899, and some 485 companies entered the business in the next decade. And after a few decades of musical chairs...three were left. Who will survive this Darwinian process our industry appears to be in? Pfizer, Novartis, GSK?

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7. Kent on May 21, 2014 3:42 PM writes...

Technically, Pfizer had until the 26th of May to put in their final offer. They did so on the 18th so they are done with their chips. They have to sit out for the next 6 months unless AZN re-open the talks.

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8. Dan on May 22, 2014 2:15 AM writes...

@2, "pharma can't continue to poorly plow hundreds of billions of dollars into to void for the diminishing returns they are seeing"

You believe this is unconnected to constant rounds of mergers, closures, strategic turnarounds, and reorganizations every few years, so more of this medicine is exactly what's needed? Hm.

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9. Nick K on May 22, 2014 2:38 AM writes...

AZ shareholders may rue the day they turned down the offer from Pfizer. A bird in the hand is worth two in the bush.

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10. Annonymous on May 22, 2014 5:07 AM writes...

@2, "pharma can't continue to poorly plow hundreds of billions of dollars into to void for the diminishing returns they are seeing"

Perhaps if scientists were allowed to work for a few months straight without being forced to switch bosses, projects, buildings, cities, or companies, or having to learn how to deal with some clunky new software, or having to learn how to work around something important being taken away; companies would get more bang for their R&D buck.

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11. Nick K on May 22, 2014 6:44 AM writes...

#10: What you say is absolutely true. Senior management has to be seen to do things, and just letting the scientists get on with discovering drugs clearly isn't one of them.

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12. simpl re #6 on May 22, 2014 7:53 AM writes...

I agree that there is consolidation pressure, especially today in the US, but think globally. The automobile makers also include European and Asian ones, 10 would be a more reasonable prediction for both.

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13. Hap on May 22, 2014 8:05 AM writes...

Bad firms getting gobbled up doesn't bother me as much; that's the destruction part of creative destruction, and if something good's going to happen, it's going to have to use what less competent people haven't been able to.

The problem here is that Pfizer has destroyed lots of good pharma companies (ones that actually produced drugs), and did nothing useful with them. Once they get done with A-Z, they will have to swallow someone one else, and so on ad (almost) infinitum, and it is unlikely they will make anything useful from those businesses, either. They seem to be destroying an entire field, and don't seem to have anything better to do with its resources - the results of their work seem to be the instantiation of "not all destruction is creative".

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14. Bring the Movies on May 22, 2014 9:48 AM writes...

This comes to mind when I think of Pfizer:

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15. anonymous on May 23, 2014 7:29 AM writes...

@#10 + #11 - who will pay for all of the new drugs, though? It's looking increasingly clear that Europe, Japan, and the US won't. So even if R&D produces more molecules, will it produce enough more money to pay for anything close to the current size of the industry?

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