AstraZeneca promises sales increases to more than $45 billion within the next nine years as exciting new medications come onto the market, compared to $25.7 billion last year. However, the company added that before tomorrow’s jam, there may be a short-term decline in sales.
After Pfizer reported a 15% fall in profits for Q1 2014, its $106 billion bid for AstraZeneca is beginning to sound rather hollow.
While AstraZeneca has an impressive range of experimental drugs in the pipeline, Pfizer is facing a growing number of key drugs near the end of their patent life and very few new products. If this were a game of Monopoly, AstraZeneca has the hotels and train stations while Pfizer is just full of cash– and we all know who eventually wins in that game.
Be patient, AstraZeneca asks shareholders
AstraZeneca urged its shareholders to be patient, warning that a Pfizer deal could deprive them of huge gains later on.
“The increasingly visible success of our independent strategy highlights the future prospects for our shareholders. These are benefits that should fully accrue to AstraZeneca’s shareholders.”
While accepting that AstraZeneca (AZ), the UK’s second largest pharmaceutical company, has an impressive portfolio of experimental drugs in some major medical areas, analysts and investors still argue as to their commercial future.
Pfizer keen on AstraZeneca takeover
Pfizer has approached AZ twice this year, once in January and again at the end of April. Just last week it increased its offer, but AZ has stood its ground, saying the £50 per share bid was nowhere near enough.
While AZ may not appear keen on a Pfizer merger or takeover, several media sources have quoted people familiar with the negotiations who say it may become interested if a new offer acknowledged the true value of the company.
AZ, like Pfizer, is also facing patient expiries on key products, hence a warning of falling sales before the surge later on.
AZ says that from 2017 onward there will be “strong and consistent growth” when new drugs for heart disease, diabetes, cancer, Alzheimer’s and respiratory disorders come onto the market.
A strategy for Pfizer to put up more or shut up?
Jonathan Guthrie writes in the Financial Times that making predictions about ten years’ time is a safe thing to do, because by then nobody will remember what you said. He believes AstraZeneca’s announcement today is aimed at Pfizer rather than its shareholders.
“So publication by the UK drug company of internal sales estimates are best interpreted as an artefact of its battle to make would-be acquirer Pfizer offer more money or sling its hook.”
For Pfizer, AstraZeneca’s immediate appeal is the UK’s 21% corporate tax compared to 35% in the US. Moving its headquarters to London could save the world’s largest drugmaker over $1 billion annually in tax. Add to this the write-offs in US accruals.
A growing number of American companies are looking to buy foreign firms based in countries with lower corporate tax rates, such as the UK or Ireland. The US currently has the highest rate of corporate tax among the advanced economies.