Be Careful What You Wish For

Be Careful What You Wish For

This morning Pfizer (NYSE:PFE) announced an expanded $11 Billion share buyback plan and naturally shares of AstraZeneca (NYSE:AZN) are down on the news as everyone now believes Pfizer won’t reengage with Astra. While there is no way of knowing what Pfizer will do, Diabetic Investor wonders if the team at Astra just might kicking themselves for not being more receptive when Pfizer came a calling the first time around.

Back when Pfizer was pursuing Astra, the company went to great lengths to prove to investors they would be better off not merging and how they could be successful as a stand-alone company. The company was very public about what they thought the future would look like, making some fairly aggressive estimates for revenues. Most observers at the time, including Diabetic Investor thought Astra was just trying to extort a higher price from Pfizer and that this deal would get done.

Given today’s news from Pfizer it now appears that Astra will actually have to live up to the lofty estimates they provided. As we noted just yesterday execution will be critical if Astra stands any chance at all of coming close to the goals they outlined while being pursued by Pfizer and quite frankly we’re not sure the company is up to the task.

At the moment Astra is about the only diabetes drug company who can compete head on with Lilly (NYSE:LLY). However as we have noted on many occasions the portfolio of therapies lacks insulin and the company has failed to capitalize on Bydureon.  Given the Europeans fondness for soccer think of it this way, Lilly is playing with 11 players while Astra is playing with only 9. No matter how good those 9 players may be the team with more players on the field usually wins.

This is one reason Diabetic Investor continues to believe that eventually Astra will either sell off their diabetes portfolio or find another suitor for the company. Again as we have noted in the past this portfolio while incomplete would fit very well with Novo Nordisk (NYSE:NVO) or Sanofi (NYSE:SNY), both of whom have what Astra lacks- an insulin franchise.

Should Astra follow this wise path and should either Novo or Sanofi take ownership of the portfolio then you would have a soccer match where each team is playing with a full complement of players.  Personally Diabetic Investor would like to see Novo gain control of the Astra portfolio for several reasons. Although Novo has never done well in the non-injectable arena they are a formidable player in diabetes. It’s also true that Lilly and Novo aren’t the best of friends, think Yankees Red Sox or Packers Bears – simply put they don’t like each other. Finally it would be no fun to see Sanofi screw up and run this portfolio into the ground. In our eyes there would nothing better than watching these two diabetes heavyweights battle for global diabetes supremacy.

However the likely hood that Astra would make such a wise move is slim. They have spent a small fortune to become a player in diabetes. They seem to believe they have a diabetes strategy although Diabetic Investor can’t exactly figure out what that strategy is. They seem to believe they can play this game shorthanded and win. Good luck with that.