Is Pfizer Wacky?

Is Pfizer Wacky?

It seems that the Pfizer (NYSE:PFE) AstraZeneca (NYSE:AZN) deal may not be dead after all. According to several published reports Pfizer has not given up on acquiring Astra and will come back with another offer before the end of the year.  This dogged quest to acquire Astra makes Diabetic Investor wonder whether Pfizer wants to re-enter the wacky world of diabetes. An area where the company hasn’t had much success and virtually no presence today, yes they have a few compounds in the pipeline but nothing of any real substance.

This makes one wonder given the price Pfizer will likely have to pay for Astra, whether or not they would sell off Astra’s diabetes assets to help pay for the deal.  Even though the diabetes continues to grow at epidemic rates the market for diabetes treatments is becoming increasingly price sensitive. Pfizer could well decide that while Astra has a nice portfolio, this portfolio does not fit into their long term plans. They also know that the portfolio would fetch a nice multiple which would help offset the heavy price they will likely pay to capture Astra.

Back when Pfizer initially pursed Astra, Diabetic Investor read through several of the analyst reports on what a combined company would look like. Simply put Astra’s diabetes assets were considered an after-thought, not the driving force behind the deal.  The general consensus was while these assets were nice to have they could be easily shed without hurting the combined companies.

Assuming Pfizer does go back after Astra and assuming that the second time is charm, the company just might put Astra’s diabetes portfolio on the block.  Even better for Pfizer they have several options and several well-heeled companies that would be interested in all or part of Astra portfolio. As we have noted on numerous occasions the one glaring hole in Astra’s portfolio is insulin. This brings two notable names to the forefront as both Novo-Nordisk (NYSE:NVO) and Sanofi (NYSE:SNY) have what Astra lacks. Even better for Pfizer is that both Novo and Sanofi have glaring omissions from their respective diabetes portfolios. Neither Novo nor Sanofi has anything in the oral Type 2 area and while Novo has a solid GLP-1 franchise, Sanofi has major issues with their GLP-1 franchise.

Perhaps best of all for Pfizer, Novo and Sanofi aren’t exactly friendly competitors.  As we’ve been noting over these past few weeks Sanofi was very public about how they would overtake Novo for global diabetes supremacy. Novo to their credit, although privately not thrilled with these statements, played it cool. It’s also well known within the industry that it was Novo who began the rumors regarding Lantus and cancer; something that didn’t exactly endear Novo to Sanofi.  Bottom line these two children don’t like each other and don’t play well together.

A scenario could develop where Pfizer brings a third player just to spice things up. Diabetic Investor wouldn’t be shocked to see GlaxoSmithKline (NYSE:GSK) or Johnson and Johnson (NYSE:JNJ) be mentioned as possible suitors. Whether there would be any real truth to this is almost immaterial as it would get under the skin of Novo and Sanofi. Let’s not be naïve here folks this happens all the time.

About the only company that likely won’t be mentioned as a possible buyer would be Lilly (NYSE:LLY) for the simple reason Lilly is the company that Novo and Sanofi are chasing. Lilly will soon have a full complement of diabetes treatment options, both orals and injectables. The company has made it very clear they don’t have a problem using price as a weapon to gain share. They are equally vocal that with payors moving ever closer to single source contracting, that they are only company that has what payors want.  As we have stated before while we’re not sure this strategy will work, its brilliance is that it forces everyone else to play defense. Something that Pfizer knows and could use to extract an even larger multiple for Astra’s diabetes assets.

Frankly Diabetic Investor doesn’t think Pfizer wants to play in the wacky world of diabetes.  That t would be wacky not to sell off the Astra diabetes portfolio. Rarely have the stars aligned to such an extent allowing Pfizer to max out on such a deal. This is the ultimate win-win, Pfizer gets Astra and uses Astra diabetes portfolio to offset the cost.

Keep in mind this is all speculation and Pfizer may not reengage with Astra.  However, Diabetic Investor for one would be delighted to see this exact scenario play out. Watching Novo and Sanofi square off would be one of the better battles in diabetes. These are two heavyweights who have known animosity between them.  It may not be Ali -Frazier but it sure would be fun to watch.