Will AstraZeneca Disappear if Pfizer Chooses Not to Bid?
Since May of this year, AstraZeneca (LSE: AZN) has been in the spotlight as shareholders have been excitedly awaiting the return of Pfizer to make a new buyout of the pharmaceutical company.
But that excitement quickly faded when the American company declared a massive $11 billion share repurchase program, deflating expectations that it will make a new bid for AstraZeneca.
Pfizer Inc. (NYSE: PFE) announced the program on Thursday, Oct. 23, noting that the repurchase would be completed “over time.” The plan is in addition to the $1.3 billion remaining under the company’s current repurchase plan. Together, Pfizer would have $12.3 billion for buying back its shares either from the open market or through negotiated deals.
At least a section of investors and analysts’ were hoping that Pfizer would restart its talks with AstraZeneca. (A few months back, Pfizer attempted to buy AstraZeneca for about $118 billion, but AstraZeneca rejected the bid.) But as Reuters pointed out, the buyback is one more in a series of events that does not bode well for a renewed attempt at bidding for the pharma company.
Tim Anderson, analyst at Bernstein Research, said Pfizer executives told him that the company needed to make a “tax inversion” deal with a European company in order to lower its tax base and so it could get access to an overseas cash hoard. If the deal wasn’t made with AstraZeneca, Pfizer would look to other possibilities (perhaps, Actavis ($ACT)), Anderson mentioned.
Shortly after, tax proposals by the U.S. Treasury Department were made, limiting the benefits of tax inversion deals and stopping the on-paper exodus of U.S. companies and their tax revenues. Because of this, AbbVie ($ABBV) quelled its $55 billion deal for the Dublin-based Shire, a move that investors took as further proof that Pfizer abandoned plans to return for AstraZeneca.
So what does this mean for the second largest pharmaceutical company in the UK?
According to analysts, AstraZeneca’s earnings are expected to fall 14 percent this year, then a further 7 percent next year. AstraZeneca’s management does not expect the company to return to growth until 2017, although by 2023 it is expected for sales to have doubled.
By solely looking at these numbers, it implies that if Pfizer does not return for AstraZeneca, its shares will fall. If the company’s valuation were to fall to a level similar to the rest of the sector, the shares would only be worth 3,523p. With earnings expected to fall during 2015, the company’s shares could fall further to 3,262p by 2015.
Pfizer’s takeover of AstraZeneca was motivated by the lower tax bill, but with restrictions now in place, it’s likely that Pfizer won’t make another bid any time soon. In light of this, AstraZeneca’s shares could fall by as much as 10 percent.
This isn’t attractive to potential investors right now, but long-term, AstraZeneca obtains “defensive shares with attractive dividend yields” (according to The Motley Fool) that should not be overlooked.
So even if Pfizer chooses to pass by on the opportunity to bid on AstraZeneca come next month, AstraZeneca will suffer some short-term stock loss, but by no means will the company be going anywhere anytime soon.
The future of pharma: personalised healthcare
Ever since the very first healthcare systems were created, the earliest documented being in ancient Egypt, medical professionals have had a reactionary approach to finding cures for ailments. That is to say that a solution is sought after someone has become sick, using whatever methods were thought to work at the time. Thousands of years later, with advances in genomics and molecular modelling, emphasis is starting to shift towards preventative, personalised healthcare rather than "sick care".
This move is led by data analytics as well as genetic sequencing to inform decision-making, which can ultimately lead to more individualised care. "Identifying the right data will support personalised health outcomes", explains Chris Easton, who is Takeda’s Senior Director and Global Commercial Lead, specialising in personalised health and innovation and applying this to rare blood disorders. "It's about how we can empower patients, interpret data and then apply it."
"The historic pharma model, in a very simplified form, is: a patient has symptoms, gets diagnosed, and gets given drugs for symptoms", Easton says. "Now, with holistic patient care in mind, it's much more about the additional components to care that would make a difference. Yes, drug therapy is one of them, but likewise, it's okay to talk about mental health, as the impact of chronic diseases means often there is a mental health challenge. So what can we do to build a mental health and physical health support package, both of which have data associated with them, that we can use together?"
By way of example, Easton cites the approach taken by elite athletes and astronauts. "Their model is to keep as healthy as possible. If someone on a space mission gets a cold, they're off the mission - it's not affordable to send someone to space that might have a health issue. If you look at footballers and runners, their coaches maintain them at the highest level, and they're using technology and wearables to help monitor their health so that they can make adjustments to stay at peak level for as long as possible."
The aim is to provide a complete, holistic package of care, which Easton acknowledges will pose some challenges to the pharmaceutical sector. "Our model is not necessarily that of a total care package. It's drug therapy or device and technology support therapy. So some things will need to evolve, and that's part of what my role is about."
One way of effecting this change is by collaborating with other organisations, not necessarily limited to healthcare and life sciences. "I'm a big advocate of partnerships and joint ventures. For the pharma sector, these are traditionally through universities and research houses, but I think we need to be willing to look outside the box and look for scalable and transferable technology that is used in everyday life."
"An example is the smartphone you probably have sitting on your desk or the smartwatch you're wearing. These are gathering data all the time. There are probably hundreds of data points that we could use, just from our everyday technology", Easton adds.
While apps like Apple Health, Google Health, and devices like Fitbit collect data, they could be linked to WhatsApp, WeChat or Telegraph to connect to members of a user's care team if a health issue arises. "It's using technology that is already embedded in our lives, that would enable us to share information and photographs. For example, if your knee is swelling and you want to ask a doctor for their opinion, you can send an image, then share the log from your treatment, and it becomes a way of integrating and sharing information."
Shifting towards preventative medicine is one of Takeda's strategic goals for the next few years. An example of how this could work is how people affected by Von Willebrand disease could be supported. This lifelong bleeding disorder prevents blood from clotting and particularly affects girls and women, causing menstrual bleeding to be excessively long and heavy, which has a big impact on their quality of life.
"It's a hereditary disorder, so many women in a family can be affected, but it's hard to diagnose", Easton explains. However, using existing technology that tracks the menstrual cycle via a smartphone perhaps an alert can be issued to let the user know when it's time to start taking replacement therapy for Von Willebrand.
"This means that by the time a period begins, Von Willebrand levels are normalised, and menstrual flow goes down to normal levels. That's actually a massive outcome for someone who has been living with two-week-long periods that bleed through clothing every month. Suddenly for just four or five days, they can use regular tampons and pads. That's a huge improvement to life."
The field of rare blood disorders typically hasn't seen the same amount of attention focused on it - at least in terms of tech innovation - as other chronic illnesses like diabetes. "Rare blood disorders are difficult to show returns on because you've got small patient numbers and often high costs. But if we think about the total patient journey, we could use technology to triage vast numbers of patients and data into more specific diagnosis boxes, so that what is then presented to physicians are smaller groups, of the more likely issues."
Data analysis could, for instance, show that the combination of headaches, nausea and lethargy equates to a specific type of bleeding disorder. "You can start to put these things in categories", Easton says. "And then you're able to do differential diagnosis. But ultimately, what you're trying to do is get a faster, more accurate diagnosis, leading to a specific therapy."
This would be more efficient than administering plasma-based treatments, for example. "A lot of bleeding disorders are caused by a deficiency of something", Easton explains. "There is a lot of combination therapy in blood disorders when you give people plasma-based products because plasma is like the golden chalice of medicine. It has a bit of everything you need. In some cases, when you don't know what the disorder is, this can help patients, but it's not the most precise way of doing it."
"That's one of the ways having very clear diagnostic support linked to advanced direct therapy can help, only treating what you need to. From a payer's perspective, it's very targeted, and there's no wasting money and resources on patients being hospitalised for things that are not necessary."
"If you go back 15-20 years, market access to the pharmaceutical industry was the emerging trend", Easton adds. "We saw all these diagrams of physician decision-making coming down and payer decision-making going up. Now we have another divergence of change, which is the application of technology to support personalised care. This is one of the transformative pieces of pharma right now, and there are a lot of good companies, big and small, being very intelligent about how they're approaching it and investing in those spaces. There's definitely a community building."