Pfizer Is Overpaying for Seagen --- Buying top biotech assets as others face a patent cliff was bound to be pricey

"It is a seller's market in biotech.

With several drug companies on the prowl for a diminishing list of desirable biotechs, deal prices are having to bake in a lot of optimism. Pfizer's agreement to pay $43 billion for Seagen values the fast-growing cancer company at a lofty valuation that rivals like Merck balked at paying last year. But given the steep sales cliff that Pfizer was up against, you can't blame Chief Executive Albert Bourla for being aggressive.

At about 5.5 times analysts' projected 2030 sales according to Visible Alpha, the valuation Pfizer is paying trumps the roughly 4.5 multiple that Amgen paid for Horizon Therapeutics in a $28 billion deal in December, which was seen as pricey.

Pfizer's stock was up about 2% in afternoon trading as investors rotated into the healthcare sector amid worries about the financial sector after the Silicon Valley Bank collapse. Pfizer closed up 1.2% on Monday. Before Monday, it was down about 5% since The Wall Street Journal reported the talks late last month.

What Amgen and Pfizer had in common is they faced a looming patent cliff, putting pressure on earnings. In Pfizer's case, about $17 billion of revenue from top-selling drugs is at risk later this decade due to patent losses.

Given that so many drug companies are facing the same situation -- about $200 billion in sales is going off patent this decade -- they are often competing against each other for the most prized biotechs, driving takeover prices higher. Before its deal with Amgen, Horizon said it was receiving interest from Johnson & Johnson and Sanofi.

We don't know how many drug companies circled Seagen, but Pfizer might have moved more aggressively once the Journal began reporting Merck was holding talks last summer. Mr. Bourla hinted as much during an analyst call on Monday. "Clearly, we were watching Seagen for many, many years," Mr. Bourla told analysts. "And clearly when there was news and activity . . . we looked even more."

To win over investors, Mr. Bourla took the unusual step of promising to get to $25 billion in annual revenue through acquisitions by 2030. On the call Monday, the company indicated it is at about $20 billion in acquired projected revenue by that year, including $10 billion that it forecasts could come from Seagen by 2030. Analyst projections are closer to $8 billion for that year. It expects to squeeze about $1 billion in cost savings from the merger. But there is a lot of optimism baked into those numbers.

While nearly every big drug company in the U.S. is on the prowl for M&A, there is a correlation between the size of a company's patent cliff and its willingness to risk overpaying.

Pfizer has definitely been one of the most aggressive deal makers, and for good reason. While Pfizer's balance sheet looks strong thanks in part to the Covid-19 bonanza that earned the company $100 billion in sales in 2022, its earnings are facing several threats including a shrinking Covid business. This put pressure on the shares, which are down around 20% over the past 12 months.

"Their price tag assumes everything goes right for the combined entity," says Jared Holz, a healthcare equity strategist at Mizuho. "But there's scarcity value with respect to biotech assets that are generating material revenue for pharma companies, so there's going to be a premium being placed on those assets."

Pfizer is trading at 10.8 times forward earnings, compared with a 10-year average of 12.2 times, according to FactSet, so there likely isn't much downside from here. But given the steep price it is paying, don't expect Pfizer's stock to gallop ahead either." [1]

 

The Russians, in order to hit the Poles, gave us Vilnius inhabited by Poles. We gave the donated by Russians property of Vilnius to the Landsbergiai and their friends for one euro. It was a mistake. The Landsbergiai are too stupid. If we had allocated at least part of that wealth to the construction of biotechnology factories by Janulaitis, we would already be like Switzerland. And now we are the but of jokes for people of the world, fighters with huge windmills - China and Russia. There is no profit for us in those stupid fights, only bumps and losses.

 

1. Pfizer Is Overpaying for Seagen --- Buying top biotech assets as others face a patent cliff was bound to be pricey
Wainer, David.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 14 Mar 2023: B.10.