Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Pfizer Gets the Signal to Steal

Pfizer's (NYSE: PFE  ) mandatory antitrust waiting period has ended, paving the way for it to complete its acquisition of small specialty drugmaker Encysive Pharmaceuticals (Nasdaq: ENCY  ) on Monday for $195 million in cash. Pfizer will be sliding its way into owning a promising drug at a heck of a price.

Pfizer made the deal to acquire Encysive for $2.35 a share in February. The main prize is Encysive's pulmonary arterial hypertension (PAH) drug, Thelin, which is approved in the European Union and several other countries outside the U.S. Pfizer also is receiving the smaller company's earlier-stage pipeline, although I wouldn't be surprised to see Pfizer out-license or scrap these programs, since they'll be very expensive to develop.

At this price, Pfizer is getting a good deal on Thelin if it can get the drug approved in the U.S. and improve its label, like competitor Actelion is doing with its PAH drug, Tracleer. Don't get me wrong, though, this acquisition is also probably the best outcome for Encysive after it painted itself into a corner mismanaging its cash burn over the years.

Encysive's story is one often heard in the land of development-stage drugmakers -- and it's one that helps keep big pharma's pipelines stocked with cheap buyouts. It often takes only one misstep or delay for a cash-burning drugmaker to trip itself up and almost guarantees that shareholders will be forced to accept either a cheap buyout, huge amounts of dilutive financing, or an out-licensing of their top drug on unfavorable terms just to conserve cash.

Fool analyst Tim Beyers wrote an excellent article about former Rule Breakers pick Panacos Pharmaceuticals (Nasdaq: PANC  ) after it made the somewhat paradoxically fatal error of rushing into phase 2 clinical trials too soon with its HIV drug candidate, but then moving too slowly in those phase 2 studies.

I fully expect at least one of the unpalatable options I listed above to come to pass for Panacos, and an equally unsatisfying outcome for its shareholders. Even though Encysive will likely be just a footnote in the long history of Pfizer acquisitions, Encysive and Panacos present good case studies that all biotech and drug stock investors should remember.

Read/Post Comments (0) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 609312, ~/Articles/ArticleHandler.aspx, 10/28/2016 4:32:20 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 7 hours ago Sponsored by:
DOW 18,169.68 -29.65 -0.16%
S&P 500 2,133.04 -6.39 -0.30%
NASD 5,215.97 -34.29 -0.65%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/27/2016 4:00 PM
PFE $32.48 Up +0.08 +0.25%
Pfizer CAPS Rating: ****
PANC.DL $0.04 Down +0.00 +0.00%
Panacos Pharmaceut… CAPS Rating: ****