It's going to happen.
I have no doubt that Pfizer (NYSE:PFE) will make a significant acquisition this year. After a couple of notable deals in 2016, the big drugmaker was quiet on the merger-and-acquisition front in 2017. Back in November, Pfizer CEO Ian Read said the company would look at potential acquisitions even if tax reform didn't pass. But it did. Now lower corporate tax rates and a sweet option for repatriating overseas cash are in place.
In my view, the question isn't if but when -- and, more importantly, who. The three potential acquisition candidates that have probably been put forward the most are Biogen (NASDAQ:BIIB), Bristol-Myers Squibb (NYSE:BMY), and even Allergan (NYSE:AGN), a company that Pfizer attempted to buy in 2016. Whom will Pfizer buy in 2018? Here's a quick rundown on these top prospects.
Buying Biogen would give Pfizer a multiple sclerosis (MS) franchise featuring three blockbuster drugs and a fast-growing spinal muscular atrophy drug with Spinraza. However, the bigger draw for Pfizer would be Biogen's pipeline. The star of that pipeline is experimental Alzheimer's disease drug aducanumab.
Market research firm EvaluatePharma ranked aducanumab as the most valuable pipeline candidate in the biopharmaceutical industry. Goldman Sachs thinks that, if approved, the drug could eventually generate sales of $12 billion. Others have far higher peak sales estimates.
Biogen's market cap currently stands at close to $72 billion. Pfizer would have to pay more than that to acquire the biotech, of course. However, company executives have maintained that they're "agnostic to size." Pfizer's history shows that they're probably telling the truth.
Why would Pfizer take a pass on Biogen? The biotech faces stiff competition for its MS franchise. Aducanumab could be a huge winner, but it's also a huge risk. Pfizer also recently announced that it was cutting 300 jobs and pulling the plug on several programs in the neuroscience area.
Perhaps the most frequently mentioned name in conversations about Pfizer's acquisition aspirations is Bristol-Myers Squibb (BMS). While Pfizer might be backing away from neuroscience, it really wants to be in the thick of the oncology space. BMS could be just the ticket to achieve that goal.
Pfizer would probably love to have PD-1 inhibitor Opdivo in its lineup. When BMS reports its full-year 2017 results, I expect sales for Opdivo to be in the ballpark of $5 billion. By 2022, that total could approach $10 billion, especially if combination therapies featuring the drug are successful.
Speaking of combo therapies, BMS has paired up Opdivo with Yervoy in several studies. Yervoy is another oncology blockbuster that Pfizer wouldn't mind owning. BMS is also evaluating Opdivo with a long list of other drugs. In my view, one of the most promising immunotherapies to watch this year is a combo of Opdivo and BMS's LAG-3 inhibitor relatlimab.
Bristol-Myers Squibb would be more expensive than Biogen, though. The big pharma company is currently valued at a little over $100 billion. Pfizer also already has a PD-1 inhibitor, Bavencio, through its partnership with German pharma Merck KGaA. In November, Ian Read said that Pfizer remains committed to that relationship. That could make Pfizer less interested in a BMS acquisition.
Then there's the "rising-from-the-ashes" alternative -- Allergan. Pfizer really wanted to merge with Allergan a couple of years ago, but it scrapped the deal when the Obama administration changed rules that wiped out the anticipated tax benefits.
With an Allergan acquisition, Pfizer would pick up several attractive assets. Put Botox at the top of the list. Sales for the blockbuster drug continue to grow as more uses for Botox have been identified. The latest possibility? Helping prevent grinding of teeth.
However, Allergan also has a long lineup of products that are on track to combine for 2017 revenue of close to $16 billion. In addition, the pharma company has a broad pipeline with over 55 programs. While 21 of those programs are in the aesthetics and dermatology arena, one of the most promising candidates is Allergan's wet age-related macular disease drug, abicipar.
The biggest plus for buying Allergan? It's relatively cheap. Shares trade at less than 12 times expected earnings with the company's market cap currently around $60 billion. The downside? For one thing, the tax advantages aren't there with U.S. tax reform in place. Also, some of the candidates in Allergan's pipeline are iffy. In particular, experimental non-alcoholic steatohepatitis (NASH) drug cenicriviroc had mixed results in a phase 2 study. Allergan executives have often mentioned the drug as one of the company's "six stars" with enormous potential.
Most likely to be bought
While there have been rumors that Pfizer could revisit a deal with Allergan, I have doubts the company will do so. The two organizations are still a reasonably good fit. However, my opinion of Allergan's prospects isn't as high as it was last year.
What about Biogen? Maybe Pfizer's cuts to its neuroscience program are a prelude to beefing up its program by acquiring Biogen. Then again, maybe the company truly does want to focus its money and efforts in other areas. I think Biogen is a possibility for Pfizer, but it would definitely be a roll of the dice on Alzheimer's drug aducanumab.
In my view, the most likely acquisition target for Pfizer is Bristol-Myers Squibb. The two companies are already partners on blockbuster anticoagulant Eliquis. Despite Pfizer's commitment to its deal with Merck KGaA on Bavencio, Opdivo just might be too good to pass up. There could be other candidates as well, but if I had to bet, my money would be on BMS.