January historically brings deals and rumors of deals in the biopharmaceutical industry. The first few weeks in 2019 haven't disappointed, with a couple of big buyouts already announced and rumors flying about more that could be on the way.
Perhaps the juiciest gossip right now relates to a potential acquisition of Amarin (AMRN +9.50%) by Pfizer (PFE +1.16%). Nine days ago, StreetInsider.com reported that Pfizer could be looking to buy Amarin. Neither Amarin nor Pfizer made public comments about any discussions, but the story stirred interest among investors.
Amarin's share price soared on the speculation about an acquisition. Pfizer's shares, on the other hand, fell. But was that reaction warranted? Could Pfizer shareholders actually emerge as big winners with an acquisition of Amarin?
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Arguments against a deal
Probably the biggest argument against Pfizer buying Amarin is that the drugmaker really doesn't have to make a deal right now. Pfizer's pipeline is as strong as it's been in a long time. The company's top products, including blood thinner Eliquis and breast cancer drug Ibrance, continue to generate solid sales growth.
There's also the fact that Pfizer's track record of acquisitions has been spotty. For example, the big pharma company made two significant acquisitions in 2016, spending $14 billion to buy Medivation and $5.2 billion to buy Anacor. Based on sales so far for the key drugs obtained with both of those transactions, it will take years for Pfizer to see a positive return on its initial investments.
Many Pfizer shareholders would probably prefer that the company use its cash to boost its dividend more and buy back more shares. Actually, new Pfizer CEO Albert Bourla said at the J.P. Morgan Healthcare Conference earlier this month that his top capital allocation priorities are to do those two things -- increase the dividend and repurchase shares.
Another argument against Pfizer acquiring Anacor is that it could get more bang for the buck by buying or licensing phase 2 or phase 3 assets. Again, that's something that Bourla indicated the drugmaker would do in his comments at the J.P. Morgan conference.
Checking off the boxes
However, there are several reasons why an acquisition of Amarin by Pfizer could pay off nicely. Amarin definitely has a potential blockbuster on its hands with Vascepa.
At least one analyst thinks that Vascepa could achieve peak sales in the ballpark of $2.5 billion. If the drug can get anywhere close to that level, Amarin's current market cap of $5.3 billion looks quite attractive.
Adding Vascepa to Pfizer's lineup would increase the chances that the drug can deliver on its potential. Pfizer already has a large sales force calling on cardiologists to promote Eliquis, cholesterol drug Lipitor, and hypertension drug Norvasc. Vascepa would be a good fit with Pfizer's existing drugs.
Albert Bourla said in his comments at the J.P. Morgan conference that Pfizer doesn't want any deals that are distracting. An acquisition of Amarin shouldn't be a distraction. Pfizer's cash stockpile (including cash, cash equivalents, and short-term investments) totals more than $17 billion. The drugmaker could buy Amarin at a reasonable premium to its current price without breaking a sweat.
Why a deal isn't likely
Which side of the argument is more compelling? I think it could go either way. However, I don't view a buyout of the small biotech as a must-have for Pfizer. And that's why a deal probably isn't going to happen.
There are other big drugmakers with cardiology sales forces that need to make acquisitions more than Pfizer does. Amarin's management team will want to get the best offer it can. That means that even if Pfizer is interested, the small biotech would likely try to find other prospective buyers also. I don't expect that Pfizer would get into a bidding war.
So while the rumors swirl, my best guess is that Pfizer will do exactly what Albert Bourla said it would. The company will keep growing its dividend, continue buying back shares, and look for late-stage programs that fit into its core areas of focus.
It's still possible that Pfizer might acquire Amarin, but I think the odds are against it. The good news for Pfizer shareholders is that they should win over the long run regardless of which path the big pharma company takes.
Check out the latest Amarin and Pfizer earnings call transcripts.
