Source: Pfizer,
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Hospira (NYSE: HSP) shares surged by 35% Thursday following news that Pfizer (PFE 0.65%) will acquire it for $90 per share, or $17 billion, including debt.
So what: Following a series of patent expirations to its best-selling drugs, Pfizer has been desperate to use its substantial cash stockpile to help kick-start growth. The acquisition of Hospira nets Pfizer an incredibly intriguing line-up of biosimilars that could make a significant impact on Pfizer's growth over the coming decade.
By buying Hospira, Pfizer gets an established global player in specialty injectable medicine. Over the past 12 months, Hospira's sales total $4.4 billion, with 68% of that revenue coming from specialty drugs. Hospira also markets medication management systems that are used for infusion and pain management medicines as well as other pharmaceuticals.
But the biggest prize that Pfizer wins from Hospira is its biosimilars program. That program includes three biosimilars that are already approved and being sold in Europe, including biosimilar alternatives to the top-selling autoimmune drugs Enbrel and Remicade. While the opportunity to win market share away from those multibillion dollar drugs is big, it's dwarfed by the broader biosimilar opportunity. About $100 billion in biologic medicines are slated to lose patent protection in the next five years, and that has Pfizer estimating the total market for biosimilars will grow from $3 billion this year to $20 billion in 2020.
Source: Pfizer
Now what: Since Pfizer's failed attempt to buy AstraZeneca was worth $118 billion, its relatively smaller acquisition of Hospira could prove to be the first of a slate of deals that get announced by the company. Regardless, Pfizer expects that its purchase of Hospira will add immediately to its profitability, adding between $0.10-$0.12 to its EPS in the first year after the deal closes. Pfizer also thinks that it can boost that EPS benefit further by eliminating overlapping costs. The company is guiding analysts to model for up to $800 million in cost savings by 2018. The combination of accelerating market demand for biosimilars and those cost advantages suggests that this acquisition makes Pfizer look increasingly attractive.
