Image source: Pfizer.
This year is shaping up to possibly be the most transformative in Pfizer's (PFE 2.40%) storied history. Despite adding megacap Wyeth to the mix back in 2009, its $160 billion merger with Allergan (AGN) is set to reshape Pfizer in ways never previously imagined.
Eager to know as much as possible about how this deal will benefit both companies (and especially the larger Pfizer), as well as get a sneak peek at what the future might hold (beyond just its prior press releases), investors tuned in to Pfizer's and Allergan's presentation at the Super Bowl of all healthcare conferences on Tuesday, the J.P. Morgan Healthcare Conference. Both management teams covered quite a bit of ground over their 32-minute panel presentation with analysts, which I'd strongly encourage you to listen to, but it was these four quotes that got my attention.
Forget the synergies and focus on the growth
[W]e set a target that we felt we could achieve on the synergies, which is more than $2 billion, and it reflects the lack of overlap and the fact that both Companies have been I think extremely good at taking costs out.
-- Ian Read, Pfizer CEO
The early discussion revolved around the forecasted $2 billion in synergies that the combined company could save on an annual basis. Considering the size of this deal -- Pfizer and Allergan will create the world's largest drug developer -- many analysts were expected more in terms of cost-savings. CEO Read and Allergan chief executive Brent Saunders both tackled the question offered by J.P. Morgan's analyst, but it was Read's answer that stood out.
Image source: Flickr user thetaxhaven.
Read noted that $2 billion is a realistic expectation given that both Pfizer and Allergan have done a lot of cost-cutting prior to the merger, thus removing the need for pulling those levers post-merger and that Pfizer and Allergan have relatively few overlapping business. With the exception of gastroenterology, inflammation, and neuroscience, there's just little to no overlap and thus no need for cost cuts.
The two points you should take away here are that (1) the tax benefits for redomiciling in Ireland are where the bulk of cost savings will come from, and (2) this merger is more about product growth, innovation, product combinations, and pricing power than it is about cost savings.
You're going to have to wait on a possible GEP spinoff
We will make a decision [on GEP], as we've said, in 2018... We laid out four criteria. We said to do the split you'd have to see the two businesses were functioning well within the Company; you'd have to believe they could function on their own strongly; you would have to believe there is trapped value; and you'd have to believe there is a tax-efficient way of unlocking the trapped value.
-- Ian Read
Another question on the minds of investors is what Pfizer might do with its global established products franchise, or GEP. Its GEP is comprised of brand-name products that have lost their patent protection or whose patent losses are considered imminent. Pfizer still generates substantial cash flow from many of the drugs in its GEP, but the consistent decline in sales from this franchise has been hurting the company's top line.
Image source: Pfizer.
The combination with Allergan, and Pfizer's 2015 purchase of Hospira, certainly changes the outlook for the GEP. Hospira's injectable products and generics could help buoy Pfizer's GEP portfolio, and Allergan's broad product portfolio could add mature products of its own to Pfizer's GEP.
The big question that has yet to be answered is whether there would be value unlocked by spinning off the GEP at a later date. The Allergan deal takes care of the tax-efficiency concerns, and M&A deals in recent years likely mean the GEP portfolio could run as a stand-alone business. We're unfortunately not going to get an answer until 2018 on what the combined company plans to do with its mature products.
Although I could be wrong, if I were a betting man, I'd opine that a split is eventually coming.
Ibrance is a monster
[W]e have so far 20,000 patients that have received the product [Ibrance], up from 15,000 in Q3. We have 5,000 practitioners that are prescribing the product, up from 4,000, so the total prescription almost doubling by the end of the quarter versus Q3. We are having approximately 30% market share in first line, where we are registered. And we have some medical use significant in second and third line, approximately 20% and 17%.
-- Albert Bourla, Pfizer Group Vaccines President, Oncology and Consumer Healthcare
Advanced breast cancer drug Ibrance has been a smashing success in the early going. After being approved in early Feb. 2015, Ibrance racked up $230 million in sales in just its second full quarter on pharmacy shelves. This can be attributed to its convenience and doubling of progression-free survival in clinical studies.
Image source: Pfizer.
But what about the fourth quarter? Pfizer isn't able to comment on its numbers, which are scheduled to be released on Feb. 2, 2016, but Albert Bourla did grace us with a lot of useful early data on Ibrance's growth trajectory. It looks as if an additional 5,000 patients received the drug as of the fourth quarter and another 1,000 oncologists were added during the quarter.
More importantly, it's currently boasting 30% of first-line market share in advanced HER2-negative, estrogen receptor positive advanced breast cancer, and is even being used to a notable extent in off-label indications for second line and higher. However, with multiple studies underway in the U.S. and EU, it looks as if Ibrance will be a multitiered option for certain metastatic breast cancer patients in the not-too-distant future.
Pfizer's immunotherapy line: Underappreciated?
I think investors should be excited [about immuno-oncology] because of two reasons. One, we have a very compelling strategy. We're going to penetrate, we're going to participate in the first wave of monotherapies; but more importantly, we are going to be a leading player in the second wave of combinations.
The second reason why investors should be very excited... we said that we were going to have by the end of the year 20 programs and six of them will be registration enabled. I am pleased to tell you that we have 28 programs in immuno-oncology with avelumab and we have seven registration enabling studies.
Right now, we have in the clinic five different immuno-oncology agents, and we plan to have up to 10 by the end of 2016.
-- Albert Bourla
Finally, a lot of focus went into Pfizer's developing immunotherapy platform that David Nicholson of Allergan referred to as "underappreciated."
Image source: Centers for Disease Control and Prevention.
Pfizer forged a deal with Merck KGaA (NASDAQOTH: MKGAY) in Nov. 2014 to jointly develop and commercialize an anti-PDL1 antibody that came to be known as avelumab. Pfizer paid a pretty penny to Merck KGaA for its part of the deal, including $850 million up front, the potential for Merck KGaA to receive up to $2 billion in additional development, regulatory, and sales-based milestones and a portion of Xalkori's total sales in select markets. This may seem like a steep price to pay, but Bourla suggests it'll be well worth it.
Bourla's commentary with analysts highlighted the two main reasons he feels Pfizer-Allergan will succeed in a major way with immunotherapies. First, Bourla suggests that even though Pfizer isn't the first, second, or even third drug developer to bring an immunotherapy to market, it could be one of the best-positioned companies when it comes to combination advancements.
The second reason worth being excited about is that Pfizer's surpassed its initial target, when the deal was announced, of 20 programs, six of which were to be registration-enabled. Bourla notes that there are currently 28 programs, seven of which are registration-enabled.
And it's not just avelumab that Pfizer is counting on. The company has five immunotherapy agents being studied right now, and it could have as many as 10 total by the end of this year.
Long story short, there's a lot to be excited about with Pfizer's and Allergan's upcoming merger. Long-term investors have a lot to monitor, and it looks like some potentially new treatments in oncology could be right around the corner.
