So what’s holding back Pfizer and Gilead from the really big M&A deals we’ve all been waiting for?
Jami Rubin at Goldman Sachs doesn’t mess around. So when her turn came to ask Pfizer CEO Ian Read a question during the Q1 call with analysts, she was her typically blunt self.
Rubin: You and the senior management team have for some time now been signaling a desire to go bigger, doing a larger-scale transaction, and I’m just curious to know what’s holding you back. It’s now May 2, not that I’m impatient, but is it corporate tax reform? Is it something else? Can you remind us what you’re looking for exactly, and what are the trigger points for making you decide to pull the trigger?
Read: From a macro standpoint, Jami, I believe the industry will continue to consolidate over time. I believe there is simply too much redundancy and fragmentation, both globally and in the U.S., for the sector to continually efficiently deliver medicines to society. Pfizer has been, and I expect will continue to be, active industry consolidators. However, there is a lack of clarity on potential tax reform, healthcare policies of the U.S., and uncertainties in the European markets both with the French election and the U.K. snap election. And on top of that, certain large companies have significant, almost binary, risks embedded within their business and pipelines, which could meaningfully alter their values.
So we remain prudent in our evaluation process regardless of target size. We will continue to evaluate deals. We never say never, but I believe the current environment needs to stabilize in order to be an advantageous market for big deals.
It probably didn’t help that Pfizer had to start out its call explaining that its last big acquisition, the $14 billion Medivation buyout, netted a product — Xtandi — that is experiencing declining sales. That’s not what Pfizer, or its investors, had figured on when Read deployed the biggest M&A checking account in the industry.
Then last night it was John Milligan’s turn to talk about Gilead, which has been advised and scolded for not putting its big reserves to work as its hep C fortunes continue to slide at a dramatic pace.
That talk about tax reform? Milligan isn’t listening.
Milligan: So first of all, with regard to Washington, I think that uncertainty in Washington seems to be the norm in my 27 years here. So I think we’ve kind of learned to filter that out and focus on the things that are right for the company. There may be tax reform. There may be repatriation, but you can’t count on it and you can’t wait for it either.
So we’ve focused our efforts — I’ll turn to what you asked last, which is we really focused our efforts on broadening our team, adding some depth both scientifically and with business development experience so that we in fact have much, much greater capacity to assess things and are in fact fully engaged with our teams assessing a number of different opportunities, which we think could play out over the coming year as we start to make progress in getting partnerships and potential acquisitions together. So we’re going to just focus on what’s right for Gilead, try to ignore the noise globally on terms of tax reform, and do the best thing for the company and for the shareholders in the long term. And we really have a great team right now.
Milligan went on to provide some insights into what it’s after.
Milligan: With regard to future legs of stool, I think it’s pretty clear we’re looking for another avenue to increase our opportunity for revenue, and also for helping patients with the considerable heft that we have, and it’s clear we’ve been focusing on oncology, where the question is there in the area, where we can use our resources to accelerate products to market and build a meaningful franchise in oncology. And that was the hiring of Alessandro Riva; that was the foray we made with our business development people to broaden and then to look at other things that can build this.
And so I feel very good that we’ve got a number of different ways to accelerate growth for the company into the future so that a decade from now we’re a very different company, having reinvented ourselves beyond antivirals into a really multi-therapeutic area company.
So there you have it. Two big companies with plenty of financial firepower and a desire to do something impressive — when the time is ripe. Pfizer’s Read is known as the last big megamerger player while Gilead actually turned its acquisition of Pharmasset into a blockbuster — although a blockbuster that’s curing patients faster than they can diagnose new cases.
Everything is on the table right now, from Bristol-Myers Squibb to the latest upstart biotech with new tech. But whatever the reason, several of the big players are still not really in the game. And Roche, Sanofi and others are clearly turned off by high valuations. It’s a seller’s market right now, and deals aren’t as easily come by as everyone expected so far this year.