Is Pfizer-Astra deal important for Indian pharma sector?

Anjali Agarwal
moneycontrol.com

AstraZeneca rejected the 'final' bid of USD 117 billion by Pfizer saying the bid undervalues the company, and may cause a possible threat to life science jobs in Britain. The deal, if it comes through, will help Pfizer cut costs, save taxes and expand its oncology segment by utilizing AstraZeneca's synergies.

Several large drug-makers face issues of patent expiry that cut billions of dollars from their top lines, forcing them to look for new therapies. AstraZenaca may help Pfizer overcome this issue with new drugs and medicines in its kitty.

While AstraZeneca's shareholders have displayed disappointment over the rejection, the Indian subsidiary does not seem much affected. Infact the stock of the company was up almost 3 percent on Monday and has been rising since then.

The London-based company has time only until May 26 to change mind, after which, the deal gets redundant according to UK laws.

Despite rejection, Pfizer does not seem to give up easily. "The deal is wounded, but perhaps not dead," said Mark Schoenebaum, an analyst with ISI Group in New York. ( Full story )

In India, Pfizer is a much bigger entity than AstraZeneca. Therefore, the impact of a possible deal like this may not be of much value to Pfizer in India except giving the company an additional edge by increase in topline and adding to its strengths in the Indian market.

Another concern which may arise, if the deal comes through, is the delisting of AstaZeneca Ltd. If the company gets de-listed before the deal, then Pfizer India will not be required to pay back to minority shareholders as they would have surrendered by then. However, if AstraZeneca gets de-listed post the deal, Pfizer's Indian subsidiary will be obliged to give a significant stake to AstraZeneca shareholders in the new entity.

However, Pharma analyst Sarabjit Kaur Nangra of Angel Broking believes the deal, when comes through, will strengthen Pfizer's position globally as well as in the Indian market. According to her, the portfolio of AstraZeneca is quite diverse with the company selling drugs for cancer, respiratory and heart treatment.

"The overall business of the joint entities will be very good with revenues of AstraZeneca added to that of Pfizer. It will also enhance Pfizer's manufacturing capacity as the company will get access to AstraZeneca's Bangalore-based manufacturing unit," says another pharma expert on conditions of anonymity.

"AstraZeneca is a strong company and with a range of products that compliment Pfizer's, it will boost latter's profits along with its research pipeline," he adds.

Pfizer has been popular for growing its business through big acquisitions with vaccine maker Wyeth being the most recent deal in 2009 for USD 67 billion. Earlier, the company had acquired Pharmacia and Warner Lambert.

In 2013, AstraZeneca invested more than Rs 50 crore to set up a manufacturing facility for injectables, which was missing in Pfizer's portfolio until Wyeth's acquisition.

The takeover, if it comes through, would be one of the largest pharmaceuticals deals ever. The renewed proposal from Pfizer comes amid a surge in mergers and acquisition deals in pharma industry. The most recent one includes Switzerland's Novartis AG agreeing to buy GlaxoSmithKline's cancer-drug business for up to USD 16 billion, and to sell its animal health division to Eli Lilly and Co. of Indianapolis for about USD 5.4 billion.

Pfizer Ltd is third largest multinational drug company in India after Abbott group and GlaxoSmithKline Pharmaceuticals Ltd in terms of market share, according to the IMS Health TSA report for April 2014. Pfizer wants to create world's largest drug company, headquartered in New York but with tax base in Britain, where corporate tax rates are around 20 percent, much lower than 35 percent in the US.

Though the deal may prove good for Pfizer and pharma industry in general, AstraZeneca is protecting the rights of its beneficiaries.

Earlier reports in the press quote Leif Johansson, chairman, AstraZeneca telling Pfizer that his board could only recommend a bid that was at least 10 percent above an offer of 53.50 pounds per share, made by Pfizer earlier, or 58.85 pounds per share but the current bid raises the offer upto only 55 pounds for each share currently held.

"The deal will not only benefit the drug industry globally, but also the Indian pharmaceutical sector, given the industry in India is fragmented and needs some consolidation," says Nangra, pharma analyst, Angel Broking.

She further adds that the deal will benefit the synergies of the two companies and will have no negative implications on the pharma industry and therefore, it will be a positive development for the sector.