Pfizer CEO Read Dashes Hopes for Big M&A in Near Future

  • CEO says any deal is delayed until resolution on tax reform
  • Comments sends Pfizer, Bristol-Myers shares down Tuesday

The big deal that Pfizer Inc. investors have been hoping for won’t be happening any time in the near future.

On Tuesday, Chief Executive Officer Ian Read said the drugmaker needs clarity about U.S. tax reform in order to figure out which potential targets are worth buying. Until there’s a resolution in Washington, dealmaking will be “somewhat delayed,” Read said.

“We need to see tax reform, or the absence of tax reform, to understand what the market values are,” Read said in response to an analyst’s question about where he stood on large M&A, during Pfizer’s earnings conference call.

Second-quarter results, posted earlier on Tuesday, highlighted why the New York drug giant needs acquisitions. Sales declined 2 percent to $12.9 billion, missing the $13.1 billion average of estimates compiled by Bloomberg. They have now fallen for three quarters in a row.

Pfizer dropped as much as 1.3 percent after Read’s comments, and were down 0.8 percent to $32.90 at 11:54 a.m. in New York. Bristol-Myers Squibb Co., which analysts have cited as the most likely potential target because of its cancer products, also declined, by 0.6 percent to $56.60.

Next Move

Investors had been watching Pfizer’s next move, and Read poured cold water on their expectations. The White House this week mapped what it called an aggressive timeline for getting a tax reform in place before the end of the year -- yet the Trump administration has been wrapped up in a Russia scandal and a lengthy, failed effort to repeal the Affordable Care Act. Some have already called the timeline unrealistic.

The company’s results continued to be dragged down by older drugs, including the top-selling Prevnar vaccination shots, and by products that are facing losses of exclusivity, like the erectile dysfunction treatment Viagra and pain medicine Lyrica. Newer drugs, including breast cancer treatment Ibrance, are doing well, and Pfizer has a solid pipeline of potential blockbusters -- but that won’t be enough to lift overall sales in the near future.

Pfizer walked away from a $160 billion mega-merger with Allergan Plc last year in the face of political backlash over deals that changed a company’s domicile for tax purposes. There has been pressure for Pfizer to make more deals since last year’s $14 billion acquisition of cancer drugmaker Medivation.

Among the bright spots last quarter was Ibrance, whose sales grew by 66 percent percent to $853 million, blowing away the $758 million average of predictions. Another drug that’s expected to drive future growth, rheumatoid arthritis treatment Xeljanz, sold $336 million, topping the $294 million average estimates.

But sales of older drugs, which still account for about 40 percent of the total, dropped 14 percent. The segment includes treatments with cheaper competitors as well as so-called biosimilars, which are generic copycats of a drug made with living cells. The results could renew a debate about whether the company should split into two companies -- one focused on the older drugs, the other one on new products. Pfizer decided against a splitoff after an extensive review last year.

Pfizer has a busy pipeline across many therapies: the company said in a statement that as many as 15 in development have potential to be blockbusters and that half that could get regulatory approval by 2020.

The timing is what may concern investors, though. Vamil Divan, an analyst at Credit Suisse Group AG who recently downgraded Pfizer shares to neutral, wrote in a recent note that the pipeline is a “ways off” from creating “major value.” He suggested that even if Pfizer is holding off on large-scale deals, small to mid-size transactions could improve its prospects.

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