Why AstraZeneca attracts Pfizer
Pfizer (PFE) is seeking to expand its oncology franchise and a combination with AstraZeneca (AZN) would be meaningful due to the latter’s pipeline of cancer drugs. Pfizer management said on a call with analysts on the possible merger that for the innovative businesses, a combination is expected to enhance Pfizer’s global offerings in key areas of focus such as oncology, especially immuno-oncology, immunology and inflammation, cardiovascular, and diabetes. The merger is also expected to create a stronger R&D (research and development) platform with complementary portfolios across the multiple key therapeutic areas. Management added that a combination with AstraZeneca would diversify Pfizer’s risk recognizing the high potential for failures when developing new therapies and would support potential new product launches in 2015 and beyond.
Analysts believe Pfizer’s weak drug pipeline is one the reasons it’s pursuing Astrazeneca for acquisition at a price of $106 billion. With the acquisition, Pfizer will gain an entry into immuno-oncology, “an exciting segment of the biopharmaceutical market,” which is currently dominated by Merck (MRK), Bristol-Myers Squibb (BMY), and Roche (RHHBY).
Pfizer CEO Ian Read said on the call that the company has good developments in its pipeline with promising results for its breast cancer drug, palbociclib, and its pneumonia vaccine for adults, Prevenar 13. Read added, “We’re coming from a position of strength on our near term pipeline.”
AstraZeneca is already collaborating with Pfizer in a study of Faslodex in combination with palbociclib under the PALOMA 3 trial. But industry experts and analysts cited by newswires believe Pfizer’s cancer treatments Inlyta and Xalkori have seen weak sales. New product launches such as Eliquis and Xeljanz have also performed below expectations. Moreover, the company’s advanced breast cancer drug, palbociclib, is already seeing competition from drugs in development made by rivals Novartis (NVS) and Eli Lilly (LLY). Pfizer expects to gain revenues from Duavee, used for treatment of menopausal symptoms, and saw the FDA approve the OTC version of heartburn drug Nexium 24HR.
AstraZeneca said in its latest earnings release that its pipeline is growing and includes 104 projects, of which 90 are in the clinical phase of development. In 1Q 2014, across the portfolio, four projects were approved and seven projects have successfully progressed to their next phase (including one project entering first human testing). In conjunction with the FY2013 results, the company announced that it anticipates four to five additional new molecular entity (or NME) Phase III starts in 2014. The late stage pipeline now includes 11 NMEs in Phase lll or under regulatory review.
AstraZeneca CEO Pascal Soriot can be credited for enhancing AstraZeneca’s earlier weak new drugs pipeline, and shares have surged more than 60% during his tenure. AstraZeneca expects to use its cancer drug pipeline to offset the impact of a patent expiry on its blockbuster drugs—anti-psychotic medicine Seroquel, acid reflux medicine Nexium this year, and cholesterol-lowering drug Crestor in 2016. Credit Suisse estimates that around a fifth of AstraZeneca’s valuation is based on pipeline expectations—almost double that of its European peers.
Astrazeneca said its oncology pipeline is well positioned to pursue both the most effective data-driven combinations of immunotherapies and combinations with highly targeted small molecules. MedImmune, AstraZeneca’s biologics research and development arm, is building a comprehensive immuno-oncology programme, including MEDI4736, tremelimumab, MEDI0680, and MEDI6469. It’s actively exploring both monotherapy and combination therapies across a range of tumor types.
AstraZeneca recently announced the start of the Phase III programme for MEDI4736, an immunotherapy in development for the treatment of non-small cell lung cancer (NSCLC) and other cancers. It also saw Breakthrough Therapy designation for AZD9291 in non-small cell lung cancer and the Priority Review granted for olaparib in ovarian cancer by the FDA. In January, AstraZeneca entered into an oncology research collaboration and licensing agreement with Immunocore Limited, a privately held UK-based biotechnology company to research and develop novel cancer therapies. Immunocore’s Immune Mobilizing Monoclonal T-Cell Receptor Against Cancer (ImmTAC) technology exploits the power of the body’s own immune system to find and kill diseased cells. ImmTACs direct a patient’s T-cells to specifically destroy only the cancerous cells, avoiding damage to healthy cells.
AstraZeneca in February acquired Bristol-Myers Squibb’s interests in the companies’ diabetes alliance for more than $4 billion. The FDA approved Farxiga, an SGLT2 treatment for type 2 diabetes mellitus in January that faces competition from Johnson & Johnson’s Invokana and a possible third competitor, empagliflozin, from Eli Lilly (LLY) and Boehringer Ingelheim. Newswires said AstraZeneca is also moving its experimental Alzheimer’s drug AZD3293 into the last phase of testing. It also saw U.S. approval for Epanova, a new pill for heart disease.
However, analysts believe AstraZeneca’s “long-term” drug development pipeline won’t be able to stop the slowdown in revenue growth currently seen due to generic competition for Seroquel, Nexium, and Crestor. Bernstein’s Tim Anderson wrote, “When blending together its eroding base business and its future pipeline product flow, our model still shows declining revenues that span 2014/2015/2016/2017,” and, “It is not until 2018 that growth returns, and the growth only seems modest at that.”