“I’m coming home
I’m coming home
Tell the world I’m coming home
Let the rain wash away all the pain of yesterday
I know my kingdom awaits and they’ve forgiven my mistakes
I’m coming home, I’m coming home”
– Coming Home by Sean Combs (aka P. Diddy) feat. Skylar Grey
When it has come to deal making, Pfizer’s has seemed a little out of focus in recent years. The AstraZeneca and Allergen episodes laid bear the unmistakable fact that the company’s stimulus for deal making in recent years has been one driven more by location and accountancy quick-fixes rather than any long-term strategic business rationale. However, in announcing its proposed $14bn takeover of Medivation, a California based biotech company, Pfizer has attempted to wash away the deal-making pain of yesterday, and announce to the world, and more importantly the US Government, that it is coming home.
Pfizer has agreed to pay Medivation shareholders $81.50 per share, a 21.5% premium to last week’s $67.16 closing price, beating offers from other competitors such as French based Sanofi. The purchase of Medivation sees Pfizer return to the big-ticket deal-making table after failing in its pursuit of Allergen and losing out to AbbVie in the race to buy Pharmacyclics, another company in the oncology sector based in the US. The acquisition will allow Pfizer to achieve both a physical and psychological homecoming.
Firstly, it will allow Pfizer to symbolically seek forgiveness from the US Government and quell the negative sentiment that arose from their previous desires for tax-inversion. In acquiring a US company, Pfizer has, in a very physical way, signalled that the answer to their business woes do not necessarily lie in basing themselves in territories where the corporation tax grass is greener, and that its days of attempting to circumnavigate US corporate tax laws are over.
Furthermore, in preventing a possible Sanofi takeover over of Medivation, Pfizer has ensured that a star in the oncology sector remains in US hands. Consequently, Pfizer is achieving a physical homecoming of some sorts in terms of how and where they believe the future of the business should operate from.
Secondly, and more importantly, Pfizer have realigned their focus in order to once again seek deals that have a long-term strategic business rationale rather than simply provide a quick-fix accountancy trick. The deal with Medivation actually makes long-term strategic sense for Pfizer far beyond any favourable corporate tax rate they sought in attempting to acquire Allergen. Pfizer has traditionally been slow when it comes to developing new cancer drugs, and has drastically fallen behind companies such as Merck that currently sell immunity drugs that aim to stimulate the body to fight cancer cells internally.
Medivation, on the other hand, manufactures Xtandi, the world’s best-selling prostrate cancer drug, which is forecasted to generate $5.7bn in annual revenue by 2020, and also has a parp-inhibitor called Talazoparib in development. A tie-up with Medivation thus makes sense from a business development point of view. The deal would not only see Pfizer close the gap in the cancer drug market, but as pointed out by Ian Read, Pfizer’s CEO, will ‘immediately accelerate revenue growth and drive overall earnings growth’. Consequently, Pfizer has achieved a psychological homecoming through a shift in the way in which the company approaches its deal making.
The Medivation deal is a significant sign of intent from Pfizer, and heralds both a physical and psychological homecoming in terms of the company’s focus for the future. As P Diddy so poetically put it – with the deal making mistakes of yesterday now washed away, Pfizer’s kingdom now awaits – Pfizer is coming home.