Pfizer's mergers and acquisitions machine churns out more pennies than pounds. A $106 billion bid for AstraZeneca wouldn't be any different. Sure, it would deliver cost and tax savings. But huge drug deals rarely create value. The US giant spent almost $220 billion on three deals over 15 years and its market value is less than $200 billion. There are better alternatives.
Pfizer acquired Wyeth for $68 billion in 2009. That wasn't a bad deal. Pfizer cut $4 billion of costs, and three of its top 10 drugs last year derived from the purchase. But for that sum, it could have bought four of the six largest biotech firms at the time - assuming 40 percent premiums - and had a few billion left.
To put this in context, the combined market value of Celgene, Vertex Pharmaceuticals, Biogen Idec and Alexion is now $173 billion. That's three-quarters of the sum of Pfizer's market capitalisation, the value of its animal health unit spinoff and all dividends paid since the Wyeth acquisition. Buying the biotechs would have been a better deal.
Pfizer's two previous acquisitions look worse. It paid $90 billion for Warner-Lambert in 2000 and $60 billion for Pharmacia two years later. The combined market capitalisation for all public US biotech firms was around $170 billion at the time of the Pharmacia acquisition.
While mega-mergers offer certain cost cuts, they don't necessarily bring growth. Big companies' labs are inefficient. Slamming together multiple pharma companies results in confusion, delays in the clinic and infighting. Of course, if Pfizer buys a smaller company, there's the real risk its culture is snuffed out, employees walk, and long-shot therapies lose champions.
That's why buying stakes in innovative firms is a preferable route to riches. Roche owned a large chunk of Genentech for years and let its top-notch scientists run the show. The result was a steady stream of blockbusters for Roche to sell.
Sanofi has done similarly well with Regeneron. It has owned a chunk of the biotech since 2007 and provides it with cash to develop drugs, in exchange for sales rights. The French drugmaker has bolstered its pipeline and seen the value of its stake rise 10-fold.
For $100 billion, Pfizer could buy big chunks and provide R&D financing for a score of real innovators. Instead of scooping up pennies, Pfizer could be churning out pounds.
Pfizer acquired Wyeth for $68 billion in 2009. That wasn't a bad deal. Pfizer cut $4 billion of costs, and three of its top 10 drugs last year derived from the purchase. But for that sum, it could have bought four of the six largest biotech firms at the time - assuming 40 percent premiums - and had a few billion left.
To put this in context, the combined market value of Celgene, Vertex Pharmaceuticals, Biogen Idec and Alexion is now $173 billion. That's three-quarters of the sum of Pfizer's market capitalisation, the value of its animal health unit spinoff and all dividends paid since the Wyeth acquisition. Buying the biotechs would have been a better deal.
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While mega-mergers offer certain cost cuts, they don't necessarily bring growth. Big companies' labs are inefficient. Slamming together multiple pharma companies results in confusion, delays in the clinic and infighting. Of course, if Pfizer buys a smaller company, there's the real risk its culture is snuffed out, employees walk, and long-shot therapies lose champions.
That's why buying stakes in innovative firms is a preferable route to riches. Roche owned a large chunk of Genentech for years and let its top-notch scientists run the show. The result was a steady stream of blockbusters for Roche to sell.
Sanofi has done similarly well with Regeneron. It has owned a chunk of the biotech since 2007 and provides it with cash to develop drugs, in exchange for sales rights. The French drugmaker has bolstered its pipeline and seen the value of its stake rise 10-fold.
For $100 billion, Pfizer could buy big chunks and provide R&D financing for a score of real innovators. Instead of scooping up pennies, Pfizer could be churning out pounds.