Deals Of The Week: Pfizer Goes For An IPO

The big news this week was the deal that didn’t happen: the sale of Pfizer’s animal health division. Pfizer announced June 7 that it will split off the business into a new standalone company to be called Zoetis instead and that it is preparing to file an initial public offering of a minority ownership stake in the new company.

Investors had been anticipating either a sale of the business or a split-off since CEO Ian Read announced plans to shed the business last year along with its nutrition business, so the news isn’t exactly a surprise.

Still, Pfizer inked a deal for its nutritionals business with Nestle S.A. in April, offloading the business for $11.85 billion, a price that reflects a pretty premium over the $9 billion to $10 billion some analysts had predicted.

Pfizer’s decision to spin-out the business means rival big pharmas like Merck and Eli Lilly won’t be expanding with Pfizer’s assets. The chiefs at both companies have said they remain committed to animal health and the diversified business model. Of the three, Pfizer’s business is the largest with $4.2 billion in sales in 2011. Merck’s animal health business brought in $3.25 billion in sales and Lilly’s $1.67 billion.

A split-off offers tax advantages of a sale, which Read called out in a press release. “Our focus continues to be on taking the actions that will generate the greatest after-tax value for our shareholders,” he said. Analysts had valued a potential sale of the business at around $15 billion.

With the decision to spin-out the business, Pfizer is following a similar route to the one Bristol-Myers Squibb took when it spun-out its Mead Johnson nutritionals business in 2009. That move has been well-received on Wall Street. The initial offering was $24 per share and the stock closed June 7 at $81.12, representing around 70% growth.

Pfizer hasn’t priced the IPO, so it remains to be seen how much it will cost to buy into Zoetis, but Read has vowed to make the company independent by July 2013 so there is plenty of time to analyze the numbers and start wagering.

Elsewhere in the news, GlaxoSmithKline announced June 8 that it has extended its offer to buy Human Genome Sciences from the prior deadline of June 7 to June 29. Otherwise, it was a slowgoing week on the business development front ...

Merck KGaA/ Dr. Reddy's Laboratories – India's global generics firm Dr. Reddy's Laboratories, announced June 6 it was linking up with Merck Serono, the pharmaceutical division of Germany's Merck KGaA, to develop and commercialize biosimilar cancer products, principally monoclonal antibodies. The collaboration will exploit Merck Serono's expertise in biologics manufacturing, development and marketing, which includes the MS therapy Rebif (interferon beta-1a) and the anticancer Erbitux (cetuximab), and Dr. Reddy's pioneering role in biosimilars (it already markets four such products in India). No money is changing hands and the collaborators will share risks and rewards, with Dr. Reddy's conducting early development through Phase I, and Merck Serono taking over further clinical development and manufacturing. Merck Serono will commercialize the biosimilars globally, with Dr Reddy's receiving royalties, except for the U.S., where the companies will co-commercialize on a profit-sharing basis, and certain unspecified emerging markets, where marketing will be co-exclusive, or where Dr Reddy's will have exclusive rights. Biosimilars is a new sphere of activity for Merck KGaA, and one it can enter at a relatively low cost. That's important for the company, as it has just started an efficiency program which calls for R&D facility closures and job losses in order to make around €300 million in costs savings by 2014. For Dr Reddy's, it provides a source of research funding while keeping its options open outside of the oncology sector. – John Davis

Onyx/ Anderson Cancer Center – In just the latest of its research ties to biopharmaceutical companies, the MD Anderson Cancer Center at the University of Texas announced June 4 that it will collaborate with Onyx Pharmaceuticals in an effort to delineate the potential of that company’s anti-cancer candidates carfilzomib and oprozomib in multiple myeloma and lymphoma. Financial terms of the two-year research agreement were not disclosed. Carfilzomib, to be marketed under the brand name Kyprolis, is under review at FDA for relapsed and refractory multiple myeloma. Oprozomib, like carfilzomib, is an oral proteasome inhibitor, is Phase Ib/ II study in hematological malignancies. Onyx and MD Anderson personnel will oversee the collaboration together in a joint steering committee, with MD Anderson conducting all studies related to the agreement. The focus will be on the potential of proteasome inhibitors in tandem with other novel, early-stage cancer candidates, as well as to increase the biological understanding and enhance the clinical profile of the two Onyx compounds. MD Anderson’s most recent deal with private industry was the licensing of an experimental folate-binding protein (FBP) E39 vaccine for the prevention of recurrence of gynecological cancer to Galena Biopharma. – Joseph Haas

Picture credit: Wikimedia Commons