Pfizer Is Spending $11.6 Billion on Biohaven. Its Plans Point to a Lot More M&A.

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Acquisitions by Pfizer would be good news for the biotech sector, which has suffered big losses this year.

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$11.6 billion planned acquisition of Biohaven Pharmaceutical Holding is only the start of the spending spree that the company has planned, the company signaled on Tuesday.

Pfizer (ticker: PFE) appears to be prepared to spend tens of billion dollars more as it gets ready for a number of its key drugs to go off patent toward the end of the decade. That is good news for the biotech sector, where valuations have plummeted this year, partly because deals have been rare.

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Pfizer’s coffers have filled up over the course of the pandemic, through sales of its vaccine and its Covid-19 therapeutic. Sales are expected to top $100 billion this year for the first time in the company’s history, and analysts expect it to end the year with cash and cash equivalents of $30.5 billion, according to FactSet.

Until Tuesday morning, the company had been slow to spend that money. Its only acquisition announced this year was the $525 million deal to buy the private drugmaker ReViral. It also closed a $5.4 billion acquisition of Arena Pharmaceuticals, announced last year.

With the announcement of the Biohaven (BHVN) deal, Pfizer offered more details on its plans to spend more of the Covid-19 windfall on acquisitions.

Pfizer has said that its M&A strategy is aimed at adding at least $25 billion worth of risk-adjusted revenue to its pre-existing expectation for revenue in 2030. “This transaction is expected to contribute significantly to that goal,” Pfizer’s chief business innovation officer , Aamir Malik, said on a Tuesday investor call.

That plan is aimed at shoring up what could be a rocky end of the decade of Pfizer. The company will face a number of patent expirations by 2030; analysts see sales falling off sharply by then. Mizuho analyst Vamil Divan, for one, expects Pfizer revenue to drop from $61.7 billion in 2024 to $46.8 billion in 2030, according to a note out last week.

The uncertainty around Pfizer’s long-term revenue prospects is largely to blame for the stock’s valuation, which is lower than virtually all of its peers. Pfizer trades at 7.8 times the per-share earnings expected over the next 12 months, according to FactSet. That is far short of the figure for Johnson & Johnson (JNJ), which trades at 16.9 times earnings, and Merck (MRK), which trades at 11.9 times, not to mention Eli Lilly (LLY), at 32.9 times.

Pfizer says that it expects the drugs it will acquire in the Biohaven deal to contribute more than $6 billion a year in revenue by 2030, and that the drugs from the ReViral deal will contribute $1.5 billion. That suggests that Pfizer has spent a combined $12.1 billion to get about a third of the way toward its $25 billion goal.

That could be imply that the company will spend another $24 billion or so before the spending spree is over, though Pfizer hasn’t been explicit about its budget. Asked on the investor call Tuesday whether the company plans to spend it all in one place, or to continue to make small and midsize deals, the president of Pfizer’s pharmaceutical group, Angela Hwang, offered the usual deflection.

“We’ve …said we are agnostic to size,” Hwang said. “So if the right larger opportunity presents itself, we certainly have the capital and the capabilities to pursue it, but we’ve also been clear that we’re going to focus on driving our top line growth in the back half of the decade, rather than large deals that are anchored on cost synergies.”

There was some skepticism from analysts on the call about Pfizer’s projection that the Biohaven drugs could hit $6 billion in annual sales by the end of the decade. Biohaven and Pfizer executives stood by the drug’s potential.

That Pfizer still has powder in the keg will be welcome news to biotech investors. Stocks in the sector have sunk to extraordinary depths this year as investors await M&A and as rising bond yields reduce the current, discounted value of earnings that are expected in coming years. Growth stocks in other industries have been under pressure as well.

The SPDR S&P Biotech ETF (XBI) was up 3.6% on Tuesday, after falling sharply on Monday. The XBI is down 42.2% this year.

Write to Josh Nathan-Kazis at [email protected]


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