Will Pfizer have BMS for Thanksgiving dinner next year?

There is a lot of discussion going on at the moment around Pfizer and their interest in selling their OTC assets, how much these assets are worth and who may be a potential buyer.

At the end of the day, I am not so interested in who buys the OTC assets but more about how Pfizer considers its own "non-core" assets and how innately desperate they may be to move them. I wouldn't be surprised if there are more Pfizer assets on the block in the months ahead.

For those that can remember the mid-90's, Pfizer made the bold announcement to its staff, that it wanted to be the #1 Global Pharmaceutical company by the year 2000. This was an enormous call considering the core product that Pfizer had at the time was MINIPRESS (which actually was so effective in lowering blood pressure, its new patients were asked to lay down for 30 minutes after taking the tablet).  

Pfizer reaching the global #1 position was a prediction that even Nostradamus would have had asked for a bet each way.

Of course, to the industry's considerable surprise and to Pfizer's credit and bankers, they did achieve #1 Global Pharmaceutical company status in the year 2000 through their Playbook move (Chapter 1, page 1) - the aggressive "collaborations" that all turned into takeovers (Warner-Lambert, Parke-Davis and Pharmacia being the most critical) where they hit the jackpot with LIPITOR (arguably the greatest primary care product of all time).  

Within an industry where corporate ego's have always been significant, pharmaceutical marriages often end with an awkward, hyphenated name. This was particularly common within "marriages of equals". This has yet to be the case with Pfizer. According to a number of Sales representatives and Managers across the company at that time, not one person that I spoke with ever considered that the partnership was one of equals - "Pfizer was always in charge, Pfizer always called the shots".

I recall a conversation with one of the Sales Supervisors at Pfizer during the flurry of takeovers - after I asked her why the Pfizer name did not change at all. I was informed, with a laugh, that the company did take their partners' names into account.

"We took the P from Pharmacia and Parke-Davis and the ER from Warner-Lambert and decided to call the company PFIZER."

As Pfizer's sales and profits grew, despite ever increasing spending on R&D, Pfizer's growth and profit has almost exclusively come from continued takeovers (Hospira, Wyeth et. al) and subsequent "resizing" targets under the Pfizer banner. They have long since lost the #1 position but still act as though they are still there...

A few years after Pfizer sold their first tranche of OTC to J&J for 16.6B in 2006, the company was well quoted that they would approach a new method of growth (internal NME's and company purchases in speciality areas whilst staying out of mega-mergers and, effectively exiting the primary care/large company takeover strategy of their earlier years). Of course, nothing of the value that was needed to deliver the growth to appease either the analysts nor the shareholders was forthcoming... so the Pfizer team scoured Europe, looking over GSK and had two tries to snare AstraZeneca and an attempt at Allergan for a "reverse takeover" that would have ended as "Pfizer" in any event. 

To that end, Pfizer were thwarted by England's protective nature of their country's blue chip assets (sound familiar Brexit?) and then the inevitable closure of the "inverted merger" loophole by the US Government soon after. This, essentially nullified the inherent value and purpose of these inversion deals anyway.

As the window fast closes for building a platform for performance in the 2018-2020 period, it is becoming increasingly apparent that the only way Pfizer can grow to shareholder expectations as well as offset significant IP losses from products in their own portfolio, is to absorb a suitably large target with solid sales, sustainable growth and a decent product pipeline. Once gained they can then derive a performance dividend through the aggressive removal of thousands of people and the "excess" offices they used to occupy.  Something, of course, the company has much experience at doing.

Within the current Pfizer-BMS "collaboration", ELIQUIS, already bringing in over USD3 Billion per year, is growing extremely strongly against its competition and has already faced down two significant and recent lawsuits - less question-marks for a potential predator. The YERVOY-OPDIVO immune-boosting combination therapy looks like it will be a big winner which will have the M&A group of Pfizer and others pouring over the NPV of BMS as a target which may be determined to be well undervalued at the present time versus what it may be worth in a few years from now.

BMS is certainly directly in Pfizer's cross-hairs as they have two solid and accelerating partnerships between them and the BMS Executive Committee are surely waiting like the proverbial "deer in the headlights" for someone to put them out of their misery. The logical next step following Pfizer's modus operandi across the last 2 decades is to simply absorb BMS and call the new company "Pfizer".  

If another company makes an audacious move on "their target", expect Pfizer to chase BMS like a hungry greyhound after the racetrack rabbit and BMS execs to become richer in the process. Pfizer would prefer to repatriate the large amount of excess cash stored in their operating companies around the world so they can "merge" (aka takeover) BMS without carrying too much debt. To this end, they will sell off whatever they believe is non-core which has always been OTC. They would love a premium for their OTC asset (as they gained with J&J in 2006), but, in reality, they want to offload whatever excess baggage that they can to ensure they grow their Pharmaceutical core.  

Pfizer's latest attempt to gain first mover advantage to switch VIAGRA to OTC has been mixed to negative, being knocked back in Australia recently after being approved in New Zealand (having OTC rights to VIAGRA would have added significant value to their OTC portfolio if they managed to get that one up - excuse the pun). They are at risk of losing at least a billion dollars a year from their top-line when patent is lost on prescription VIAGRA.

Regardless of this position, Pfizer are keen to remove their OTC distraction and get some additional cash in the US. I would expect that the Pfizer EC is anxiously awaiting the President Trump announced, but not yet approved, "limited time exemption" for repatriation of ex-US profits being held in their global operating company network. This is not limited to Pfizer of course - almost all of the multinational Pharmaceutical companies are members of the same party. 

Once this "repatriation amnesty" is given the go ahead, or in the event of another large predator (Pharma or even non-Pharma), has the financing and the audacity to take a shot at BMS first, then Pfizer will dust off their Playbook, turn to Chapter 1, page 1 and throw everything at the purchase of BMS, making the most of their Oncology and Anti-coagulation assets.  

As the ink dries on the deal, there will come the inevitable efficiency reduction of thousands of employees considered to be excess from the BMS workforce and closure of duplicate offices to appease shareholders and show solid growth for another few years.  Back-slapping all around at Pfizer HQ and golden parachutes for BMS executives as their option packages vest and redundancy payments kick in.

It is not the question as to whether or not Pfizer enjoy their Thanksgiving with whatever remains of BMS, it will just be whether the ink dries on the deal in 2018 or 2019.