Pfizer calls for AstraZeneca to enter talks, signals willingness to amend bid

Pfizer on Tuesday said that it remains keen to enter into discussions with AstraZeneca regarding a potential merger of the companies after having an offer of 63 billion pounds ($106 billion) rejected earlier this month. The US drugmaker noted that it is "disappointed at the lack of engagement" by AstraZeneca's board, adding that talks between the parties may lead to a transaction that the UK company can recommend.

According to Pfizer, the rationale for a combination is "compelling," providing strategic, financial and operational benefits, whilst presenting "significant value creation" for AstraZeneca shareholders. Pfizer indicated that its previous offer "was based solely on public information," adding "if AstraZeneca engages in conversations to provide...a better understanding of its business and its prospects" it may "help deliver optimal deal terms and structure." However, the US company noted that it "will continue to be disciplined on price."

Pfizer also said that AstraZeneca's business "faces challenges," including pending patent expiries on products with sales of around $14 billion in 2013. The UK drugmaker recently issued financial targets, calling for revenue growth between 2017 and 2023 leading to sales of more than $45 billion by the end of the period. However, Pfizer noted that there is "uncertainty of revenue potential," noting that AstraZeneca has an "attractive but high-risk early-stage pipeline that still requires significant investment."

In response, AstraZeneca said that Pfizer's announcement "contains no new proposal nor substantive new information," adding that the US drugmaker "is making an opportunistic attempt to acquire" the company without reflecting the value of its "exciting pipeline." AstraZeneca has suggested that its pipeline, which includes potential therapies for cancer, asthma and diabetes, could generate sales of between $23 billion to $63 billion, depending on the proportion of drugs that receive regulatory approval.

Also on Tuesday, executives from Pfizer and AstraZeneca were questioned by a UK parliamentary committee on the potential merger of the companies. Pfizer CEO Ian Read reiterated the company's commitment to keep 20 percent of the combined drugmaker's R&D workforce in the UK, although he confirmed that jobs would be cut if the acquisition went ahead. "We'll be efficient by some reduction in jobs. What I cannot tell you is how much or how many or where. We'll look at this as our global combined footprint and then we'll make decisions," Read remarked.

Read added that Pfizer has pledged to follow through on AstraZeneca's plan to build a research hub in Cambridge, the UK, although he conceded that total R&D spending would fall after the combination. "I do not expect the combined [R&D] budget will stay the same. I expect it to be lower. How much I cannot say," the executive noted. When questioned by the Business, Innovation and Skills Committee panel on the commitments, Read said that they are binding under law, adding "I am a man of my word. Pfizer is a company of its word." Read noted that "Pfizer is not alone in reducing employment in industry. AstraZeneca itself has reduced its UK workforce by 40 percent."

AstraZeneca CEO Pascal Soriot told the committee that Pfizer's pledge on research jobs in the UK was hard to evaluate without knowing the company's current R&D workforce total or its plans for cuts. "It could be more, it could be the same or it could be much less than it is today," he said, conceding that "it is logical to assume that a merger like this could mean substantial cost savings, and cost savings could mean job losses." Soriot noted that uncertainty around a deal may affect the company's employees, adding that "the problem with a merger of this magnitude is the distraction it brings." However, Soriot suggested that it would be the duty of AstraZeneca's board to consider a formal offer from Pfizer. "It's impossible to say we would never accept any offer. We are very well aware of our fiduciary duty," the executive commented.

Read and Soriot are scheduled to appear before the UK's Science and Technology Committee on May 14. For related analysis, see ViewPoints: Soriot looks to perfect balancing act as AstraZeneca, Pfizer questioned by UK government committee over potential merger.

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