Over the past two days, executive delegations from both AstraZeneca and Pfizer have faced a deluge of questions from the UK government's Business, Innovation and Skills, and Science and Technology Committees – the majority relating to Pfizer's commitment to the UK science sector and the potential disruption that any acquisition of AstraZeneca could have on future drug development. See also ViewPoints: Soriot looks to perfect balancing act as AstraZeneca, Pfizer questioned by UK government committee over potential merger.
But one key question was not asked – should Pfizer complete a deal to acquire AstraZeneca, would this increase or decrease the likelihood of further large-scale acquisitions by the US company over the next five to 10 years?
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With both committees in particular looking to secure assurances from Pfizer CEO Ian Read that the company will retain a certain proportion of its R&D headcount in the UK, failure to ascertain whether another large-scale acquisition would represent circumstance significant enough to allow Pfizer to renege on these promises, appears to be a notable oversight (if you believe that any government intervention will have a tangible impact on how this deal develops; in an interview with the UK's Daily Telegraph on Tuesday Read reiterated that the process will ultimately be decided by shareholders).
Although other leading industry players appear to have turned their backs on the mega-merger – the recent spate of asset sales and 'swaps' giving rise to an alternative strategy of 'precision' M&A – Pfizer remains a different beast, argues its former head of R&D John LaMattina.
In reference to Pfizer's acquisitions of Warner-Lambert (2000), Pharmacia (2003) and Wyeth (2009), LaMattina recently described his ex-employer as "the shark that cannot stop feeding." LaMattina adds that while the 'new' Pfizer will have annual sales in excess of $70 billion, allowing it to reclaim its industry dominance, "staying there will be a challenge."
Perhaps unfairly, Pfizer's reputation for M&A notably shaped proceedings on Tuesday and Wednesday. All pharma companies have been forced to reduce headcounts and costs in recent years to compete more effectively in an evolving sector, suggested Read as he was asked to explain further his concession that R&D spending at a combined Pfizer/AstraZeneca would be reduced. Other industry commentators noted the lack of reference to AstraZeneca's own sizeable headcount reductions in recent years, while Read also hit back at suggestions any deal would delay the launch of critical drugs by saying Pfizer would "ring fence" these products and actually seek to accelerate development.
Thus, while Pfizer may have been unfairly cast as an outlier in this respect, this stance by both committees makes it all the more surprising that Read was not asked about longer-term M&A aspirations. LaMattina puts it bluntly in a recent article for Forbes: "The only way for a shark to survive is to keep going forward. To maintain its leadership, Pfizer will again need to make a major acquisition in the next four to five years."
The alternative view – held by numerous analysts – is that a deal to acquire AstraZeneca will only 'work' if Read persists with a mooted strategy to subsequently split Pfizer into two or three component companies. Despite this being the overwhelming strategic narrative discussed with Pfizer investors over the past three years, however, the implications of such a move on the UK science base and legacy AstraZeneca sites was also not discussed in any depth - ViewPoints: AstraZeneca speculation casts shadow over Pfizer's master plan.
It may seem somewhat forthright to be asking Pfizer what strategic decisions it will be making a decade from now, given that its bid to acquire AstraZeneca remains in limbo. However, history suggests this is exactly what both government committees should have been doing if they want long-term assurances about Pfizer's commitment to the UK sector.
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