Pfizer-AstraZeneca Deal Still Occupies Analysts’ Fantasy

16.06.2014 -

The world's biggest would-be drugs merger hit a wall last month but speculation about smart ways that Pfizer could yet seal a deal with AstraZeneca remains intense.

Even as talks fell apart last month, some in Pfizer's camp remained optimistic the transaction could be revived, and certain AstraZeneca advisers have not ruled out renewed talks, says the news agency Reuters.

Under British takeover law, the UK firm can approach Pfizer at the end of August to discuss a sweetened bid or Pfizer can try again in November.

While the most obvious method for Pfizer to win AstraZeneca around might seem to be more cash, some hedge funds think the US firm could structure payouts by tying them to the performance of key AstraZeneca drugs.

A so-called contingent value right, or CVR, was a winning formula for Sanofi in its 2011 battle for Genzyme and the tradeable product - promising additional payouts once future benchmarks are hit - has been used in several other drug industry deals when the two sides could not agree on price.

Financial analysts have pointed out, however, that CVRs have typically been tied to one particular drug upon which buyers and sellers could not agree a price, such as Genzyme's multiple sclerosis drug Lemtrada.

But applying a CVR to AstraZeneca could be tough, they say, given the number of new drugs in its pipeline and the time needed to prove their value. Debate about the UK company's valuation centers on a wide range of experimental drugs in cancer, respiratory disease and other areas, for which it has made sales forecasts stretching as far as 2023.

It could be far simpler for Pfizer instead to bump up the cash element in its £55-per-share offer - rejected by AstraZeneca's management as inadequate - and meet the £58.85 that management has hinted is the minimum at which it might recommend a deal, the thinking goes.

Most analysts believe Pfizer will be back - not least because no other target both complements the US company's product range and offers the same potential for tax and cost benefits.