By Jonathan D. Rockoff, Lauren Pollock and George Stahl
Pfizer Inc. agreed to buy Hospira Inc., in a $16 billion,
all-cash deal that would expand the New York pharmaceutical
company's sales of injectable drugs and lower-priced versions of
costly biotech drugs.
Hospira shareholders will receive $90 a share in cash, a 39%
premium to Wednesday's close. Shares surged 35% to $87.51 in
morning trading. The stock's previous high, set earlier this year,
was $66.56 a share. Pfizer, meanwhile, gained 3.4%.
Pfizer Chief Executive Ian Read had said the company was open to
doing a big deal after being rebuffed last year in its $120 billion
bid to buy AstraZeneca PLC. Like its rivals, Pfizer is looking for
new avenues of growth as key drugs lose patent protection.
Hospira is among the leading companies selling injectable drugs
and biosimilars. In fact, Hospira is one of the first U.S. drug
makers selling biosimilars in Europe and Australia. Hospira, of
Lake Forest, Ill., had $4.4 billion in revenue last year, according
to Pfizer.
The deal would give Pfizer, which has been trying to build up
its own businesses in those areas, the opportunity to expand and
take leading positions in fast-growing markets, according to Mr.
Read. "The puzzle pieces come together in a very nice way," he said
in an interview.
Pfizer estimates the global marketplace for generic sterile
injectables is estimated to be $70 billion in 2020, while the
marketplace for biosimilars is estimated to be about $20 billion by
that time. Pfizer had $49.6 billion in sales last year.
Pfizer will add Hospira, which is based in Lake Forest, Ill., to
its global established pharma business, which includes generic
products as well as growth opportunities such as biosimilars and
injectables. The business had $25.15 billion in revenue last
year.
John Young, who heads the Pfizer established-products unit, said
he expects further benefits from plugging Hospira's largely
U.S.-based business into the New York company's world-wide
commercial infrastructure.
"We think our commercial footprint can be a real enabler," Mr.
Young said.
Pfizer expects the deal, which was announced Thursday, to close
in the second half of this year and add to earnings immediately.
The company expects the acquisition to add 10 cents to 12 cents in
per-share earnings in the first full year. Pfizer also expects the
acquisition to generate $800 million in cost savings within three
years.
Executives indicated Pfizer would keep looking for deals, even
bigger ones. "We have lots of remaining capacity" to do more
transactions, Pfizer Chief Financial Officer Frank D'Amelio
said.
As of Sept. 28, Pfizer had more than $33 billion in cash and
short-term investments, sparking speculation about how it would put
the money to work.
After walking away from AstraZeneca, Pfizer approached a number
of other companies about a potential deal, The Wall Street Journal
has reported. One of those companies was Actavis PLC, which later
reached its own deal to buy Allergan Inc.
Pfizer and Hospira tagged the enterprise value of the deal,
which likely includes the assumption of debt, at about $17
billion.
The deal comes as Hospira was facing challenges to a key
business. Over the past couple of years, manufacturers of
injectable drugs have benefited from product shortages that made it
possible to raise prices. The shortages were often attributed to
tougher inspections by the U.S. Food and Drug Administration, but
these typically take about two years to resolve, suggesting the
latest cycle of price hikes may be nearing an end.
Hospira had also looked to enter the deals fray in the
pharmaceutical sector, emerging last year as a bidder for Danone
SA's medical-nutrition unit, amid a flurry of so-called inversion
deals designed to sidestep U.S. taxes. The deal never occurred, and
Danone in December said it would keep its medical-nutrition
business.
Hospira was expected to report its 2014 results next week.
Pfizer, meanwhile, last month reported a 4% decline in 2014 revenue
to $49.6 billion and a 58% drop in net income to $9.14 billion.
Pfizer is facing the loss of roughly $26 billion in sales
between 2010 and this year from drugs losing patent protection. In
December, its painkiller Celebrex began facing generic competition.
To cope, the company has cut $5.5 billion in operating expenses
over the past few years while trying to restock its research
pipeline with heart and cancer drugs and vaccines.
Write to Jonathan D. Rockoff at Jonathan.Rockoff@wsj.com, Lauren
Pollock at lauren.pollock@wsj.com and George Stahl at
george.stahl@wsj.com
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