INTRODUCTION
On the 13th of March 2023, Pfizer. Inc announced a definitive agreement to acquire Seagen Inc. for a total enterprise value of approximately $43 billion based on a cash offer price of $229 per share.
The deal would benefit from both sides: on one hand it will allow Pfizer to extend their oncology Portfolio thanks to Seagen’s antibody-drug conjugate (ADC) technology; on the other hand, it will allow Seagen’s growth thanks to the strengths of Pfizer’s capabilities and expertise. Furthermore, Seagen expects to generate approximately $2.2 billion of revenue in 2023 representing 12% year-over-year growth, from its four in-line medicines, royalties and collaboration and license agreements.
“Pfizer shares our steadfast commitment to patients, and this combination is a testament to the passion, dedication and talent of the Seagen team to achieve our mission to discover, develop, and commercialize transformative cancer medicines that make a meaningful difference in people’s lives” said David Epstein, Seagen Chief Executive Officer.
COMPANIES’ OVERVIEW
Pfizer
Pfizer is one of the biggest health companies in the world with revenues of $100,3bn in the last year. The company develops and produces medicines and vaccines for immunology, oncology, cardiology, endocrinology, and neurology. Pfizer is a global company but most of its revenues in 2022 came from the United States (42%), followed by Japan (8%), and the rest of the world.
Pfizer, in response to the COVID-19 pandemic, has developed and launched in the market several new products that have had an enormous impact on the company’s revenues and profits. The two largest products in 2022 were the Pfizer-BioNTech Covid-19 vaccine and Paxlovid (antiviral treatment used against Covid-19) representing 55% of revenues.
Regarding this deal, Pfizer’s chief executive Albert Bourla said that the group was “deploying its financial resources to advance the battle against cancer” and added that oncology continued to be “the largest growth driver in global medicine”. Seagen cancer therapies sum up to 23 approved cancer medicines, and 33 programs in clinical development already owned by the group.
According to the industry sector Pfizer, like many of the world’s largest pharmaceutical companies, is sitting on significant cash piles and has been under pressure to do a big deal, after the company forecast that revenues would drop by a third in 2023 due to a decline in sales of Covid-related vaccines and medicines.
Seagen
Seagen is an American biotechnology company focused on cancer treatment products. The company is a pioneer of antibody-drug conjugates (ADCs), that utilizes the targeting ability of monoclonal antibodies to deliver cell-killing agents directly to cancer cells. Seagen most important products are ADCETRIS for lymphomas, PADCEV for bladder cancers, TUKYSA for breast and colorectal cancers, TIVDAK for cervical cancer.
Seagen revenue in 2022 was $1,96bn; for 2023 the company expects revenue of $2,2 bn. Pfizer believes that Seagen could contribute in more than $10 bn revenues. The New York-based drugmaker said the Seagen deal, and other recent acquisitions could generate more than $20 billion in combined sales in 2030. ADCs cancer therapies could become one of the next big segments of the $375bn worldwide cancer-drugs market.
INDUSTRY OVERVIEW:
Companies in the health industry are predicted to define acquisitions according to their growth plan. It is expected that large-cap pharmaceutical companies will seek to fill existing gaps in their development pipelines with early-stage biotech acquisition. Innovations and new technologies will play a fundamental role for large pharmaceutical companies when considering an acquisition, as well as new approaches to medicine. Therefore, large pharma companies will try to grow through horizontal integration enlarging their investment portfolios.
Concerning Pfzier acquisition of Seagen, the main goal of the buyer is to increase its presence in the oncology market. The oncology market is currently undergoing a significant growth: simple projections of demand, as measured by prevalence across tumor types, suggest there will be approximately 18 million patients in the US alone by 2020, a 31% increase from 13.8 million in 2010. Global Oncology Market is valued at USD 283.5 Billion in 2021 and is projected to reach a value of USD 447.3 Billion by 2028 at a CAGR (Compound Annual Growth Rate) of 7.9% over the forecast period.
Today, Pfizer Oncology has an industry-leading portfolio of 24 approved innovative cancer medicines that generated $12.1 billion in 2022 revenues. Pfizer’s in-line portfolio is focused on four broad, key areas: breast cancer, genitourinary cancer, hematology, and precision medicine, complemented by an extensive pipeline of 33 programs in clinical development. The proposed combination with Seagen would double Pfizer’s early-stage oncology clinical pipeline.
As affirmed by Dr. Albert Bourla, Pfizer Chairman and Chief Executive Officer, “Together, Pfizer and Seagen seek to accelerate the next generation of cancer breakthroughs and bring new solutions to patients.” The outlook is positive: Pfizer’s name and expertise with Seagen’s innovative medicines and technologies, united in the fight against cancer, seem to make a perfect combination.
DEAL RATIONALE:
Pfizer will acquire Seagen, a global biotechnology company that discovers, develops and commercializes transformative cancer medicines, for $229 in cash per Seagen share for a total enterprise value of $43 billion. The Boards of Directors of both companies have unanimously approved the transaction and they expect to complete the transaction in late 2023 or early 2024.
Pfizer and Seagen have joined forces to accelerate the next generation of cancer breakthroughs by combining Seagen’s antibody-drug conjugate technology with Pfizer’s capabilities and expertise. In addition, the potential of this deal will leverage Pfizer’s protein engineering and medicinal chemistry capabilities to advance Seagen’s ADC technology to unlock potential novel target combinations and next-generation biologics.
Pfizer Oncology has an industry-leading portfolio of 24 approved innovative cancer medicines that generated $12.1 billion in 2022 revenues. This acquisition will enhance Pfizer’s position in oncology, which is the largest growth driver in global medicine, and contribute meaningfully to its near- and long-term financial goals. It will also advance more potential breakthroughs to patients with cancer.
On Seagen’s side, this combination with Pfizer is the right next step for Seagen to further its strategy, and this compelling transaction will deliver significant and immediate value to its stockholders and provide new opportunities for employees as part of a larger science-driven, patient-centric, global company.
DEAL STRUCTURE:
Pfizer’s recent acquisition deal of Seagen has a total enterprise value of $43 billion with $229 per share in cash. This is a 33% premium on Seagen’s share price on the 10th of March and an increase of 40% on the share price before rumors of the deal, two weeks ago. Pfizer plans to fund their acquisition, in part, through $31 billion raised in long-term debt, and the rest using cash on hand and short-term financing. Although the acquisition is significant and will produce debt for the company, there are no prospective, notable changes to Pfizer’s credit ratings.
Since the deal’s announcement both Pfizer and Seagen’s stock prices have, overall, reacted positively. Pfizer’s stock price initially declined by around 1.6% from 39.93 at closing on the 10th of March to 39.26 on opening on the 13th of March, likely due to the cash component of the deal which would increase Pfizer’s debt load. However, the stock quickly rebounded. From the opening stock price of 39.93 for Pfizer on the 13th of March there has been an increase of 5.4% to 42.10, which was the closing price on 6th April.
Looking at Seagen’s stock prices, at opening on the 13th of March it was 198.75 and at closing on 6th April it was 206.38, an increase of 3.8%. This increase was likely due to the significant premium offered by Pfizer, as well as the market’s positive reaction to the acquisition of a promising biotech company with a strong oncology pipeline.
Pfizer wants Seagen scientists to keep innovating and to ensure that Mr. Bourla, Pfizer’s CEO, said the group expects to maintain Seagen’s laboratories in Seattle and San Francisco.
The companies expect the transaction to close in late 2023 or early 2024. This deal, like any other, must pass the antitrust review in the US, where the Biden administration has tightened scrutiny of pharmaceutical mergers as it aims to drive down drug prices. Despite that, analysts are confident that the transaction will be completed as Pfizer does not have any antibody-drug conjugate or even a major antibody-based oncology platform.
Authors: Esme (Yi) Ding, Aahana Mishra, Constanza Della Negra, Federico Manera, Martina Sampietro
Sources:
https://www.ft.com/content/bc85eb2a-9a55-4a86-9048-4de696a651bc
https://www.reuters.com/markets/deals/pfizer-buy-seagen-deal-valued-43-billion-2023-03-13/
https://www.reuters.com/markets/companies/PFE.N/
https://www.reuters.com/markets/companies/SGEN.O/
https://www.fiercepharma.com/pharma/43b-buyout-pfizer-sees-seagen-its-golden-goose
Bocconi Students M&A Circle 