There have been several noteworthy developments in the drug space recently, which will likely have a material impact on the companies in this sector and the markets they serve. Companies mentioned in this review include Eli Lilly & Co. (LLY), Bristol-Myers Squibb (BMY), Merck & Co. (MRK - Free Merck Stock Report), Pfizer Inc. (PFE - Free Pfizer Stock Report), Actavis plc. (ACT), AbbVie Inc. (ABBV), and Shire plc. (SHPG).
Third-Quarter Earnings Season
With the majority of “Large Pharma” scheduled to release third-quarter results in the coming weeks, investors will be eager to see if the group is maintaining some of that earnings momentum seen in the first half of the year. Per usual, key items to focus on in the upcoming conference calls include the impacts of recent patent losses, emerging generic competition, pipeline activity, and integration progress for the companies that completed acquisitions or mergers. Some noteworthy earnings release dates include: Eli Lilly & Co. (October 23rd), Bristol-Myers Squibb (October 24th), Merck & Co. (October 27th), Pfizer Inc. (October 28th), and Actavis plc. (November 5th).
Actavis Continues on its Shopping Spree
Earlier this month, Actavis entered into an agreement to acquire Durata Therapeutics for about $675 million, a move aimed at strengthening the company’s emerging infectious disease business. Under the terms of the deal, Durata shareholders would receive $23 a share in cash, which represented a 66% premium to its pre-announcement closing price, plus additional payments if certain milestones are met. A closing is tentatively scheduled for late 2014 or early 2015.
The transaction would mark the latest in a series of acquisitions made by Actavis over the past several years, an aggressive strategy that has transformed the company into one of the fastest-growing players in the pharmaceutical industry today. It’s most significant deals of late include the $5 billion tax-lowering acquisition of Warner-Chilcott last year and its $25 billion purchase of Forest Laboratories which closed in July.
Pfizer Receives Accelerated Designation for Palbociclib
On October 13th, the New York-based drugmaker announced that its experimental breast cancer treatment will be given an accelerated review by the U.S. Food and Drug Administration, speeding up the process for potential approval. When administered with another drug already on the market (Letrozole), Palbociclib has shown the ability to stop cancer growth for 20 months on average. With the “Fast Track” designation, the FDA will accelerate its review process from 10 months to 6 months, with a decision on approval expected around mid-April, 2015. Indeed, this drug is one of Pfizer’s most promising prospects as it continues to recover from patent losses on several former blockbusters. On Wall Street, peak sales estimates have ranged around $3 billion a year.
AbbVie is Having Second Thoughts on Shire
On October 14th, AbbVie announced that it was reconsidering its planned $54 billion acquisition of Shire, citing recent changes in tax regulations by the U.S. Treasury. The changes reflect the government’s effort to crackdown on these increasingly popular tax inversion deals, where a U.S. company buys a foreign counterpart with the intention of moving its corporate headquarters overseas to lower its tax burden. The AbbVie/Shire deal was shaping up to be the largest of 2014, but AbbVie’s board of directors is now debating whether or not to recommend that shareholders vote in its favor due to the changes. AbbVie directors are slated to meet on October 20th to make a final decision on the matter. Following the news, Shire’s stock price experienced its worst plunge in over a decade, falling more than 20%. AbbVie will face a $1.6 billion breakup fee should the deal fall though.