Pfizer Head Fake

AstraZeneca, $AZN, and Pfizer, $PFE, investors held their breath Friday after Pfizer trading was briefly halted for news. Many investors anticipated that, after months of pursuit, Pfizer had won over AstraZeneca with a suitable offer.

But it was not to be.

lol, $PFE news not related to $AZN. thanks for playing!

— Aron Pinson (@MicroFundy) May. 16 at 12:12 PM

Instead of announcing a merger, Pfizer unveiled a new drug. The pharmaceutical giant said it would submit a new treatment for post-menopausal women with breast cancer. The new medication, called palbociclib, successfully blocked tumor growth when combined with another cancer drug letrozole in trials. The combined treatment proved better than letrozole alone.

@reefcap PFE is announcing they are submitting an NDA early for a cancer drug that has been in trials. No M/A stuff unfortunately.

— Michael (@YazzJr) May. 16 at 12:25 PM

Pfizer shares climbed more than 1% on the news. AstraZeneca edged higher.

Pfizer sweetened its offer for AstraZeneca last week to $84.47-per-share. This week, management shared a presentation displaying the benefits a combined company would enjoy and questioning AstraZeneca’s ability to go it alone.

Pfizer’s current offer would value AstraZeneca at $106 billion. But AstraZeneca management has rejected it.

“The Board of AstraZeneca believes Pfizer is making an opportunistic attempt to acquire a transformed AstraZeneca without reflecting the value of its existing pipeline,” Management said in a statement this week. “The Board reiterates its confidence in AstraZeneca’s ability to deliver on its prospects as an independent, science led business.”

AstraZeneca has several drugs in its pipeline that it believes could be blockbusters, including three drugs to treat ovarian cancer and two to treat thyroid cancer. It also has several other cancer drugs in late stage development as well as treatments for asthma, arthritis, serious infections and diabetes, among other diseases.

But Pfizer says those drugs don’t warrant more than $106 billion. In its presentation, released May 13, Pfizer made the case that AstraZeneca faces challenges that mitigate the potential value of its pipeline. The company said that AstraZeneca faces lost revenues of $14 billion when major drug patents expire in the near term. Pfizer also said that AstraZeneca’s late stage pipeline is not differentiated enough and its early stage pipeline has many risks.

Some investors said that, should AstraZeneca keep playing hardball, Pfizer is likely to walk away.

$PFE Guessing they tell $AZN to rot in hell!!!

— MrX (@MrX) May. 16 at 12:08 PM

But others believe that the merger could still happen. In its presentation, Pfizer indicated that it could hike the offer, yet again, if AstraZeneca management convinced it of the value of pipeline drugs.

“Pfizer believes there is compelling rationale for a combination and if AstraZeneca engages in conversations to provide Pfizer with a better understanding of its business and its prospects it may lead to a transaction that AstraZeneca can recommend.”

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