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Pfizer: Even Behemoths Must Grow . . and Grow . .

A PRESTON CLIVE MARKET VIEW

Pfizer takes a first bite of Hospira. Even monsters need their num-nums. (Illustration: berlundadvertisingdesign.com)

And so it happens-- hungry Pfizer, the pharmaceutical megacorp with publicly visible hunger pangs, has finally found a willing corporation to ingest.

The deal to acquire Hospira, a large manufacturer of injectable drugs, was announced at a purchase price of $15.2 Billion. At $90 per share, and factoring Hospira’s company debt, the deal has a true value of approximately $17 Billion altogether.

This is the Expand Or Sink—also “buy or die”—strategy in action. Pfizer had it’s eye on what turned out to be less politically-favorable munchables in the UK last year, when it attempted to acquire British pharmaceutical corporation AstraZeneca for more than a whopping, mind bending $100 Billion.

If that acquisition were allowed to proceed, it would have constituted the largest corporate inversion on record, so large that it would have permitted Pfizer to reconstitute itself; it would have been able to reincorporate the company abroad to save on tax levies. But in the end there was just too much political friction in Britain while trying to make the deal happen and Pfizer ultimately had to withdraw its purchase offer.

Pfizer sees in Hospira a broad opportunity for growth. Hospira's product line runs along two very high-growth tracks: first, sterile injectables are expected to reach, cross-industry, as high as $70 Billion in sales by the year 2020. The growth for biosimilars—drugs that have been engineered to have active properties that mimic those of a larger "brand name" drug with previous license protection—is expected to expand to a $20 Billion dollar market by that same forecast line of 2020. Expanding there share into the biosimilar market is strategically key for Pfizer, as many of their most key—and most profitable—pharmaceutical products are losing their intellectual property protection, and an eating in on their bottom line as time advances is a guarantee if they remain at status quo.

So the strategy to swallow the players in the field who are manufacturing competing drugs undoubtedly increases market share and creates a platform to enter a world of revenue and product line growth. But at base it’s an awful lot of money to pay for some future upside—although of course, it admittedly is not as giant a price as the original mission to acquire Astra-Z last year at $100 Billion.

These are the merciless realities of the ultra competitive market, even for market behemoths like Pfizer. Nobody is safe from the little guys copping your formulas and tweaking them slightly to add differentiation and vault intellectual property protection. Vicious and clever--this is life in the merciless market. Grow or die, grow or die--this is the mantra that investors want to hear. Maintaining a steady line of profit income is never enough . . . the wolves are ever compassing about, and look to tear a hunk out of your haunches. Eat or be eaten indeed. 

Let's keep our manners at the dinner table. Proper fork, proper spoon etiquette, please.

Preston Clive

2/5/2015***