Is Pfizer to buy BMS? CEO Read hinted at the possibility

Is the industry giant Pfizer planning to make another acquisition? The target this time is another giant BMS. CEO Ian Read hinted at the possibility on the first-quarter earnings call on May 2.

At the same time, the rumor that Gilead, Novartis and Roche are also eying covetously to swallow BMS is spreading like wild fire in the market. BMS has showed the attitude of unwillingness to accept tender offer, however, this acquisition rumor is growing as the company has taken the initiative to adjust downward the profit expectations in 2017.

 (Pfizer CEO: Ian Read)

As Read told shareholders on the call on May 2, "we … believe we have the ability, should the opportunity (of buying BMS) arise and should the value be there, to do a large deal."

Read noted, "certain large companies (implying BMS) have significant, almost binary risks … which could immediately alter their values. Questions surrounding the combo approach (of BMS) aren’t the only factor holding up Pfizer’s dealmaking activity, though. Uncertainty around Trump's tax reform and even the French election resulting in the uncertainty of the European market are considered by Pfizer. We must stop to see what the 'tax reform' is going to do and then consider the possibility of acquisition". This is why the company would like to make an acquisition but will not rush to propose tender offer.

Note: BMS’ PD-1 drug Opdivo caused a great impact to the company due to its failure last year. The Phase III clinical trial in August last year showed that Opdvio failed to reach the trial target of progression-free survival in lung cancer patients with PD-1 expression.

This failure offers a great opportunity for the competitor Merck’s PD-1 inhibitor: Keytruda to seize the market share, and is likely to result in Merck’s drug to obtain the approval as first-line therapy of lung cancer.

And Roche’s Trcentriq seized about 10% of Opdivo’s market shares in 2016 Q4.

BMS has fallen from the fourth position to the ninth position on the U.S. most valuable list. Its share price and market capitalization loss has exceeded 15% just since January this year, and it has adjusted downward the 2017 earnings expectations.

Read said, "we will wait until more clarity is gained on how the battle will shake out between (BMS’) ‘CTLA4 combo’ and (Merck’s) ‘chemo combo’; if we moved before that, it would be meaningless to the acquisition."

Read reiterated the partnership with Merck on developing the monoclonal antibody drug: avelumab on May 2, making the rumor that BMS is to be acquired by Pfizer more like a strategy to stabilize its share price.

The way Goldman Sachs analyst Jami Rubin sees things, that business development is all the more important in light of Pfizer’s first-quarter performance, which saw some key meds fall short of estimates. Pfizer pointed in particular to Xtandi in the financial report note. Its sales of USD 130 million in 2017 Q1 wear clearly weak given Pfizer paid USD 14 billion to Medivation Company to purchase this drug.

Ibrance, the first CDK4/6 inhibitor drug for advanced breast cancer, also has suffered the block of Novartis’ Kisqali. Novartis has approved a more flexible pricing scheme, hampering Pfizer’s sales of drug of the same level and forcing it to cut the price.

This made Rubin comment, "concerns about Pfizer’s ability to grow in the absence of M&A in our view."

Note: The subtext of Goldman Sachs is that it is indispensable that Pfizer shall still participate in M&A to continue its profit growth.