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 Pfizer Inc. (PFE - Free Pfizer Stock Report), Merck & Co. (MRK - Free Merck Stock Report), Eli Lilly & Co. (LLY), Bristol-Myers Squibb (BMY), Actavis plc. (ACT), and Novartis (NVS).
Second-Quarter Earnings Season
With the majority of “Large Pharma” scheduled to release June-period results in the coming weeks, investors will be eager to see how companies are faring heading into the second half of 2014. 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. (July 24th), Bristol-Myers Squibb (July 24th), Merck & Co. (July 29th), Pfizer Inc. (July 29th), and Actavis plc. (August 5th).
Actavis Completes Forest Purchase
Earlier this month, Actavis announced that it had completed its acquisition of Forest Laboratories in a cash and equity transaction valued at roughly $28 billion. The combination creates one of the world’s fastest-growing specialty pharmaceutical companies, with annual revenues expected to top $15 billion by 2015. Moreover, it will boast blockbuster franchises in several therapeutic areas including Central Nervous System, Gastroenterology, Women’s Health, Urology, and Cardiovascular, in addition to a well-stocked pipeline of branded and generic products. Management expects the deal to generate double-digit accretion in 2015 and 2016, including $1 billion in operating and tax synergies to be realized within three years of the close. Investors should note, that our most recent full-page report on Actavis (July 11th) now reflects the inclusion of Forest Laboratories.
Novartis Teams up with…Google?
On July 15th, the Swiss-based drug giant said it had struck an agreement with Google to develop “smart” contact lenses that would help diabetics track their glucose levels and restore vision for people with presbyopia, the medical term for eyes that lose their ability to focus up-close with age. For diabetics, the lenses will be designed to read glucose levels in a person’s tears, sending information wirelessly to a handheld device. The technology could potentially be life-changing for many diabetics who rely on the traditional finger-prick method, which is often done up to 10 times a day. If successful, it would provide Novartis the opportunity to compete in a global blood-tracking market that is expected to be worth more than $12 billion by 2017. For those with presbyopia, the lenses will be designed to act almost like an auto-focus camera, allowing people to better see things close up such as words in a book. It is estimated that more than 1.7 billion people worldwide have presbyopia, representing another significant opportunity for Novartis. Although the recently-announced licensing deal is only for the eye, management is hopeful the technology could eventually be applied in other areas such as monitoring the heart. Financial terms of the transaction were not disclosed.
Pfizer Bolsters Injectables Business
On July 16th, Pfizer entered into a definitive agreement to acquire InnoPharma, a New Jersey-based manufacturer of injectable products. Under the terms of the deal, Pfizer will purchase the company for an upfront cash payment of $225 million, with up to $135 million of contingent milestone payments. InnoPharma’s current portfolio includes 10 generic products approved by the US FDA and another 19 that have been filed. In addition, the company has more than 30 injectable and ophthalmic products under development. Despite its failed attempt to buy AstraZeneca earlier this year, Pfizer seems committed to pushing forward with its acquisition strategy in 2014. The drugmaker has been searching for ways to boost sales as it contends with intensified generic competition on several key products.