By Justin Leung, Jack Lee, Heather Leung, and Sissi Zeng (Hong Kong University of Science and Technology)
Photo: Christina Victoria (Unsplash)
Overview of the deal
Acquirer: Pfizer Inc
Target: Biohaven Pharmaceutical Holding Company Ltd
Total Transaction Size: $11.6B
Closed date (expected): early 2023
Acquirer advisor(s): J.P. Morgan
Target advisor(s): Centerview Partners
Pfizer Inc. (NYSE: PFE) and Biohaven Pharmaceutical Holding Company Ltd. (NYSE: BHVN) announced on May 10 that the companies have entered into a definitive agreement under which Pfizer will acquire Biohaven, the maker of NURTEC® ODT, an innovative dual-acting migraine therapy approved for both acute treatment and episodic prevention of migraine in adults.
Under the terms of the agreement, Pfizer will acquire all outstanding shares of Biohaven not already owned by Pfizer for $148.50 per share in cash. Biohaven common shareholders, including Pfizer, will also receive 0.5 of a share of New Biohaven, a new publicly traded company that will retain Biohaven’s non-CGRP development stage pipeline compounds, per Biohaven common share. Pfizer will pay transaction considerations totaling approximately $11.6 billion in cash. Pfizer will also make payments at closing to settle Biohaven’s third-party debt and for the redemption of all outstanding shares of Biohaven’s redeemable preferred stock. The $148.50 cash consideration represents a premium of approximately 33% to Biohaven’s volume-weighted average selling price of $111.70 over the three months prior to the announcement.
Company Details (Acquirer - Pfizer)
Pfizer is an American pharmaceutical and biotechnology company with operations in 58 production bases across the world. The company develops medicines, vaccines, and boasts a wide range of consumer healthcare products. Flush with cash from sales of its COVID-19 vaccines and treatments, Pfizer’s acquisition of Biohaven, its largest deal since purchasing Medivation (2016), follows a string of acquisitions including that of Array Biopharma (2019), Arena Pharmaceuticals (2021), and Trillium Therapeutics (2021).
Founded in 1849, headquartered in Manhattan, New York City, USA
CEO: Albert Bourla
Number of employees: 79,000 (2021)
Market Cap: $296.70B
LTM Revenue: $92.43B
LTM EBITDA: $37.12B
LTM EV/Revenue: 3.18x
LTM EV/EBITDA: 8.62x
Company Details (Target - Biohaven)
Biohaven Pharmaceuticals is a biopharmaceutical corporation that specializes in drug development and commercialisation for neurological diseases. The New York Stock Exchange (NYSE) listed company is known for producing NURTEC® ODT, the first and only FDA-approved medication for both the acute treatment and episodic prevention of migraine attacks. Its portfolio also contains six other migraine drugs in development, among other non-migraine therapies.
Founded in 2013, headquartered in New Haven, Connecticut, USA
CEO: Vlad Coric
Number of employees: 928 (2021)
Market Cap: $10.02B
LTM Revenue: $737.54M
LTM EBITDA: $-498.44M
LTM EV/Revenue: 13.63x
LTM EV/EBITDA: -20.01x
Projections and Assumptions
Pfizer’s acquisition of Biohaven will be by far the largest deal that Pfizer has made since it purchased cancer drugmaker Medivation in 2016. Pfizer could immediately receive direct access to Biohaven’s approved Rimegepant, a migraine treatment product known as calcitonin gene-related peptide (CGRP) inhibitors. The drug is currently sold globally as Nurtec ODT in the U.S. and Vydura in the European Union. A nasal spray version of the treatment has also been submitted for approval to the U.S. regulators, demonstrating the product’s maturity and global exposure. The deal is one of the many steps that Pfizer might take in the short run to improve its portfolio ahead of patent losses for some of its cancer treatment drugs like blood thinner Eliquis. The deal is critical for Pfizer to diversify its product portfolio in a bid to prevent a drop in sales associated with the losses of patents. More importantly, the deal is expected to create cost synergy, particularly in the aspect of marketing. Pfizer’s existing infrastructure is expected to be adequate for marketing this newly added Rimegepant with no incremental effort required.
The acquisition news has pushed up Biohaven’s stock price by more than 70% to $141.39 after having fallen by more than 40% since November 2021. On the other hand, not much movement was found regarding Pfizer’s price after the release of the news, which was trading at $48.60. The deal was expected to be closed by early 2023.
Pfizer has benefited greatly in terms of profit and cash flow with its vaccines throughout the global pandemic. However, with more people across the globe being vaccinated under government-sponsored vaccination programs, it is likely to see that the demand for COVID-19 vaccines would drop continuously in the following years. The introduction of Biohaven’s Nurtec and five other CGRP candidates to Pfizer’s portfolio complements the potential loss in sales from its COVID-related treatments, diversifying its risks. Pfizer anticipated that by leveraging its infrastructure of marketing, Nurtec can reach $4 billion in annual sales by 2030 and $6 billion in peak sales, where it was already generating $462.5 million in sales in 2021.
Apart from the revenue impact brought to Pfizer in the long run, the deal is viewed as a key milestone that signifies Pfizer’s return to the neuroscience field. In 2018, the company divested most of its ongoing neuroscience programs into a newly established firm called Cerevel Therapeutics. In general, the deal is viewed as a strategic move for Pfizer to maintain its long-term industry-leading status in the pharmaceutical industry after the pandemic by leveraging its excess cash generated from COVID vaccines for untapped investment opportunities.
Risks and Uncertainties
With a high premium of roughly 79% to Biohaven’s Monday closing price and EV/Revenue multiple of 14.9x, this could be an expensive deal for Pfizer if something goes wrong.
It is doubling down on Nurtec at a time when the oral CGRP migraine drug has come under some gross-to-net pricing pressure in the U.S. In the first quarter, Nurtec sales amounted to $123.6 million, a large 35% decline over Q4 2021 despite an 8% sequential growth in scripts. Based on the first-quarter performance, Biohaven expects Nurtec’s full-year haul to fall between $825 million and $900 million. This range falls below industry watchers’ prior expectations.
Biohaven claimed that the quarterly decline was largely driven by the seasonality related to renewed patient deductibles and prescription reauthorizations, plus a patient support program. Pfizer also reviewed the gross-to-net pressure during its due diligence process. While the pricing situation is not uncommon during the first few years of a drug’s launch, Pfizer is compelled by Nurtec's long-term potential, according to its executive Angela Hwang.
“We believe Pfizer is uniquely positioned to help the portfolio reach its full potential given our leading scale and capabilities, including comprehensive field force engagement with Primary Care Physicians, specialists and health systems delivering the right information at the right time.” - Nick Lagunowich, Global President, Pfizer Internal Medicine