By Nishil Lakhani, Jack McGing, Frangiskos Kapatos and Dhruv Kotecha (University of Nottingham), Sameer Jain, Ishan Date and Michael Akullo (Wharton School)
Photo: National Cancer Institute (Unsplash)
Overview of the deal
Implied Equity Value: $229 per share (35% premium)
Total Transaction Size: $43bn
Announced date: 13 March 2023
Target advisor: Centerview Partners (Financial) and Sullivan & Cromwell (Legal)
Acquirer advisor: Guggenheim Securities (Financial) and Wachtell, Lipton, Rosen & Katz (Legal)
In a move to advance its position as a leading company in Oncology, Pfizer, the US-based pharmaceutical giant, has agreed to acquire Seagen, a global biotechnology company, for a total enterprise value of $43 billion.
This marks Pfizer’s largest acquisition in a series of recent acquisitions utilizing its once-in-a-lifetime cash windfall from its Covid-19 products. Further, it is the largest acquisition in the industry since AbbVie’s acquisition of Allergan for $63bn in 2019. This proposed combination with Seagen will allow Pfizer to double its extensive early-stage oncology clinical pipeline to continue to fight the battle against cancer. The companies expect to complete the transaction in late 2023 or early 2024, subject to regulatory approval.
“Together, Pfizer and Seagen seek to accelerate the next generation of cancer breakthroughs and bring new solutions to patients by combining the power of Seagen’s antibody-drug conjugate (ADC) technology with the scale and strength of Pfizer’s capabilities and expertise.” – Dr. Albert Bourla, Chairman & CEO (Pfizer)
Company Details (Acquirer - Pfizer)
Pfizer is a global biopharmaceutical company utilising research to discover, develop, manufacture and sell its products worldwide. It offers medicines and vaccines across various therapeutic areas, and is known particularly for its development (in partnership with BioNTech) of one of the first Covid vaccines, Comirnaty which grossed $37bn in revenue in 2022. The acquisition of Seagen is part of a long history of Pfizer’s use of M&A to achieve growth, including its recent $11.6bn acquisition of Biohaven.
Founded in 1849, headquartered in Manhattan, New York City, USA
CEO: Albert Bourla
Number of employees: 79,000
Market Cap: $226.8bn (as of 23/03/2023)
LTM Revenue: $100.3bn
LTM EBITDA: $44.0bn
LTM EV/Revenue: 2.4x
LTM EV/EBITDA: 5.5x
Recent Transactions: Pfizer’s acquisition of Biohaven for $11.6bn (Oct 2022); Pfizer’s acquisition of Global Blood Therapeutics for $5.4bn (Aug 2022)
Company Details (Target - Seagen)
Seagen is a global biotechnology established in 1998 which discovers, develops and commercialises transformative cancer medicines to improve the lives of those who suffer from it. Seagen is an industry leader in anti-body drug conjugates (ADCs) which takes advantage of the targeting ability of monoclonal antibodies to effectively kill cancer cells while avoiding healthy cells. This helps to reduce many of the key side-effects of chemotherapy, a more traditional cancer treatment. Seagen has been growing fast, increasing revenue by over 25% from 2021 to 2022.
Founded in 1998, headquartered in Bothell, Washington, USA
CEO: David R. Epstein
Number of employees: 3,256 (2022)
Market Cap: $37.1bn (as of 23/03/2023)
LTM Revenue: $2.0bn
LTM EBITDA: ($543.2mn)
LTM EV/Revenue: 18.0x
LTM EV/EBITDA: n.m.
Projections and Assumptions
Pfizer is acquiring biotech Seagen for $43bn, including debt, following a period of little M&A activity from large pharmaceutical companies, who have instead focused on R&D efforts. This deal will help Pfizer increase its cancer drug footprint and build positions in other tumors with large patient populations such as myeloma. The acquisition of Seagen is a sign that big pharmaceutical companies are poised for heavy deal-making this year, despite the threat of close antitrust examinations and higher interest rates. Pfizer has been looking for acquisitions to help offset an expected sales loss of $17bn by 2030 as some top-selling drugs lose patent protection in the next several years. Sales of Pfizer’s Covid-19 vaccine and drug have buoyed the company’s performance in recent years, and it is expected that the company will use its tens of billions of dollars in Covid-19 revenue for deal-making.
Seagen, with its pioneering class of targeted cancer drugs known as antibody drug conjugates (ADCs), is poised to become one of the next big segments of the $375 billion worldwide cancer-drugs market, and could help Pfizer expand its cancer-drug footprint, particularly in the areas of breast and bladder cancer. Additionally, Pfizer executives expect to see $1 billion in savings from the deal over the next three years, largely from avoiding costs such as in broadening its own sales force. Antitrust regulators are expected to scrutinize the deal, but Pfizer executives remain confident that it will be approved due to the complementary capabilities of the two companies.
Given the fact this deal has only recently been announced, there is little tangible evidence regarding its long-term consequences. Because of the nature of this deal, in that drugs and treatments in the medical field generally take a long time to develop, positive consequences from this deal will likely take a long time to materialise. However, Pfizer expects the proposed acquisition will be highly beneficial in placing Pfizer at the forefront of innovative cancer care, particularly in advancing Seagen’s Antibody-drug Conjugates (ADC) technology, which targets tumour cells while sparing healthy cells, through the leverage of Pfizer’s protein engineering and medicinal chemistry capabilities. This could lead to more effective drugs being produced in the long-term.
Pfizer further anticipates that Seagen could contribute over $10bn in risk-adjusted revenues in 2030, with further significant growth likely beyond 2030.
The acquisition could potentially lead to greater R&D capabilities in the long run. Seagen's late-stage development programs could be accelerated with Pfizer's resources and expertise, leading to faster development and commercialization of new drugs.
However, as with any large acquisition, there may be challenges with integrating Seagen into Pfizer's operations. This could potentially lead to disruptions and diseconomies of scale such as communication and management issues, a lack of employee coordination and delayed decision making. Although if managed well, the long-term benefits could outweigh the short-term challenges.
Overall, the acquisition of Seagen by Pfizer is likely to have significant long-term consequences for both companies and the pharmaceutical industry as a whole. If the integration is successful, Pfizer could potentially become a leading player in the field of Oncology with a strong pipeline of innovative cancer treatments.
Risks and Uncertainties
The primary risks associated with this deal relate to the potential for regulatory obstacles as well as the relatively hefty valuation Seagen is enjoying. Antitrust regulators have stepped up against large healthcare deals in the recent past, one example being the recently rejected challenge to United Health’s acquisition of Change Healthcare. In Pfizer/Seagen’s case, the companies’ respective management teams appear confident they can overcome any antitrust challenges on the basis of the two companies’ complementary capabilities.
The 5.5x multiple being paid on projected 2030 sales exceeds what many already considered to be a lofty 4.5x multiple paid by Amgen in its recently announced acquisition of Horizon Therapeutics. The common thread here was a patent dropoff faced by both acquirers. In justifying the deal, Pfizer CEO Albert Bourla promised $25bn in acquired revenue by 2030, along with $1bn in cost savings. The company’s ability to execute on promises made in the context of hints of desperation will likely shape the market’s reactions to future deal announcements.
“The proposed combination with Pfizer is the right next step for Seagen to further its strategy, and this compelling transaction will deliver significant and immediate value to our stockholders and provide new opportunities for our colleagues as part of a larger science-driven, patient-centric, global company.” - David Epstein, CEO (Seagen)