Pfizer Props Its Pipeline With A $1.9 Billion Deal

	The Health Care M&A Monthly
In the June 2005 issue: Pfizer Props Its Pipeline With A $1.9 Billion Deal After closing out the month, we learned that pharmaceutical giant Pfizer is buying Vicuron Pharmaceuticals for $1.9 billion in a bid to replace lost revenue from drugs going off patent. ... Pricing Medical Device Transactions Acquisition pricing for Medical Device deals has been constantly increasing after the recent recession. Read inside to see which of the industry subsectors garner the highest multiple. ... The Month in Deals With 64 transactions announced during the past four weeks, deal volume is off 7% from the previous month. However, the amount committed to fund that activity plummeted from $10.6 billion in May to just $1.6 billion in June. ... In The Departments Deal Summaries Additional Transactions Transaction Updates Sign up for a trial subscription and get the current issue! Read more about The Health Care M&A Monthly. Articles Archive Companies mentioned in this issue: A Abbott Laboratories p14 ABN AMRO Corporate Finance p16 Actavis Group hf p16 Affymetrix p12 Alliance Imaging p10 Amedisys p3 American Hospice Management p4 American Medical Systems Holdings p14 AmeriPsych p3 Amide Pharmaceutical p16 Amphora Discovery p14 Apria Healthcare Group p3 artus GmbH p13 Asante Partners p16 Ascension Health p10 Atrium Health Plan p11 B Banc of America Securities p16 Baptist Health Systems p4 Bionomic Limited p16 Blackstone Group p4 Blue Cross and Blue Shield of Minnesota p11 Blue Cross and Blue Shield of Wisconsin p11 Boots’ Healthcare International p16 Bright Now! Dental p12 Brotman Medical Center p4 C Cadwalader, Wickersham & Taft LLP p3 Caliper Technologies Corp. p14 Cardiovascular Hospitals of America p4 CareWorks p11 Castle Dental p12 Cell Therapeutics p16 Cephalon p16 Children’s Behavioral Health p3 Christus Health p10 Christus St. Joseph p10 Chromos Molecular Systems p13 Citizens Baptist p4 Coherent p14 Coherent Medical Group p14 Conceptus p14 Corporate Roadshow.com p13 CRA Managed Care p11 CTI Technologies p16 D DeKalb Forest p4 Deutsche Bank AG p10 Dolphin Medical, Inc. p10 E Embracing HospiceCare p4 Extendicare Health Services p11 F FemmePharma Global Healthcare p16 First Albany p16 Fisher Scientific International p12 Five Star Quality Care p12 Freeman Spogli p12 Fresenius National Medical Care p10 G GlaxoSmithKline p16 Gold’s Gym p10 Grady Memorial Hospital p4 Group Health Associates p12 Gryphon Investors p12 H Hamilton Physical Therapy Services p12 Harborside Healthcare Corporation p11 Hawaii Filipino Healthcare Group p4 HealthSouth p10 Heartland Pharmacy p12 High River LP p16 Hospira p14 I Iliad Chemicals p16 Inverness Medical p14 J Johnson & Johnson p14 K KV Pharmaceutical Company p16 L Latham & Watkins LLP p12 Lazard Ltd. p3 Lumenis p14 M Madison Dearborn Partners p4 Marcus & Millichap p11 McKesson p12 McKesson BioServices p12 MeadowBrook Healthcare p12 Medical Facilities Corp. p4 Memorial Hermann p10 Mercury Computer Systems p14 Monarch Dental p12 Morgan Stanley p3 Mylan Laboratories p16 N Neurofit p16 Novoste Corporation p16 O OhioHealth p4 Oklahoma Spine Hospital, LLC p4 O’Melveny & Myers LLP p3 ONI Medical Systems p16 Ovion p14 P ParAllele Bioscience p12 Peak Medical Corporation p11 Pfizer p1 Philippine Medical Association of Hawaii p4 Physiometrix p14 Preferred Medical Group p10 Primary Care, LLC p12 Prospect Medical Holdings p4 Providence Service Corporation p3 Pulmonetic Systems p14 Q Qiagen p13 R Radiation Therapy Services p10 Radiologix p10 Regaltech p13 RehabCare p12 Renal Care Group p10 ResCare p3 Rexahn Corp. p13 RS Staffing p12 S sanofi-aventis p14 SeniorCare, LLC p11 SOHARD AG p14 SportsFirst p4 St. Francis Healthcare System p4 St. Francis Liliha p4 St. Francis West p4 St. Joseph Hospital p10 St. Luke’s Health System p10 St. Thomas Health Services p3 Steven Richards & Associates p4 Sun Healthcare Group p11 T Targeted Molecules Corp. p13 TeamStaff p12 Tenet Healthcare Corp. p4 Texas Children’s Hospital p10 The Methodist Hospital p10 Tianwei p13 TriHealth p12 Tufts-New England Medical Center p12 TuiLaser AG p14 U U.S. Physical Therapy p12 UBS Investment Bank p12 V Viasys Healthcare p14 Vicuron Pharmaceuticals p1 W Wallick Companies p11 Warburg Pincus p4 WellPoint p11 Wood Crest Nursing Home p11 Y Young Medical Equipment p3	Pfizer Props Its Pipeline With A $1.9 Billion Deal Often as not, the names given to federal legislation disguise, rather than describe, the content of the bill. And, no, we’re not talking about the Patriot Act. What we have in mind is the American Jobs Creation Act of 2004 (AJCA). A close reading of this law reveals certain provisions that permit companies to deduct 85% of certain foreign earnings when they are repatriated under specified conditions laid down in the Act. This fact has not been lost on pharmaceutical giant Pfizer (NYSE: PFE), which decided in the first quarter to repatriate $28.3 billion of foreign earnings under the Act. In so doing, the company is plumping up its already formidable war chest. All that remains is to find a worthy use for this cash. Sure, you could increase dividends to shareholders, but prudence might tell you to grow your business and ensure being able to pay dividends down the road. Pfizer, it appears, is opting for the latter strategy. In the wee hours of June 16, Pfizer announced that it is buying Vicuron Pharmaceuticals (NASDAQ: MICU) in a deal valued at $1.9 billion. What Vicuron brings to the table is a set of new anti-infective drugs that, once approved by the FDA, would broaden Pfizer’s own offerings in this field, and prop up earnings as its own anti-infective drugs go off patent. The manufacturer of such blockbuster drugs as Celebrex (arthritis), Diflucan (infection), Lipitor (cholesterol), Viagra (erectile dysfunction), Zoloft (depression), Zyrtec (allergies), and Zythromax (antibiotic), Pfizer is the world’s largest pharma company. On a 12-month trailing basis, Pfizer generated revenue of $53 billion, EBITDA of $22 billion and net income of $9.3 billion. Launched in 1992, Diflucan lost exclusivity in July 2004, and has seen revenue from its sales drop off. Zithromax is due to lose American patent protection later this year, and faces a similar decline in revenue as competing generics come to market. Vicuron is a development-stage biotech focused on anti-infective drugs. An American-Italian company (it also trades on the Nuovo Mercato, under the ticker MICU), it is working on a new class of drugs to treat hospital-based and community-acquired infections. Headquartered in King of Prussia, Pennsylvania, Vicuron runs a research program in Fremont, California, and a research center in Gerenzano, Italy. Italy is also home to a corporate administration center (Milan), as well as a manufacturing site (Pisticci). Two of MICU’s products are under review for U.S. marketing approval: anidulafungin for fungal infections and dalbavancin for skin and soft tissue infections. Dalbavancin is indicated for the treatment of methicillin-resistant staphylococcus aurea, a hospital-based infection that is resistant to common antibiotics and has been on the rise since the 1980s. Unlike vancomycin, the standard treatment for this kind of infection and one that has to be given intravenously once or multiple times daily, dalbavancin can be given once a week and may consequently remove the need for ongoing IV lines in some patients. The FDA review of this drug should be completed no later than September 21, 2005. The other candidate, anidulafungin, shows promise in being a more potent treatment against fungi responsible for the systematic infections candida and aspergillus. On a trailing 12-month basis, Vicuron generated revenue of $8.2 million, negative EBITDA of $68 million and a net loss of $70 million. Acquisition multiples, needless to say, are going to be out of whack, reflecting its development-stage status. On the positive side, MICU carries only about $11 million in debt. Under terms of the deal, PFE will pay $29.10 in cash for each share of Vicuron, which works out to $1.9 billion. This offers MICU shareholders a generous 84% premium to the stock’s prior-day trading price. Much of that premium was lost when, on the announcement of the deal, shares of Vicuron shot up 77% to $27.99 on an electronic exchange while Italian-held shares rose 75% to $27.78. By 2009, it is estimated, the sales of Vicuron’s new drugs could reach between $200 million and $300 million, which would effectively add at most 3 cents to Pfizer’s earnings. For comparison’s sake, applying the $1.9 billion it is spending on MICU to a stock repurchase program would immediately increase PFE’s earnings by 2 cents a share. The timing of the deal is propitious, and perhaps overdue. Sales of Pfizer’s own antifungal blockbuster, Diflucan, have been plunging ever since going off patent last year. The choice of Vicruon is no accident, either: the two companies have had an existing deal to develop next-generation oxazolidinones, the first new class of antibiotics in over 30 years. Lazard Ltd. and Cadwalader, Wickersham & Taft LLP advised Pfizer in this deal. Morgan Stanley and O’Melveny & Myers LLP advised Vicuron. Getting back to the AJCA. If you can stimulate growth, develop new products and expand sales and markets, all thanks to the proceeds repatriated under the Act, you might actually wind up creating new jobs to handle the demand. Or so, we imagine, the argument goes.
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