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Why Pfizer Spent Over US$ 5 Billion for Loss-Making Anacor Pharmaceuticals

May 20, 2016 | Healthcare | FMI

Atopic dermatitis, more commonly known as eczema, affects over 18 million people in America alone. Currently, effective treatment for the disorder is limited, with the most promising bet that crisaborole, a non-steroidal gel currently under review by the Food and Drug Administration, will be approved for commercial use next year.

Crisaborole has been developed by Anacor Pharmaceuticals Inc., a Palo Alto based biotechnology company, whose shares were trading down 43% year-to-date until Monday, the 16th of May. Then came the news that Pfizer Inc., the global pharmaceutical behemoth, will buy the company for US$ 5.2 billion, net of cash, with US$ 99.25 a share. What prompted such a generous offer won’t have any prizes for guessing – if the FDA approves crisaborole, (there’s a high chance it will), Pfizer will have a lion’s share of the eczema treatment market. And, with estimates that crisaborole can ramp up over US$ 2 billion in annual revenues, Pfizer will eventually benefit from the deal in the long run.

After deciding against merging with Allergan plc due to new corporate tax inversion laws passed by the U.S. Treasury Department, Pfizer has focused its attention to smaller biotechnology firms. In addition to Anacor, Pfizer is also believed to be in talks to buy San Francisco-based biopharmaceutical company Medivation, Inc. The mergers and acquisitions are also in line with Pfizer’s plans to split into two groups – with the tried-and-tested drugs forming one part, and innovative drugs, such as crisaborole making up the other.

Impact of Pfizer’s Acquisition of Anacor

FMI’s analysts are of the opinion that the acquisition of Anacor will help Pfizer in the long-run although it may reduce the company’s cash reserves in the short-term. “TheAnacor acquisition is well-timed. Considering crisaborole will get FDA approval by January 2017, Pfizer will be in a unique position to leverage its primary care physician networks to get crisaborole to millions of people who are looking for effective eczema treatment”, said Sabyasachi Ghosh, Senior Consultant – Healthcare at Future Market Insights.

Pfizer’s year-over-year revenues are expected to increase at 9% in 2016. The acquisition is not projected to influence Pfizer’s 2016 guidance. It’s not as if Pfizer will not face any competition for crisaborole; Regeneron, another New York based biopharmaceuticals company is hoping to launch dupilumab, an antibody that aids treatment of severe cases of eczema. Dupilumab is expected to be submitted for review in the U.S. later this year. While crisaborole is targeted at mild to moderate eczema, it’s expected to cost only US$ 1,200 per year as compared to US$ 25,000 cost for dupilumab, giving Pfizer an upper hand in the market.

Concluding Remarks

FMI analysts are of the view that Pfizer’s recent acquisition is a well-thought-of move that will continue to pay dividends for years to come. The US$ 4 billion eczema market can open up further, as many consumers have given up on drugs available in the market, citing their ineffectiveness and barrage of side effects. By taking a novel anti-eczema solution to the masses, Pfizer will be able to fill a vacuum and push its annual revenues by around 3% to 4% annually.