Pfizer, AstraZeneca Testify Before UK Parliament Over a Proposed Pfizer Takeover of AstraZeneca

The proposed $106-billion proposal by Pfizer to acquire AstraZeneca took another turn this week as Pfizer Chairman and Chief Executive Ian Read and AstraZeneca Executive Director and CEO Pascal Soriot, along with other senior executives from each company, testified on May 13, 2014 before the Innovation and Skills Committee of the House of Commons of the UK Parliament to discuss the implications to the UK economy over a potential combination of the two companies. The committee had organized the hearing over concerns that a proposed combination would result in job losses and reduced investment in the UK. Representatives from Unite, Great Britain's and Ireland's largest trade union, and GMB, the union representing workers at AstraZeneca in the UK, also testified.

One concern raised by the committee was whether Pfizer planned to reduce its R&D staff and investment in the UK if the companies were to combine. In a written statement as well as in testimony made by Pfizer's Read, Pfizer reiterated “its commitment to having at least 20% of the combined company's total R&D workforce in the United Kingdom going forward and [to] creating a substantial innovation hub in Cambridge and the wider scientific community.” In June 2013, AstraZeneca announced that Cambridge, United Kingdom will be the location for the company's new UK-based global R&D center and corporate headquarters. The new £330 million ($555 million) facility in Cambridge will bring together AstraZeneca's small-molecule and biologics R&D activity. The purpose-built facility, which will be located in the Cambridge Biomedical Campus, is part of the AstraZeneca’s previously announced plan to create strategic global R&D centers in the UK (Cambridge), US (Gaithersburg, Maryland), and Sweden (Mölndal) by 2016.

Read was also questioned if the total amount of R&D spending of the combined company would decrease. In 2013, AstraZeneca spent $4.3 billion on R&D and Pfizer $6.7 billion for a combined $11.0 billion. Read emphasized that the company's emphasis is to use its R&D investment in the most productive way, but that if the companies were to combine, it would be expected that it would lower the overall amount of R&D spending of a combined company but that it was premature to identify if and how a combined company might reduce R&D spending.

In earlier correspondence to the UK government, Pfizer had identified several commitments to the UK if the companies were to combine: establishing the combined company's corporate and tax residence in England (although corporate headquarters would remain in New York); completing the construction of the currently planned AstraZeneca Cambridge campus; basing key scientific leadership in the UK to lead all European and certain global R&D functions based in Cambridge; employing a minimum of 20% of the combined company's total R&D workforce in the UK going forward; looking to locate manufacturing operations of the combined company in the UK, subject to the timing of the UK Patent Box proposals, and retaining substantial commercial manufacturing facilities in Macclesfield; basing the combined company's European business headquarters in the UK; inviting at least two AstraZeneca board members to join the Board of the new company; and to hold as appropriate, board meetings in the UK.  

In testifying before the committee, AstraZeneca's Soriot raised concerns over Pfizer's proposal overall and in the “disruption” that a mega merger would create in executing the company's strategy and progressing its pipeline. He emphasized that AstraZeneca had undergone a transformation over the last 15–18 months to improve its scientific leadership and rebuild its pipeline and that “a merger of this magnitude would create a distraction that would delay these products to this market.” 

At the hearing, Pfizer's Read was joined by Frank D’Amelio, executive vice-president, business operations and chief financial officer, and Jonathan Emms, UK managing director, Pfizer at the hearing. For AstraZeneca, Soriot was joined by Mene Pangalos, executive vice-president, Innovative Medicines and Early Development, and Jane Osbourne, vice-president of R&D, MedImmune, Cambridge. Allan Black, national officer from the GMB and Tony Burke, assistant general secretary of Unite, spoke on behalf of the labor unions. 

Outside the hearing, both companies issued written statements, with Pfizer again emphasizing the value of a combined company and AstraZeneca again saying it was not interested in a proposed combination. “Clinical, regulatory, and reimbursement risks continue to increase the cost of drug development and the risk profile of the industry,” said Pfizer in the statement. “Pfizer believes a combination of Pfizer and AstraZeneca would create an industry leader with the scale, operational efficiency, financial strength and breadth of portfolio to better address these challenges,” said the company. Pfizer also emphasized that there is strong strategic, operational and financial rationale for a combination. “[A] combination would enhance the innovative and established portfolios of both businesses; provide even more desirable product portfolio to enhance commercial position in key emerging markets and enhanced optionality to pursue future separation, though no decisions have been made.”

In making the case for a combination of the two companies, Pfizer also outlined what it identified as challenges for AstraZeneca to stay as a standalone business. It pointed to revenue loss with major products with total 2013 sales of around $14 billion facing near-term patent expiration and “uncertainty of revenue potential” with “an attractive but high-risk early stage pipeline that still requires significant investment. Competitive commercial dynamics require significant investments while topline pressured by major loss of exclusivity (LOE). Major LOEs will pressure margins and [the] ability to return capital to shareholders.” Pfizer also said that AstraZeneca's late-stage pipeline is less differentiated than its early-stage pipeline, and the company may face a potential lack of sufficient scale to compete against large national players in emerging markets.

In response, AstraZeneca issued a written statement.  “The Board of AstraZeneca PLC notes the announcement made by Pfizer Inc…Pfizer's announcement contains no new proposal nor substantive new information. The Board of AstraZeneca believes Pfizer is making an opportunistic attempt to acquire a transformed AstraZeneca, without reflecting the value of its exciting pipeline. This value should accrue fully to AstraZeneca shareholders. The Board reiterates its confidence in AstraZeneca's ability to deliver on its prospects as an independent, science-led business.”

Source: Pfizer, AstraZeneca, and UK Parliament, House of Commons, Innovation and Skills Committee

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