It’s said that where there’s crisis, there’s opportunity.
That goes a long way toward explaining Pfizer‘s (NYSE:PFE) interest in buying up a big injectable-drug maker in India.
Six months of rumors appear to be coming to fruition amid reports that the pharma giant will finally make a bid for Agila Specialties, which is part of India’s Strides Arcolab.
Pfizer began the due diligence process last week on a possible purchase of Agila, which could be valued at as much as $2 billion, according to a Bloomberg report. That would make Agila worth twice Strides’ current market value of about $1 billion, but it almost certainly would be a couple billion bucks or more well spent.
For one thing, there’s a huge supply shortage of injectable drugs in the U.S. Everything from injectable cancer treatments to steroids to antibiotics has become harder to come by in the last two years, ever since the Food and Drug Administration cracked down on an industry that has made too many high-profile and deadly blunders. Recall that the recent national outbreak of fungal meningitis was traced back to contaminated epidural anesthetics and steroids.
So that’s one crisis.
The other crisis is that a number of Pfizer’s blockbuster drugs are set to lose their patents, which means folks will soon be able to buy some of its most lucrative and important products from competitors offering cheaper generic versions.
Indeed, the so-called patent cliff has all the big drug companies scrambling to find new sources of revenue, which is why Pfizer’s interest in Agila pretty much comes as no surprise to anyone who follows the industry.
After all, the pharma giant’s third-quarter revenue came in well short of Wall Street’s expectations because of a plunge in sales of Lipitor, the blockbuster cholesterol-lowering drug that came off patent in November 2011.
As analysts at Trefis note:
“Pfizer’s Lipitor, which generated close to $10 billion in 2011, is losing market share at an accelerating pace and sales have nearly halved in a relatively short time frame. The looming patent expiration for Viagra, Enbrel, Detrol, among others, in 2012 will also hurt the company’s revenues.”
Since other big pharma companies face similar patent cliffs, that has put many of the injectable drug makers in play. In a huge opportunity, the generic injectable market is set to boom, since many of the drugs in that area are set to lose their own patent protection in the next few years.
Happily, Agila already has the highest number of generic injectable drugs with FDA approval, which makes it a great catch now.
Not only could the injectable drug market explode by a high-single-digit growth rate to $17 billion worldwide in 2020, but there’s also less competition in that sector compared with oral drugs. There are higher barriers to entry and, as noted, the FDA is watching it like a hawk.
All in all, it seems like a wise strategic move for Pfizer to make a big play in the injectable-drug business. Heck, it can easily afford a $2 billion-plus price tag.
More important is that it takes ages to come up with new blockbuster products. A smart strategic acquisition, however, can be struck in a matter of months.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.