What if you offered to spend $100 billion and no one answered?

Pfizer waits for a response from AstraZeneca

Rumors will continue to swirl around Pfizer’s bid to acquire AstraZeneca, but a couple things are clear: Pfizer actually wants to make something happen, and a 28-day clock has started (per UK public-company rules) for Pfizer to make a formal offer or withdraw. Pfizer chairman Ian Read has made public statements to this effect, including an April 28 interview with Fortune magazine in which he said, “There are a lot of overlaps in science being done, and the secular trend is that the industry will continue to consolidate by the type of deal we're doing, or by an exchange of assets.” The “science” includes product development in oncology, inflammation and diabetes; and the “secular trend” is the ongoing problems of relatively few blockbuster drugs with years of patent life ahead of them, combined with the relatively small financial impact of newly commercialized specialty drugs.

Read sees a “trifecta” of positive factors for the merger: revenue synergies, cost synergies and financial synergies. The latter refers to the possibility of relocating Pfizer’s headquarters to England, avoiding taxes and gaining access to Pfizer profits held abroad. The cost synergies point to reductions in R&D spending, facilities and headcount. The FiercePharma website did a quick analysis of Pfizer’s results after acquiring Wyeth in 2009: a drop in headcount of 51,000 by the end of last year.

There is the possibility of an asset exchange, similar to what Novartis and GSK announced a week ago. Read also hints at a breakup of some of Pfizer, post-AZ acquisition; he notes that while Pfizer has shed its animal-health business and realigned its OTC business.

Meanwhile, a new period of megamergers is arriving, across many industries including life sciences; examples include Comcast/Time Warner Cable; General Electric and a part of Alstrom, and the current bid by Valeant to acquire Allergan. Low interest rates on borrowings and the desire to expand or reinforce market share will drive such deals for the foreseeable future.