My Finance Diary 2021- Page 2

Merger in oncology biotech - Pfizer to acquire Trillium Therapeutics

Another page from my undergraduate learning Diary……………..

Having joined my 5^th Day lecture in mergers & acquisitions under financial investment, it was spellbinding and it provoked me to investigate the real situations happening in the business world. Pfizer, one of the most popular pharmaceutical and Biotechnology companies during Covid19 Pandemic. This is Pfizer’s another Stepping stone…………….

Pharmaceutical & Biotech giant, Pfizer plans to acquire Blood cancer drugmaker, Trillium Therapeutics.  As I learnt, there are three types of mergers. First is Horizontal mergers, where two companies that provide similar products or services in the same industry come together. This offers economies of scale, most importantly increases the market share. Vertical mergers combine two companies that provide different supply chain functions for the same product. Conglomerate mergers combine two companies from completely different industries or geographical locations. Having learned this, now I can say, this going to be a HORIZONTAL MERGER. Since, Both Pfizer and Trillium are in the same industry, conducting investigational therapies for cancer patients & have their own immune-oncology pipelines grappling against cancer.

Subsequently, I questioned WHY do companies merge (Merger motives) ?

• Generally, one motive is SYNERGY. This is where firms combine if the value is created through a merger rather than being apart. To improve the business, to gain market power to be the market leader, to get economies of scale via low unit cost & savings from sharing functions. And to access new markets/industries.

•   MANAGERIAL MOTIVE - Status, power, remuneration, Media attraction to boost reputation drive management to merge. Often, this leads to destroying shareholder value.

 

I have learned that, effective mergers resulting in high efficiency, innovation & increased market capitalization. However, it’s important to make sure that your merger motive leads to shareholder wealth maximization.

Now, I can understand, why does Pfizer plan to acquire Trillium?

Pfizer is making more money from its Covid19 vaccine and has begun to invest them in profitable investments such as investing in cancer drugs. And have earned more than 20% of revenue in 2020 from oncology. That's why they plan to fully acquire Trillium. However, as a Breakthrough growth initiative, Pfizer has already invested $25m in Trillium. And Jeff, the CSO of Pfizer’s oncology R&D group has joined Trillium's Scientific Advisory board. This reflects Pfizer’s merger motive is synergy. Because they wanted to issue funding for scientific researches and it enables Pfizer specialists to access and ensures the continuity of clinical programs. This indicates, Pfizer intends to develop its business, resources, get the market power to create greater firm value through this merger. Moreover, since Trillium's drugs perform well, to increase efficiency blending Trillium’s drugs with Pfizer’s is another reason behind this merger. Mainly, Pfizer's oncology programs are the greatest fit with Trillium's pipeline. President of Pfizer’s oncology division said that this acquisition underpins their dedication to continuing scientific revolutions. And this affirms a strong leadership position in oncology.

Pfizer Oncology is devoted to finding, investigating, and improving transformative therapies to give long life for cancer patients worldwide. Hence having the synergy motive as explained above I hope Pfizer’s this strategic M & A decision will be successful.

How will this merger be done?

Having learned about moderators such as deal characteristics, managerial effects, firm characteristics during the lecture, I know, Pfizer is going to acquire all the outstanding shares of Trillium (100% acquisition & ownership) nearly $2.3bn paying $18.50 per share in cash. And not paying too much money to acquire hence it creates value for Pfizer's shareholders. That's about the deal characteristic of this merger. Firm characteristics: Since Pfizer's oncology pipeline is the best fit with the Trillium's, both can do researches together to improve therapies efficiently and effectively resulting in high performance, Especially utilizing Pfizer’s deep knowledge and experience on blood cancers.

What will happen (Outcome)?

As I learned, Turnover, customers, shareholders, premiums are some of the Performance and other outcomes. If the merger works better, Both Pfizer's & Trillium's Drug sales revenue will rises. And Pfizer’s share price will increase. Furthermore, Pfizer expects growth in 2026 – 2030 & beyond by expanding its pipeline. This merger will enable Trillium’s products to go international and attract shareholders with Pfizer’s expertise in oncology and provides the best outcomes for patients. I feel this would be a successful merger & will result in increase shareholder value.

Finally, I have seen some mergers which are not strategically fit, nevertheless, this is probably one of the best biotech acquisitions.

 

Kuchler, H., & Aliaj, O. (2021). Pfizer to buy oncology biotech in $2.3bn deal. FT.Com. Retrieved from https://www.ft.com/content/d673c756-eb4c-45e1-822d-b520158768c6