When Schumpeter recently visited New York, it was the best of spring. Central Park had cherry blossoms, birds chirping in the bushes, in the incorrect feeling, and the usual dissonance of car corners and jackhammers on the street. It gets better when you take the elevator to the golden elite salon on Wall Street. The views are breathtaking and their tastes are clear. CDSs line up on the shelf of a legal beagle. Still, if you think that such a veteran has seen it all, think about it again. “This is more complicated shit than ever,” says the boss of one bank.
The hierarchy of concern changes depending on who you talk to. But the components are the same. Interest rate shock is not seen in generations. The difficulty of trading when money is no longer cheap. Maverick’s approach to antitrust from Washington, DC sheriffs. The rhetoric between the US and China, if not yet realistic, is fearful of its business opposing, but it is fearful of losing it.
So it was a coincidence that one of the New York companies your columnist visited was Pfizer at Hudson Yard’s new headquarters. The $2200 billion worth of Pharma giant is rarely shrugging many sources of uncertainty among American companies. The joint partnership with German vaccine developer BionTech has given it a strong balance sheet strong enough to take higher interest rates with its advances. This is a trading machine unknown by TrustBusters. And it’s proud of its business in China. You may have sticking your neck out. But even better if it helps to stab the needle into the corporate America slippery rounds.
Pfizer is found to be washed away with cash by visiting new excavations. The main conference room is a futuristic “destination circle.” The sparkling executive suite appears to belong to Starship Enterprises. The Spiffy Newish Double-Helix logo highlights its dedication to science. The first topic of the conversation is mergers and acquisitions. It spent $70 billion over a year. This includes the $43 billion acquisition of cancer drug maker Seagen, which was announced in March. This is the largest pharma contract since 2019.
Pfizer can perform M&A. This is because unlike most companies, they are not paralyzed by their short-term economic outlook. Instead, it is galvanized by certainty that the bonanza associated with that covid is tapered. Pandemic-related vaccine and antiviral fluid sales beating Wall Street’s expectations in the first quarter results on May 2, but contributed to a 26% drop in overall revenue compared to the same period in 2022, further down this year. It will also face looming patent cliffs from 2025 onwards, affecting nonexistent blockbusters such as the anticoagulant Eliquis and two cancer drugs Ibrance and Xtandi. To offset both of these forces, Pfizer is purchasing and developing a pipeline of new drugs that it hopes to increase revenue by $300 billion in 2030. That makes them relatively accepting of acquisitions.
By making such transactions, Pfizer is not blamed by Trustbusters for having a calm impact on trading in other industries. Jeff Huxar of consulting firm Bain & Company said the US Federal Trade Commission and the Department of Justice are more likely to suspend transactions than addressing concerns about M&A-related competition through remedies such as divestitures. So far they have not been able to block many transactions, but the timeline for making transactions has been extended. It affects the buyer’s financing costs and poses the risk that sellers may get stuck. Pfizer has taken steps to help it move away from the Trustbuster, including playing the “synergistic effect” of cost-cutting (i.e., job-threatening) and making a commitment to cancer innovation. This claims that the acquisition of Seagen will end by the beginning of 2024.
Unlike many other American companies, Pfizer remains unusually bullish about its operations in China. It employs 7,000 people across the country, which helped to strengthen Covid-related revenues in the first quarter. CEO Albert Bourla was one of the few bosses of famous American companies who attended Beijing’s China Development Forum in March (Apple’s Tim Cook was another). Last month, Reuters reported that Pfizer had signed an agreement with Chinese drug maker Sinferm to sell innovative Chinese drugs. It may make sense for a company with a promising business there to double its business. But if many American businessmen speak up to protect trade relations, it’s bold.
So far, Wall Street has given Pfizer little credibility about its purpose. That stock has dropped by almost a quarter this year. Critics argue that it could be an overpayment for Siegen, and that the drugs acquired may not generate enough income to move the needle in Pfizer. They worry that pressure on American drug pricing could destroy some of the economic grounds for its acquisition. Pfizer is still cutting work to convince investors that the future is bright. As Brula said, “Saving the world is not enough. We need to raise the stock price.”
I’m looking half the vial in full
Other industries may argue that Big Pharma, which has some of the juicy margins outside of the tech industry, is not representative of corporate America and offers little lessons on how to deal with the current wave of uncertainty. However, it is worth remembering that it is often at the depth of M&A call that companies with strong balance sheets are doing the best deals. Investment bankers point out that in 2009, during the global financial crisis, Pfizer paid vaccine maker Weiss $68 billion despite fears on Wall Street. As lucky as you can see, over a decade later, an underrated business helped Pfizer save the world amid the Covid crisis. It can be paid to be bold, even in mystical ways.
For more information about Global Business columnist Schumpeter, is mining set up for a new wave of Mega Mergers? (April 27) How businesses are experimenting with services like ChatGpt (April 19) Samsung needs to be careful of self-satisfaction like Intel (April 13)
Also, if you would like to write directly to Schumpeter, please email schumpeter@economist.com. And here’s an explanation of how Schumpeter’s column made that name.
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