Drug-linked payouts: complex fix for Pfizer's next Astra bid?

Fri Jun 13, 2014 8:47am EDT
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By Ben Hirschler and Anjuli Davies

LONDON (Reuters) - The world's biggest would-be drugs merger hit a wall last month but speculation about smart ways that Pfizer could yet seal a deal with AstraZeneca remains intense.

Even as talks fell apart last month, some in Pfizer's camp remained optimistic the transaction could be revived - and certain AstraZeneca advisers have not ruled out renewed talks. Under British takeover law, the UK firm can approach Pfizer at the end of August to discuss a sweetened bid, or Pfizer can try again in November.

While the most obvious method for Pfizer to win AstraZeneca around might seem to be more cash, some hedge funds think the U.S. firm could structure payouts by tying them to the performance of key AstraZeneca drugs.

A so-called contingent value right, or CVR, was a winning formula for Sanofi in its 2011 battle for Genzyme and the tradeable product - promising additional payouts once future benchmarks are hit - has been used in several other drug industry deals when the two sides could not agree on price.

"An enriched cash:equity mix as well as a CVR component to bridge the ... valuation gap between the two management teams may see the deal agreed upon on a friendly basis," said analysts at Jefferies this week, predicting an 80 percent probability of AstraZeneca inviting Pfizer back after an enforced cooling-off period ends in late August.


Where CVRs have worked before, they have typically been tied to one particular drug upon which buyers and sellers could not agree a price - such as Genzyme's multiple sclerosis drug Lemtrada.   Continued...

The Pfizer logo is seen at their world headquarters in New York April 28, 2014. REUTERS/Andrew Kelly