Pfizer to Buy Hospira for $15 Billion as Drugs Lose Patent Protection

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Outside Pfizer's world headquarters in New York. Andrew Kelly/Reuters
Updated, 9:47 a.m. | Pfizer has agreed to acquire Hospira, a big maker of injectable drugs, for $15.2 billion. The acquisition is the first major deal for Pfizer since last year’s failed attempt to buy AstraZeneca for more than $100 billion. 
Pfizer said on Thursday that it would pay $90 a share for Hospira, which makes infusion technologies and drugs that are injected. Including debt, the deal is valued at about $17 billion. 
“The proposed acquisition of Hospira demonstrates our commitment to prudently deploy capital to create shareholder value and deliver incremental revenue and [earnings per share] growth in the near term,” Ian Read, Pfizer’s chief executive, said in a statement. 
Pfizer is looking for ways to expand revenue as some of its most profitable drugs lose patent protection. But in buying growth, Pfizer is paying a rich price. 
Hospira is selling itself at an opportune moment in the company’s history. Its share price is at a record high, having risen nearly 50 percent in the last year before the deal was announced. Pfizer is paying a 39 percent premium on top of that. 
Pfizer is paying just over 20 times earnings before interest, taxes depreciation and amortization for Hospira, a generous multiple. 
Hospira was spun off from Abbott, the big drug maker, in 2004. Sales of Hospira’s injectables and biosimilars grew swiftly for a few years after the spinoff, but revenue growth has slowed in recent years. 
Nonetheless, Pfizer sees a potentially large growth market in Hospira. Global sales of generic sterile injectables is expected to reach $70 billion by 2020, while the market for biosimilars is estimated to reach $20 billion by 2020.
F. Michael Ball, chief executive of Hospira. Hospira, via PR Newswire
“The Pfizer-Hospira combination is an excellent strategic fit, presenting a unique opportunity to leverage the complementary strengths of our robust portfolios and rich pipelines,” F. Michael Ball, Hospira’s chief executive, said in a statement. 
But by adding Hospira, Pfizer will further enlarge its sales and market capitalization, possibly easing the way for a potential split that would create two robust companies. 
For years now, analysts and investors have questioned whether Pfizer, one of America’s largest and most well-known pharmaceutical companies, would be better off split in two. 
During a conference call last year, Mr. Read responded to a question about splitting up the company by acknowledging that there were already, in effect, two Pfizers. 
“We are managing the business in two segments, broadly speaking,” Mr. Read said while announcing second-quarter earnings. “One being innovative and the other being established.”
Mr. Read has so far not said there is any formal plan to break the company up. 
And if it were to do so, Pfizer would follow the path forged by Abbott. In 2013, Abbott spun off AbbVie into a separately traded company. AbbVie is now the larger of the two. 
The Pfizer-Hospira combination is a continuation of the strong run in pharmaceuticals mergers and acquisitions, which spurred much of last year’s deals boom. 
It also is a turning point for Pfizer, which last year tried to acquire AstraZeneca, the British drug maker, in what would have been the largest ever so-called inversion, a deal that would have allowed Pfizer to reincorporate abroad to save on taxes. But Pfizer faced political resistance to the deal in Britain and withdrew its bid. 
Pfizer said the deal should result in $800 million in annual cost savings by 2018, and is expected to close in the second half of this year. 
It said it planned to finance the deal with existing cash and new debt.
Pfizer was advised by Guggenheim Securities, JPMorgan and Lazard, while Ropes & Gray and Clifford Chance provided legal advice. Hospira was advised by Morgan Stanley, and received legal guidance from Skadden, Arps, Slate, Meagher & Flom.