AstraZeneca rises amid takeover talk

Shares in AstraZeneca rose 7.84% to 4,078p on Tuesday morning after speculation the company had been approached a second time by rival drug maker Pfizer in a deal that could value the company at $101 billion (£60.63 billion).

The rise has reversed a trend in the shares, which had fallen from 4,084p on 28 February to 3,781p on close of play Friday 18 April.

The deal would be around a 25% premium to AstraZeneca's closing share price on Friday and the largest pharmaceutical takeover in history, but a "clarification statement" expected on Tuesday morning has so far failed to materialise.

The deal would not be a great fit, however. Other than experimental breast cancer drug palbociclib, Pfizer has a weak pipeline of new drugs and will lose $3 billion in sales this year because of generic competition.

A more obvious strategy would be to grow its presence in the generic markets, taking advantage of its distribution infrastructure.

Both companies are in fact struggling to find new sources of growth after some of their best-selling drugs lost patent protection.

AstraZeneca's attraction would be its expertise in autoimmune diseases and its pipeline of early-stage cancer drugs in the $35 billion immunotherapy market, an approach that harnesses the body's own immune system to fight disease and is seen as exciting but relatively unproven.

Tax-efficient deal

However, it has projected flat sales until at least 2017, and the UK company lags Bristol-Myers Squibb, Merck & Co and Roche which all have drugs in later stages of development.

Buying AstraZeneca would also expand Pfizer's rheumatology drugs and its range of vaccines, while cost synergies could potentially come from cutting sales staff in areas such as cardiovascular drugs, where it already specialises.

Chief executive Pascal Soriot has already cut costs sharply since taking over in 2012 and is currently moving the company's research and corporate headquarters to Cambridge, England, where Pfizer also has a research hub.

A deal could also be a tax-efficient way for Pfizer to use cash residing outside the US, which analysts have estimated is anything from $32-73 billion. Repatriating that cash to the US to pay a special dividend would attract a swingeing tax penalty.

Although Pfizer has done three megamergers in the past, most recently its 2009 acquisition of Wyeth, in recent years the emphasis has been on refocusing in line with the thinking that research and development flourishes better in smaller, innovative companies. Pfizer offloaded its nutrition business to Nestle in 2012, and last year spun off its animal-health unit in an initial public offering.

Pfizer will report its earnings results split into three separate business units in a move that is widely seen as a precursor to a real business split in future. The three segments are pain and inflammatory diseases; cancer drugs, vaccines and consumer products; and products lost or losing patent protection.