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Is Pfizer Eyeing AstraZeneca?

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According to a report by UK's Sunday Times, Pfizer (PFE - Free Report) is looking to acquire AstraZeneca (AZN - Free Report) for more than £60 billion (about $101 billion). The report also stated that AstraZeneca has been resisting the takeover deal.

The deal, if it goes through, will provide Pfizer with the opportunity to deploy its accumulated cash generated through subsidiaries outside the U.S. which stands at approximately $70 billion, as per the Sunday Times report. We believe that Pfizer would prefer investing this fund outside the U.S. instead of repatriating it to the country where it would be taxed at a steeper rate.

As on Apr 17, 2014, AstraZeneca had a market cap of approximately $79.82 billion. We believe that these rumors will lead to a short-term spike in AstraZeneca’s share price.

Neither AstraZeneca nor Pfizer has come up with a formal announcement. We expect to get more color on the potential deal at AstraZeneca’s first quarter 2014 earnings call later this week (Apr 24).

We note that AstraZeneca has been struggling with a number of patent expiries. Earnings have also seen a declining trend in the past several quarters. For 2014, the company expects core earnings to decline in the teens. Its acid reflux management drug, Nexium, which generated $3.9 billion sales in 2013, is set to go off patent in late May this year.

However, we still believe that AstraZeneca is an attractive acquisition target based on its sound pipeline, product portfolio and presence in a number of countries. The company’s immune-mediated therapies for cancer, in the pipeline, have grown rapidly. Additionally, a number of products including Forxiga and Xigduo (for type II diabetes) and orphan drug Myalept (complications of leptin deficiency, in addition to diet, in patients with congenital generalized or acquired generalized lipodystrophy) have gained approval in recent quarters.

AstraZeneca and Pfizer both currently hold a Zacks Rank #3 (Hold). Some better-ranked stocks in the health care sector include AbbVie Inc. (ABBV - Free Report) and Johnson & Johnson (JNJ - Free Report) . Both sport a Zacks Rank #2 (Buy).

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