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Pfizer's Acquisition of Hospira Strengthens Its Moat at a Fair Price

Despite the high 39% premium to Hospira's stock price, we believe the acquisition price is justified based on Pfizer's ability to unlock more value with its global reach.

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Pfizer is gaining specialty injectable pharmaceuticals (68% of Hospira sales), which should strengthen the company's wide moat. Within the generics market, the limited number of players offering injectable products has led to stronger pricing power and better returns than the typical small molecule generic market. Further, Hospira's biosimilar business should complement Pfizer's efforts to expand into this market. In addition to Hospira's recent launch of biosimilar Remicade in Europe and the upcoming expected launch of biosimilar Epogen in the U.S., Hospira's large biosimilars pipeline (thanks to its partnership with Celltrion) should accelerate Pfizer's growth in this emerging field. Beyond the injectable business, we expect Pfizer will look to sell Hospira's medical device products (less than 20% of Hospira sales) as we don't see this business line adding much strength to Pfizer's competitive positioning. Existing players in the infusion pump market, such as

Despite the high 39% premium to Hospira's stock price, we believe the acquisition price is justified based on Pfizer's ability to unlock more value with its global reach. While Hospira holds a leading product portfolio, the company has the majority of its sales in the U.S. (80% coming from the Americas). Armed with Pfizer's global presence, we expect these products will have much stronger growth prospects. Further, Pfizer's global manufacturing should strengthen the competitive positioning of the products given Hospira's checkered manufacturing history.

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About the Authors

Damien Conover

Sector Director
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Damien Conover, CFA, is the director of healthcare equity research for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is also director of equity strategy, responsible for helping to shape, package, and surface research based on Morningstar’s investment philosophy by working closely with the firm’s sector strategists and directors.

Before joining Morningstar in 2007, Conover was an equity research analyst covering the healthcare sector for Raymond James, Bank of Montreal, and Tucker Anthony.

Conover holds bachelor’s and master’s degrees in finance from the University of Wisconsin and was a member of its Applied Security Analysis Program. He also holds the Chartered Financial Analyst® designation.

Damien Conover, CFA, is the director of healthcare equity research for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is also director of equity strategy, responsible for helping to shape, package, and surface research based on Morningstar’s investment philosophy by working closely with the firm’s sector strategists and directors.

Before joining Morningstar in 2007, Conover was an equity research analyst covering the healthcare sector for Raymond James, Bank of Montreal, and Tucker Anthony.

Conover holds bachelor’s and master’s degrees in finance from the University of Wisconsin and was a member of its Applied Security Analysis Program. He also holds the Chartered Financial Analyst® designation.

Michael Waterhouse

Sector Strategist
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Michael Waterhouse is a healthcare strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers specialty pharmaceutical and life science and diagnostic companies.

Before joining Morningstar in 2010, Waterhouse was a research biologist for the Centers for Disease Control and Prevention. He was also a volunteer in the Peace Corps.

Waterhouse holds a bachelor’s degree in biology from the University of Georgia. He also holds a master’s degree in business administration from the University of Minnesota, where he participated in the Carlson Funds Enterprise, a student managed investment fund.

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