Photograph by Oli Scarff — Getty Images
By Geoffrey Smith
November 17, 2014

Pfizer Inc. (PFE) looks like it has abandoned any hope of a merger with the U.K.’s Astrazeneca Plc (AZN), after announcing a wide-ranging deal to cooperate on cancer drugs with Germany’s Merck KgAA (MERK).

Pfizer said it will pay Merck $850 million up front and other payments up to as much as $2 billion for the rights to jointly develop and commercialize an antibody that the German companty is currently working on.

The company said it will explore the therapeutic potential both of the antibody as a single agent, and in combination with Pfizer’s and Merck’s existing portfolio of cancer-related treatments.

In a statement, Pfizer Worldwide Research and Development President Mikael Dolsten said early results for the antibody had been “impressive”.

As a result of the deal, Pfizer has cut its forecast for earnings per share this year by around 6% to a range of $1.40-$1.49 (having previously estimated $1.50-1.59).

By betting heavily on a partnership with Merck, Pfizer appears to have dropped any plans it still had for a renewed approach for AstraZeneca, as the attraction of that deal had also been in AZ’s portfolio of oncology drugs.

Pfizer’s $117 billion bid for AstraZeneca, one of the biggest examples of the trend of tax-driven corporate “inversions”, had collapsed in May, after resistance by the both shareholders and the U.K. and Swedish governments. Any new approach would have to reckon without the tax benefits of the deal, after new rules imposed by the Obama administration in the summer.

Merck’s shares rose sharply in reaction to the news Monday, as investors were cheered by the prospect of partnering with Pfizer in the U.S. market. By lunchtime in Frankfurt, they were trading up 3.3%, while the broader German market was down 0.1%. Pfizer’s depositary receipts in Europe were trading down 1.8%.

 

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