What does Pfizer get with the Hospira deal?

Pfizer is spending $17 billion to acquire Hospira, which calls itself the world’s leading provider of injectable drugs and infusion technologies.

So what the heck are they?

Hospira’s injectable pharmaceuticals are generic drugs used for anesthesia, infections, cancer and other indications. They differ from what are known as biosimilars—generic versions of biologic drugs, made from living cells (biologic drugs include medicines like Humira, for rheumatoid arthritis, and Avastin, for cancer). While there are biosimilars on the market outside the U.S., the pathway to market is still being worked out here.

Frank Bienewald | LightRocket | Getty Images

Frank Bienewald | LightRocket | Getty Images

Hospira makes biosimilars as well. Its injectable and infused pharmaceuticals business includes about 200 generic drugs, like the antibacterials azithromycin and ceftazidime, and the anticoagulant heparin sodium.

Hospira has also been in the news in recent years as the only U.S. maker of drugs used in lethal injection. (The company said in 2011 it would stop making the anesthetic, sodium thiopental, because it didn’t have U.S. manufacturing capabilities for it, and it had run into opposition in Italy.)

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Hospira’s also got biosimilars on the market in Europe and Australia; they’re an area Pfizer has cited as a target for growth.

Wall Street viewed the deal positively Thursday morning, driving Pfizer shares up 3 percent. The drug giant started reporting its “global established products,” or GEP, “global innovative products,” or GIP, and vaccines and oncology units separately last year, to enable it to consider a split of the businesses in 2017. Analysts view the Hospira deal as facilitating a potential divide.

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“We like the immediate accretion and strategic fit with GEP’s move towards longer duration growth assets, but even more important is the potential multiple uplift it likely gives GEP if it is separated from Pfizer in 2017,” Jeffrey Holford, an analyst with Jefferies, wrote in a Thursday research note. “We think this deal signals a firm intent to separate GEP in 2017 and leaves more firepower for further deals to augment GIP.”

Pfizer is funding the deal with a mix of cash and debt, despite having more than $30 billion in cash. That’s partially because the majority of Pfizer’s cash sits overseas, and Hospira is based in Illinois. Bringing that cash back to the U.S. to make the purchase would require Pfizer to pay U.S. taxes on it, something the company has bristled against; Pfizer pursued an unsuccessful $120 billion acquisition of AstraZeneca last year to move its U.S. tax base overseas.

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Chief Financial Officer Frank D’Amelio said Thursday the company is funding the deal with some cash from overseas, though it won’t affect Pfizer’s forecast 25 percent tax rate this year.

Investors may look next to the innovative business for opportunities for Pfizer to expand.

“We’ll continue to look at opportunities where business development can strengthen our businesses,” Pfizer Chief Executive Officer Ian Read said on a Thursday conference call with analysts. “I believe the Hospira acquisition is a nice, contained bolt-on in a business we’ve established. I don’t think it will distract us from our ability to continue to look at appropriate deals that can add value.”

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