Ian Read, chairman and chief executive of US pharmaceuticals company Pfizer; Pascal Soriot, chief executive of its British rival AstraZeneca; and Vince Cable, the UK business secretary, are answering questions from MPs on the business, innovation and skills select committee on Pfizer’s proposed £63bn takeover of AstraZeneca. Union leaders are also appearing.
By John Aglionby and Hannah Kuchler
Good morning. MPs are expected to seek “cast iron guarantees” – whatever they’re worth – from Pfizer chairman Ian Read that the US company will protect UK jobs if it succeeds with its £63bn proposed takeover British rival AstraZeneca.
Pfizer has said its five-year plege to complete AstsraZeneca’s new R&D centre in Cambridge and put a fifth of its research staff in Britain if the deal goes ahead are “legally binding”. But the US pharma giant has also said that its promises could change if circumstances change “significantly”.
Sir Paul Nurse, the president of the Royal Society, said on Tuesday that Pfizer’s commitments were “vague and insufficient”.
The MPs’ role is only advisory and the government has said it is up to the board and shareholders of Astra-Zeneca to accept or reject any offer.
The running order today is:
• Tony Burke, Assistant General Secretary, Unite union
• Allan Black, National Officer, GMB union
• Ian Read, Chairman and Chief Executive, Pfizer.
• Frank D’Amelio, Executive Vice President, Business Operations and Chief Financial Officer, Pfizer.
• Jonathan Emms, UK Managing Director, Pfizer.
• Pascal Soriot, Chief Executive Officer, AstraZeneca
• Mene Pangalos, Executive Vice president, Innovative Medicines and Early Development, AstraZeneca
• Ian Brimicombe, Vice President, Corporate Finance, AstraZeneca
• Vince Cable, Business, Innovation and Skills Secretary
These are the main Pfizer-Astra stories around this morning:
Pfizer has expressed its “disappointment” with the lack of engagement fromAstraZeneca’s board as it stressed the risks of the Anglo-Swedish pharmaceuticals company resisting the advances of its US rival.
But the maker of Viagra refused to up itscash-and-shares offer, which values its UK counterpart at £63bn, saying: “Constructive engagement may lead to a transaction that AstraZeneca can recommend. Pfizer will continue to be disciplined on price.”
BBC: Pfizer offers legal guarantees over AstraZeneca bid
US drug giant Pfizer has said commitments to preserve UK science jobs – if it wins a $106bn (£63bn) takeover of AstraZeneca – are legally binding.
Pfizer has given a five-year promise to complete an AstraZeneca research centre in Cambridge, keep a factory in Macclesfield, Cheshire, and place a fifth of research staff in the UK.
The boss of Pfizer will today publicly praise the government for creating a friendly, low-tax environment which encouraged the US drugs giant to bid £63bn for AstraZeneca in what would be the biggest foreign takeover of a British company.
The Guardian understands that Ian Read, the Scottish-born chief executive of Pfizer, will begin his evidence to MPs in parliament today by praising the government for creating an attractive environment for investment by, among other measures, lowering the corporate tax rate to 20%, compared with 40% in the US. Read will also highlight George Osborne’s special “patent box” 10% tax rate on products derived from British inventions.
Wall Street Journal: Pfizer eager for AstraZeneca approval
LONDON— Pfizer Inc. PFE +0.34% on Tuesday indicated that it was willing to alter the terms and structure of its proposed $106 billion takeover of AstraZeneca AZN.LN +1.00%PLC to win approval for the deal from the U.K. company’s board.
Pfizer said “constructive engagement may lead to a transaction that AstraZeneca can recommend” and that the U.K. company could work with it to “help deliver optimal deal terms and structure.”
However, the U.S. drug giant said it would remain “disciplined on price.”
Daily Telegraph: Vince Cable urged to protect AstraZeneca
Members of the Business Select Committee will on Tuesday demand that Vince Cable tightens Britain’s takeover rules to protect AstraZeneca from a possible £63bn hostile bid from Pfizer.
The MPs, who have summoned the Business Secretary, the bosses of both Pfizer and AstraZeneca and trade union leaders to face questions on the deal, have said the UK’s takeover regulation is too weak to protect the “crown jewels of British industry.”
You can watch along online with Parliament TV – The future of Astra Zeneca
Elizabeth Rigby, the FT’s deputy political editor, will be in the committee hearing, follow her on @BethRigby for live updates.
Here are the two companies’ share prices since Pfizer first announced its interest in AstraZeneca:
The union leaders are taking their seats in the committee room
All five are introducing themselves with very long job titles; in short, they represent pharma workers.
MPs are declaring their conflicts of interest on both sides – a couple have had constituency funding from unions, and one used to work for the PR firm representing AstraZeneca.
Shop stewards from Unite and GMB are opposed to the deal and are “very very concerned” about Pfizer’s record of job losses and the impact on supply chains in the local areas surrounding AstraZeneca’s factories.
From Beth Rigby, the FT’s deputy political editor :
Stressing that AstraZeneca’s employment figures are nowhere near the total impact they have on the community. Including contractors working on site (from caterers to IT) the unions estimate they effectively employ 12,000 to 14,000.
Track record gives them the “most concern” that the “fairly flimsy” commitments Pfizer made in its recent letter will go by the wayside after the deal is done.
Robin Walker picks up the questioning − asks what unions would like sec of state to do to protect jobs.
Allan Black says they’re “deeply worried” about the “loopholes” in the proposed bid.
“We would expect the government to intervene and secure stronger guarantees than are contained in their letter”.
“As a second best we’d like something copper-bottomed but I’m not sure what I mean by that”.
Black: “I’m not sure what legally binding commitments could be extracted from Pfizer that would be meaningful.”
The unions and politicians are getting very anxious about the prospect that Pfizer might not be committed to R&D in this country (remember all that talk of rebalancing the economy?) But AstraZeneca might not be as committed as it looks either. Bryce Elder wrote on FT Alphaville that the company’s experimental drug pipeline − which it highlighted in its defence statement − have all been bought in from other companies, the majority of which were foreign. Click here for a look of the list of California-based biotechs that are already doing AstraZeneca’s R&D for it….
About the AstraZeneca bid defence – FT Alphaville
Burke is the first person to mention Pfizer’s “should circumstances significantly change” disclaimer…
Burke says that Pfizer’s R&D budgets have been cut in the past few years.
“We just believe that Pfizer is not offering the assurances that our members are seeking.”
What could a legally binding agreement look like? Frankly, the lawyers at the GMB are scratching their heads how something could be drawn up to be sufficiently watertight to satisfy the UK government and persuade Pfizer to sign, said Allan Black.
Mr Black particularly worried about the investment in the Macclesfield site − which is planned to be about £150m − will not go ahead as it is to produce a pill that is not widely sold in the US. Tony Burke from Unite said they were particularly worried that Pfizer had not reached out to them yet.
Mr Black said at the risk of sounding like the AstraZeneca fan club, the relocation of staff to a Cambridge site had been “frankly exemplary” and “professional, considerate and compassionate”. High praise indeed.
William Bain asks Black why he thinks the Takeover Commission should investigate. Black says he had got this wrong and that the European competition authorities would intervene anyway.
Black: “I’m a little bit perplexed by Pfizer’s motivations in the matter.” He says he does not think tax is the main driver but that “Chinese implications” are more significant.
Black: “One of the things I do buy into completely is that they are very interested in buying AstraZeneca’s drug pipeline.”
Brian Binley, a Tory MP, said he was “shocked” to hear that union leaders had experienced no official communications with Pfizer. He asked if any unofficial communication had taken place, which they say had not. “It is almost as though the workforce is a very poor third,” Mr Binley said.
Mr Binley asked the union leaders if the”loose” language Pfizer had used in its statement to the committee was just them being American or if they were being evasive and insubstantial. He criticises terms such as “going forward”, and promises such as “substantial investments” and holding board meetings in the UK as “appropriate”.
The union leaders have been dismissed. Ian Read and his colleagues have taken their seats.
After the union leaders, we’re going to be hearing from Ian Read, Pfizer’s chief executive, who has been criss-crossing the Atlantic as he attempts the £63bn takeover. Mr Read had been charged with stabilising Pfizer when he was brought in four years ago after a disruptive period of deals and shaky management. Andrew Ward, the FT’s pharmaceutical correspondent, wrote this profile of the “no-nonsense” Mr Read:
http://www.ft.com/…-00144feabdc0.html – Ian Read: the pragmatist out to transform the drugs industry – FT.com
Adrian Bailey starts the questioning. Says Pfizer has been described as a shark and praying mantis. How can Read assure everyone that “the Pfizer leopard is going to change its spots?”
Read doesn’t answer the question but begins by saying how proud he is of Pfizer’s record on research. “I’m acutely aware that the future of the company depends on science and innovation.”
“Let’s make sure we’re good stewards of the resources we have.”
“Let’s re-establish our reputation with the public.”
They are very American with their language. One element of their motto is “No Jerks”.
Bailey says the company has lost value from takeovers and slashed the takeovers. The joint budget for R&D for both companies would be about $12bn. He asks if the budget would stay at that level.
Read says he’s determined to make sure the company “remains productive”. He says AstraZeneca has also reduced its UK employment by 40 per cent in recent years.
He says the company focuses on ensuring society gets better value.
D’Amelio says the value of the company has dropped partly because a lot of money has been returned to shareholders.
But Bailey comes back to the questions on whether the R&D budget will stay the same.
Read finally answers: “I do not expect the combined budget will stay the same. I expect it to be lower. How much I cannot say.”
Pfizer says it has a dialogue with the scientific community in the UK. More individual scientists than organisations such as the Wellcome Trust.
Mr Read changes the subject to the unions. Said he thought it was “inappropriate” for them to go behind AstraZeneca’s management’s backs to talk to the unions when they haven’t got a deal.
From our colleagues at FastFT − the Swedes are still unhappy about Pfizer’s plans:
Sweden’s finance minister has voiced more concerns over Pfizer’s battle for the UK’s AstraZeneca, which was once part-Swedish and has a big research facility in the country, arguing that the bid is driven by “tax logic” and could lead to job losses.
The renewed intervention by Anders Borg, a former economist at Swedish bank SEB and not known for his protectionist views, comes as Pfizer’s chief executive Ian Read is set for a hearing with UK lawmakers at 10am today.
In an interview with Bloomberg TV, the Swedish finance minister said:
We are quite worried in Sweden. We had an experience when Pfizer took over Pharmacia [in 2002] and basically downscaled operations here in Sweden very heavily over just a couple of years. The track record of Pfizer when it comes to jobs downscaling is very clear….
…We cannot see the real business logic here. But it’s very clear Pfizer sees some clear tax benefits from this deal. We are worried this deal is driven more by tax logic than by business logic.
… I’d be quite sceptical even if they give such reassurances [on jobs and R&D commitments]… We are worried the Pfizer alternative would be problematic in terms of jobs and life sciences business in Sweden but also in the UK.
Mr Read says “very strong industrial rationale” to join Pfizer and AstraZeneca’s pipeline together, putting an extra emphasis on oncology drugs. The other two reasons were efficiencies aimed at getting pills to patients quicker and getting a lower tax rate.
Read asked if the big pharma business model is still sustainable.
He says the way Pfizer is organised is not based on size but on different areas. “It’s like small companies within a large company but with great accountability.
In the US we have 23 substantial agreements with universities to do research.”
D’Amelio says Pfizer is going to spend $7bn on R&D this year.
Read adds that most of the development has been in-house rather than “going out and buying products from all around the world”.
More from the FT’s Beth Rigby:
The FT’s City Editor has a tip for the MPs:
D’Amelio says $7bn they are spending on R&D today is much more productive than $10bn they were spending. But of course, they could have spent that $10bn more effectively…
Mr Binley clearly enjoys the performance element of the committee. “Are you a salesman?” he asks, adding that Mr Read seems all sales and no substance.
From FT hedge fund correspondent Miles Johnson:
One of AstraZeneca’s top 10 largest shareholders said that they believed it was right for the company’s investors to be allowed to assess any offer from Pfizer themselves, and that its management should engage in discussions with the US group.
While the latest indicative cash and share offer of about £50 was not enough, the investor said that a higher offer should push both sides closer towards an acceptable price, noting that AstraZeneca’s shares had been trading below £40 before Pfizer’s interest emerged.
The FT’s chief leader writer doesn’t think Read’s statements add up:
Mr Binley quotes a statement from the Swedish prime minister on Pfizer’s broken promises in that country, but Mr Read said he’s not sure the facts are right. He offers explanations for some of the accusations but says he is “proud” of Pfizer’s behaviour in Sweden.
More from the FT’s City editor:
Mr Binley goads Mr Read “now tell me the truth”. Mr Read said he has not made any decisions about what to do with AstraZeneca; he has options.
Read sums up Pfizer’s position on the pre-condition: “If it is not honoured, we haven’t made a decision what we’ll do”.
Lib Dem Mike Crockart takes over:
Read says his commitments to the UK government are “unprecedented” in such a takeover bid.
Read asked if he’s a “ruthless costcutter”
It’s an opportunity to domicile the largest pharmaceutical company in the world in the UK and that it would strengthen the country’s science base.
He says that 20% of the global R&D headcount would be in the UK. “Has any other company of our size made such a commitment?”
From FAST FT
He’s also made a faint jab at the focus in recent days on Pfizer providing some sort of cast-iron promise that it won’t cut jobs in the UK if it seals a deal.
From Mr Read:
AstraZeneca itself has reduced its UK employment by over 40 per cent in the last few years.
Crockart says Read paints a picture of a “cuddly company” but asks whether this is really all about tax:
Read: This is about a great company. Our purpose is to bring life-changing products to market, be more efficient and enjoy tax advantages
Read says he doesn’t know how much of Pfizer’s R&D spend is spent in the US.
Labour’s Ann McKechin: “I find it odd that you don’t know where your global spend on R&D is”
If you slash your workforce worldwide then 20% of that in this country would be a lower figure than is currently employed? The committee shows its way with maths.
Mr Read won’t say what is going to happen with the global workforce, but he is making a “hard commitment”.
Jonathan Guthrie agrees with the MPs on headcount vs spending:
The FT’s UK companies editor Lina Saigol tweets on Pfizer’s decision to close its plant in Sandwich:
Mr Read says the decision to cut jobs at Sandwich was made after careful consideration. He says he is “very pleased” with the progress on the site, which has not been fully closed, but can’t comment on the future of jobs on a site-by-site basis.
Nadhim Zahawi from the Conservative Party asks about the links with the NHS if the deal goes ahead.
Read says that the combined company would only have 8 per cent of the market and would not be too big.
Not sure what to think about whether politicians should be wading into the bidding process? Here’s the FT’s view: - The real choice that AstraZeneca faces
Read says the headquarters would stay in New York − 40 per cent of sales are there.
D’Amelio says the tax benefits are the corporate tax rate, the permanent R&D tax credit and the patent box. He declines to say what the actual tax benefits would be in terms of a number.
D’Amelio says that the consolidated tax rate has been 27-30% in recent years and that if the company was redomiciled to the UK it would be less. But, when pushed again, he says it would be “inappropriate” to give specifics.
Read is asked about US plans to change its tax laws. He sais it’s a “very remote possibility” that the US would change its tax laws in the timeframe of this deal.
A concession to the image consultants? Read appears to have decided against wearing a very large, American CEO-like, emerald-coloured ring seen on him recently
Read: “We don’t see any substantial anti-trust issues on this deal − anywhere in the world.”
Read asked if Pfizer would consider redomiciling here without taking over AstraZeneca? D’Amelio said the exit cost of the US without a big change to the business − like the deal − would be “punitive”. So, no…
Here’s a photo of Ian Read at the hearing:
FT pharma correspondent Andrew Ward on D’Amelio’s refusal to disclose tax savings:
Without the possibility of reducing their tax rate, Pfizer would still be interested in AstraZeneca but at a different price. Won’t say what that price is though.
Conservative MP for Northampton South Brian Binley picks up the questioning again. He asks Read how he will make the merged company more efficient.
Read says the company would cut duplication in research activity and assess administration costs that could be cut.
Binley is not convinced. He says this usually means jobs will go.
Read: “I’m not saying we can become more efficient without some reduction in jobs. I cannot say how many or where.”
To disclose any details at this stage would be “premature”.
Back to Labour’s Adrian Bailey. He returns to tax.
D’Amelio agrees there are “substantial tax benefits” to Pfizer if the deal goes ahead
D’Amelio: “Over the last three years we’ve paid over £400m in tax − including employee taxes in the UK. That’s a cash payment. It’s net of R&D expenses.”
So far, no one has mentioned Kraft’s takeover of Cadbury during this hearing. The 2010 chocolate deal was the last time a huge US company snapped up a UK rival, setting off a similar ruckus in parliament. Kraft, like Pfizer, made noises during the bidding process about keeping jobs in the UK but later sacked one in seven at British chocolate factories.
Irene Rosenfeld, Kraft’s chief executive, did not appear before the business select committee when she was called, sending her UK-based underlings instead. So maybe the MPs should feel flattered Pfizer’s boss Ian Read has turned up.
Here’s a video the FT made in Bournville, the home of Cadbury, a year after it was bought by Kraft about the effect on the local community.
Read says the tax benefits will come in two parts − more products will be sold in the UK and there will be more employees in the UK paying tax. And as the patent box is used that will lead to more tax for the government.
The patent box is the government’s policy that if a company invents and manufactures in the UK, it will only be subject to 10 per cent tax on these activities.
Mr Read said Wyeth acquisition was “very successful”, brought in a lot of talent and shifted into large molecule R&D including more work in oncology. Mr Read says he does not think any material acquisition has gone wrong. Their joint ventures in Brazil and India are not going that well though, he says.
Who will benefit more: the UK taxpayer or the Pfizer shareholder? Mr Read wimps out and says both.
Another tip to the MPs:
Over the long term if the patent box begins to become important, the investment could make a “substantial” contribution to the UK exchequer.
Read is asked about staffing at AstraZeneca’s Cambridge site. He says: “We will not put assets into it and develop it without fully utilising it.”
He adds that Pfizer would spend £330m on the site.
Read: “I’m very careful about making specific sites commitments because when we make them we keep them.”
Assessment so far from Lina Saigol, the FT’s UK companies editor:
The committee says though Mr Read described Wyeth as a success, it might not have been as Pfizer cut its R&D staffing levels by 40% after the acquisition. Mr Read said Wyeth can’t be used as a “cookie cutter” to project from one acquisition to the other. But two minutes ago, Mr Read had been holding it up as a great success.
The committee keeps attempting to dig deeper on this commitment to keep 20% of the combined company’s R&D in the UK. But frankly, Pfizer chiefs aren’t about to spill the secrets. And they may not even know. “We don’t make commitments we can’t keep,” said Mr D’Amelio.
Labour MP for Glasgow North East William Bain says the real difficulty the committee has is that there are no real commitments from Pfizer because it can’t give details.
Read replies that he wants to give confidence to employees but “I haven’t seen the books of AstraZeneca”. He adds he doesn’t know how many people are working on R&D for AstraZeneca and how many of those are in projects that duplicate Pfizer’s operations.
Read on the AstraZeneca Macclesfield plant and how he can’t give details on what “substantial” means with regard to how many of the 2,000 employees would be kept on there:
“From my point of view, don’t you think it’s reasonable − I haven’t had access to the books of ANZ, I don’t know the ANZ employee numbers.”
Read: “You know what substantial means. I know what it means. You’ll know it when you see it.”
Labour’s Ann McKechin asks about what a significant change would be − they’re the words they used to caveat their promises so far. Mr Read said it would be a “very high bar” and the kind of change that would be clear to the “man on the Clapham omnibus”. But he stops short of promising to create the list of specific significant events that Ms McKechin would like.
The Takeover Panel would be the final arbiter, he said, adding that the pharma company needed to maintain its reputation for trustworthiness so people kept taking their drugs.
Read asked about commitments to other AstraZeneca sites in the UK beyond Cambridge and Macclesfield. He ducks.
D’Amelio asked if he could give a categorical assurance that if the merged company was divided into three units then none would be sold off. He says he can’t commit to it.
“What we want to do is maximise the effectiveness of how these companies are run.”
Here are the three Pfizer executives at the Commons committee:
Conservative MP Brian Binley intends to finish quizzing Mr Read with as much bluster as he started with. He picks up on the fact Mr Read has a coin that is inscribed with “straight talk” on one side and “own it” on the other, which Mr Read explains is about encouraging people to speak truth to power within Pfizer. Mr Binley doesn’t seem to care, just wants to use it as a hook to say he doesn’t think Mr Read was straight with the committee today.
Read asked if he would be willing to make longer commitments than five years. He says one of the reasons why the industry has got itself into trouble is because it has got into long commitments to which it is not held accountable. At Pfizer the commitments are five years so research projects can be held accountable.
“If you want to be productive and get medicines to patients, you have to have a sense of urgency. I think a five-year commitment is unprecedented.”
Read finally asked why the commitments are legally binding. He says the Takeover Panel can refer the company to the High Court if the commitments are not met, and the court has unlimited powers to impose penalties.
“But our strongest commitment is the one I am making.”
MPs are not impressed by that final line.
Read can’t give examples of the Takeover Panel taking action against a company for breaking similar “legally binding” commitments. But perhaps the committee might want to ask the Takeover Panel about why they haven’t done that?
The FT’s business commentator John Gapper loved the discussion about Read’s coin:
Using the term “consistent with our fiduciary duties” is not a nod to the short term, Mr Read said. Cue a long speech about how important the company’s long-term future is to him.
Read says that the caveats in the commitments will be judged by the Takeover Panel in the same way that the commitments themselves would be.
Andrew Ward, the FT’s pharmaceutical correspondent, recently wrote an in-depth analysis on what could happen if Pfizer itself was broken up.
Bailey wraps up by saying that Read’s approach is different to that of his predecessor. He asks what happens when Read moves on. Read answers that while CEOs might be temporary, the board has longevity.
“I’m confident the board would ensure the next CEO will have the same commitments.”
Bailey ends with a swipe at Irene Rosenfeld of Kraft − saying that at least Read turned up.
And that’s it from the Pfizer crew. Up next are the AstraZeneca executives.
Next up, AstraZeneca’s chief executive Pascal Soriot. He took over the company in October 2012 and, like Mr Read, was also charged with turning around the pharma group. Last year, the FT spoke to Mr Soriot about his challenge and why it chose to put its global headquarters in Cambridge. Here’s the video of that interview:
http://video.ft.co…raZeneca/Companies – New roots for AstraZeneca – FT.com
Soriot starts by saying AstraZeneca is a science-led organisation, investing in Cambridge to rebuild its pipeline focused on cancer, respiratory disease, auto-immune disease and cardiology.
He lists drugs in the “extremely exciting” pipeline that have been made in the UK. He says the potential merger of this magnitude would create a distraction that potentially would delay some of his group’s projects.
Soriot says the drawbacks the merger would create include disruption in its drug pipeline − potentially putting lives at risk.
Menelas Pangalos, head of the Innovative Medicines unit of AstraZeneca, adds that during mergers companies become very inwardly focused instead of on projects and collaboration that would move medicines and pipelines forward.
Soriot asked if he isn’t just trying to protect AstraZeneca’s products rather than looking for the most efficient production process. He replies:
“We have to scale to be efficient on our own.”
Soriot says it’s logical that a merger of this magnitude “would be associated with substantial cost savings and cost savings don’t come without job losses”.
Soriot says AstraZeneca has been very clear about the reasons for its rejection of the Pfizer offer.
1) It doesn’t reflect the value of the company
2) There’s a substantial aspect that’s important for Astra’s shareholders which is that the offer isn’t only in cash but also shares
3) The execution risk − particularly the distraction risk and the tax inversion structure and what this might mean for production.
The FT’s City Editor says Soriot is underplaying the potential distraction of any merger process:
Soriot is asked about Read’s refusal to give more than a five-year commitment to projects and whether longer commitments would make a difference. He agrees they would be welcome but that the disruption would still be significant.
Soriot declines to speculate what Pfizer’s promise to keep 20% of global R&D headcount in the UK means. He says AstraZeneca has 30% of its global R&D headcount in the UK.
Soriot says Cambridge is probably “the place in Europe” that can compete with Boston and other research centres in the UK.
Separately, AstraZeneca has issued a statement describing Pfizer’s bid proposal as “opportunistic”
The Board of AstraZeneca PLC (“AstraZeneca”) notes the announcement made by Pfizer Inc. (“Pfizer”) earlier today. Pfizer’s announcement contains no new proposal nor substantive new information.
The Board of AstraZeneca believes Pfizer is making an opportunistic attempt to acquire a transformed AstraZeneca, without reflecting the value of its exciting pipeline. This value should accrue fully to AstraZeneca shareholders.
The Board reiterates its confidence in AstraZeneca’s ability to deliver on its prospects as an independent, science led business.
Jonathan Guthrie says some of Soriot’s distraction might be personal:
20 minutes in and it’s very clear that the MPs’ approach to AstraZeneca execs is starkly different to that they took to Read et al.
Jane Osbourn, research vice president, says five years is a very short commitment period when it comes to developing drugs.
This hearing is now starting to go round in circles. Soriot is now asked where job cuts might come from following a merger. He says he cannot comment on their plans.
But he goes back to his favourite word of the hearing so far: “disruption”.
Soriot is asked to explain the company’s statement out earlier today (see 11.45am).
He says there are 19 drug candidates that will move into next stage development over the next two years and so Pfizer’s offer does not reflect the new AstraZeneca.
Soriot is asked to explain the company’s statement of earlier today (see 11.45am). he says that Pfizer’s offer does not reflect the fact that AstraZeneca has 19 drugs that will go into next stage development over the next two years.
Soriot is asked if Pfizer’s proposal will complement the government’s strategy for science in the UK. He says he can’t comment because he doesn’t know the American company’s strategy.
Soriot says that the AstraZeneca board has not said it wouldn’t accept any offer because of its duty to its shareholders.
“It’s impossible for us to say we wouldn’t accept any offer.”
In other words: Raise the bid and then we’ll talk.
Soriot says that in the past five years AstraZeneca has paid £1.5bn in taxes in the UK, and a further £1bn in employee taxes.
But last year the company didn’t pay any corporate tax because exports had lost patent protection so export revenue declined.
He expects this to change soon:
“The good news is this R&D investment is paying off.”
“70 per cent of our new product pipeline has been influenced by the UK and so would be in the patent box.”
Soriot clarifies that the £1.5bn paid in tax over the last five years is net of R&D rebates.
Here’s the AstraZeneca panel (left to right): Dr Jane Osbourn, research vice president, Pascal Soriot, chief executive officer, Mene Pangalos, executive vice president, Innovative Medicines and Early Development (PA Wire)
From the FT’s pharma correspondent:
Soriot: “What we try to do is get more out of R&D budget. Out of this investment we have got a lot more output.”
Soriot says the company still pays tax in Sweden – a line that doesn’t go down well with the MPs.
He says he expects to start paying tax again in the UK “as soon as possible”, adding that because of Takeover Panel rules any prediction would be a forecast and so wrong.
Pangalos declines to speculate what the extent of the overlap between AstraZeneca and Pfizer operations in the UK would be.
Ann McKechin, Labour MP, asks why AstraZeneca’s philosophy regarding mergers is different to Pfizer’s considering it is also the result of a merger.
Soriot says acquisitions and mergers should be science led, in AstraZeneca’s view.
Osbourn says AstraZeneca’s recent takeovers have been “completely science led”.
Robin Walker, Conservative MP, asks what guarantees AstraZeneca can give about its commitments to science R&D in the UK.
“We’ve made this investment in Cambridge because I believe in the quality of the science in the UK.”
He adds that he hopes the centre will be his legacy.
Andre Ferraz, a consultant at IMS Health, tweets:
Soriot declines to answer whether legislation should be introduced to block the proposed merger, saying that’s a matter for policy makers, not him.
He then says he doesn’t know if Pfizer’s promise to have 20 per cent of R&D headcount in the UK means more jobs or fewer than there are at present. “20% of what?”
He adds as a passing final comment that despite his French accent he’s really Australian. He was in Australia when the bid proposal news broke and he says that’s where he intends to retire to.
That’s it. The committee adjourns until 1pm when Vince Cable, the business secretary, will appear.
Summary so far:
Pfizer chairman Ian Read and his executives say:
1) That post-merger R&D spending would probably fall.
2) They can’t confirm whether keeping 20% of R&D headcount in the UK would mean more or fewer jobs. But overall there would be job losses post-merger.
3) The legally-binding nature of their commitments refer to the fact that they are subject to Takeover Panel scrutiny – as are the caveats.
4) If the post-merger company is split into three units one or more might be sold.
5) They can’t give many specifics about money and jobs because they haven’t seen the AstraZeneca books or employee records.
6) There are no anti-trust issues associated with the deal
7) The commitments they’ve made – the most important of which is Ian Read’s word – are unprecedented in the company’s history.
Pascal Soriot and his executives tell the committee:
1) The proposed merger would cause massive disruption to AstraZeneca’s extremely profitable drug pipeline.
2) They are not opposed to a deal with Pfizer if the price is right. The current offer does not reflect AstraZeneca’s value, in the board’s opinion.
3) They are not opposed to mergers and acquisitions but they must be science driven.
4) AstraZeneca didn’t pay any UK corporate tax last year because its revenue from exports fell significantly after patent protections expired. Over the last five years it has paid £1.5bn in UK tax and £1bn in employee tax.
Vince Cable is now answering questions from MPs.
He says he’s going to have to obfuscate a little because assuming the bid goes ahead there will have to be conversations with the companies and so he won’t want to divulge its negotiating position. And secondly, if the government intervenes there would be legal consequences.
“My role is as a decision maker not a commentator so I have to keep an open mind on many questions.”
Cable says the takeover is a matter for shareholders but that there is a wider national interest and the bid process has to progress in that light. Clear as mud then…
Cable says he’s taken advice on all the legal-legislative issues. He says the public interest framework is quite narrow but that it is an option. When asked if he would look to pass legislation to widen the public interest framework, he says yes – it could be extended to cover science and research but it’s “tricky stuff” and there are wider European considerations.
Cable says he’s had two conversations with Pfizer chief Ian Read and that the government is examining all options to provide the necessary safeguards. He denies that time would be a constraint because it will be a long process and the European Commission would be involved from an anti-trust standpoint.
Cable is asked about short vs long-term shareholders and the implications for takeovers. “It’s difficult to distinguish between the short and long-term shareholders,” he says. “We are where we are and the rules would not be changed for this process.” He cites that any changes could block a “white knight” acquisition.
Brian Binley says the world seems to be becoming more protectionist apart from the UK and the Netherlands. So what would Cable do to create a more level playing field, or does the government not want it?
Cable says, yes there is a dilemma and the government doesn’t want to disrupt investment while protecting national interests.
“I don’t think it’s correct to say other countries operate under different rules” – citing the Alstom-GE tussle in France.
Cable says there are provisions in the takeover code that have yet to be tested and that there is not suggestion that the government would want to change it.
Cable says it would be possible to intervene with legislation after a bid is lodged by May 26, even though parliament will be in recess until early June.
Cable is asked if he is satisfied with Pfizer’s commitment to 20% of R&D headcount in the UK. He replies that it’s a “starting point for discussion”, not an offer document.
He says the commitment should be “as long as possible”, when asked if five years was sufficient.
Cable says the views of Sir Paul nurse, the president of the Royal Society, who has dismissed Pfizer’s commitments as “vague” would “weigh very heavily”.
Cable says he’d prefer not to discuss how to make any commitments legally binding. He stresses that the Takeover Panel powers have never been tested in the High Court.
“I think it would have to be absolutely the case that any agreement was meaningful and binding,” – adding that Ian Read saying his word was his bond was insufficient.
Cable: What we’re aiming to achieve is an increase in research and development activity in the UK.”
He adds that this is the starting point for the government’s stance in the negotiations.
By the way, if you’re wanting to follow Vince Cable, the BBC is streaming it live.
Cable says the government would want the legally-binding nature of any offer to be stronger than relying on potential Takeover Panel intervention.
Cable says he does not know what any penalties might be if breaches of Pfizer’s commitments are taken to the High Court, via the Takeover Panel.
Cable says that Pfizer splitting the company into three would “introduce a new complexity” into making sure the commitments are upheld.
Cable refuses to say whether the government has discussed the proposed bid with the European Commission – arguing that it would be “highly significant” for any bid.
Cable says there are two distinct legal-tax issues.
1) If any drug company were to establish its operations here then it would benefit from patent box incentives.
2) Tax inversion – If Pfizer were based outside the US then there would be corporate tax benefits. This is a “push issue” rather than a “pull issue”.
He adds that it would be good to get clarity on the details of the latter issue.
Cable says the government could push the European Commission into expediting any competition ruling to accelerate any takeover process.
Cable declines to give his personal view as to whether a public interest defence should be extended to include R&D.
And that’s it. Vince Cable is dismissed.
Summary coming up.
A summary of Vince Cable’s evidence to the business select committee:
1) Pfizer’s commitments, as stated to date, would be a good “starting point” for negotiations rather than any deal.
2) Ian Read’s personal assurances would not be good enough for the government to accept as commitments.
3) Similarly, relying on the Takeover Panel’s untested powers to take court action against a company for breaching its commitments would not be sufficient either.
4) Parliament going into recess for a few weeks would not impinge on the government’s ability to intervene with legislation if necessary.
5) He declined to say whether the government had entered into discussions with the European Commission with regard to any competition considerations.
6) He insisted that the UK is not less protectionist than other EU countries, saying all have to abide by the same European laws.
Thanks very much for joining us. You can catch a variation of the theme again tomorrow when the company executives appear before the science select committee. We will not be live blogging that but instead focusing on the Bank of England’s quarterly inflation report.
One addendum – AstraZeneca’s share price isup 1.95 per cent today at £47.00. The FTSE 100, in contrast is up 0.1 per cent. The gains are mostly because of the speculation that Pfizer is going to raise its proposed offer from £63bn. Watch this space.