The Pfizer/Allergan merger represents a value of approximately $160 billion, and is the largest merger announced in 2015. It leads a flurry of major mega-deals announced this past year, with Anheuser-Busch InBev/SABMiller, Dell/EMC, and Charter Communications/Time Warner Cable among them. Pfizer’s deal is expected to close in the second half of 2016.
“The proposed combination of Pfizer and Allergan will create a leading global pharmaceutical company with the strength to research, discover and deliver more medicines and therapies to more people around the world,” stated Pfizer Chairman/CEO Ian Read, in a released statement.
“Allergan’s businesses align with and enhance Pfizer’s businesses, creating best-in-class, sustainable, innovative and established businesses that are poised for growth. Through this combination, Pfizer will have greater financial flexibility that will facilitate our continued discovery and development of new innovative medicines for patients, direct return of capital to shareholders, and continued investment in the United States, while also enabling our pursuit of business development opportunities on a more competitive footing within our industry,” said Read.
What the Deal Means
Stocks between the companies will be transitioned: “Allergan stockholders will receive 11.3 shares of the combined company for each share they own. This caused the Allergan stock price to soar to $363.63 per share when the deal was formally announced. Based on the October 28th stock price – before discussions about the potential for a merger started to swirl – that represents a nearly 30% premium. Meanwhile, Pfizer investors will have the option to receive cash in exchange for their shares; as much as $12 billion is expected to be paid out.”
Pfizer gets bigger and better: With the deal, Pfizer would surpass Johnson & Johnson as the largest drug manufacturer in the world, with more than $60 billion in sales. The combined product lineup will include Viagra, Celebrex, Lyrica, Prevnar, Botox, and Juvéderm, among others.
The luck of the Irish comes to Pfizer: It is expected that the company will retain Allergan’s legal domicile in Ireland, with global operational headquarters in New York and principal executive offices in Dublin. The transaction would make Pfizer the biggest company in Ireland and the location provides Pfizer with some hefty tax breaks.
Expansion of Pfizer’s therapeutic drugs: Allergan’s growing revenue stream will vastly expand Pfizer’s reach into various therapeutic areas of the pharmaceutical industry, such as aesthetics and dermatology, eye care, gastrointestinal, neuroscience, and urology.
What it Means for Patients
The merger is not expected to impact the prices of the drugs, according to reports. What consumers should expect to see are more research and new product development.
The deal would add Botox to Pfizer’s ample list of top earning products. In 2014, Pfizer’s top earning products included:
- Lyrica ($5.1 billion) – Anti-epileptic drug
- Prevnar ($4.4 billion) – Treats pneumonia in children
- Enbrel ($3.9 billion) – Treats arthritis and other joint pain
- Celebrex ($2.7 billion) – Anti-inflammatory drug used to treat arthritis
- Lipitor ($2.1 billion) – Treats bad cholesterol
- Viagra ($1.7 billion) – Treats erectile dysfunction
- Zyvox ($1.4 billion) – Antibiotic used to fight pneumonia and certain infections
- Sutent ($1.2 billion) – Treats certain types of progressive tumors
- Norvac ($1.1 billion) – Treats high blood pressure
- Premarin ($1.1 billion – Cream used to treat symptoms of menopause
Pfizer’s research and development capabilities will be greatly broadened, in both new molecular entities and product line extensions. According to Pfizer, the combined pipeline of more than 100 mid-to-late stage programs in development, greater research & development resources, and manufacturing is expected to sustain the growth of the innovative business over the long-term.
“The combination of Allergan and Pfizer is a highly strategic, value-enhancing transaction that brings together two biopharma powerhouses to change lives for the better,” said Allergan CEO Brent Saunders, in a released statement.
“This bold action is the next chapter in the successful transformation of Allergan allowing us to operate with greater resources at a much bigger scale,” continued Saunders. “Joining forces with Pfizer matches our leading products in seven high-growth therapeutic areas and our robust R&D pipeline with Pfizer’s leading innovative and established businesses, vast global footprint and strength in discovery and development research to create a new biopharma leader.”
The new company’s board will have 15 directors, including Pfizer’s 11 current directors and four directors from Allergan. Prior to the announced merger, the potential for a reconfiguration of Pfizer has been discussed for quite some time.
The merger will allow Pfizer to decide whether to separate the combined company’s new drug development from the selling and marketing of its established brands. This decision to break up the company will be made no later than the end of 2018, according to Pfizer.
Not Finalized Yet
The completion of the transaction is subject to certain regulatory approvals in the United States and European Union. Shareholders of both companies must also approve. Meanwhile, Allergan’s divestment from generic drug business Teva Pharmaceuticals must also be completed (expected in first quarter 2016).
Allergan will be the parent company of the combined group, which will be renamed “Pfizer plc” after the transaction closes (shares will be listed in the NYSE as “PFE”). Pfizer stated U.S. stockholders will realize a taxable gain, but not a loss, for U.S. federal income tax purposes. One item of contention is that the transaction is expected to be tax-free for U.S. federal income tax purposes to Allergan shareholders, according to the press release.
The Obama administration has been trying to crack down on these kinds of deals, known as corporate inversions. Recently, the Treasury Department and the Internal Revenue Service announced new rules designed to further restrict the benefits of these tax-break mergers.
If it gains the acquired regulatory approvals, the deal would not only be the largest acquisition announced in 2015 but it will be the largest pharmaceutical deal of all time. Previously, the largest deal was Pfizer’s $116 billion purchase of Warner-Lambert Co. in 2000.
The transaction is not expected impact Pfizer’s existing dividend level on a per share basis, as the company’s combined cash flow would be utilized to continue to support an attractive dividend policy. The targeted payout ratio is approximately 50% of adjusted diluted earnings per share.
The companies expect the deal will begin adding to Pfizer’s adjusted earnings in 2018, boosting profit by 10 percent by 2019. The transaction is expected to have a neutral effect on earnings per share in 2017. By 2020, the company expects growth in the high teens. The estimated annual operating cash flow is expected to exceed $25 billion in 2018.
Pfizer applies science and global resources to bring therapies to people that extend and significantly improve their lives. The company’s global portfolio includes medicines and vaccines as well as many of the world’s best-known consumer health care products. Every day, Pfizer colleagues work to advance wellness, prevention, treatments and cures that challenge the most feared diseases of our time. Consistent with its responsibility as one of the world’s premier innovative biopharmaceutical companies, it collaborates with health care providers, governments, and local communities to support and expand access to reliable, affordable health care around the world.
About Allergan
Allergan plc, headquartered in Dublin, Ireland, is a unique, global pharmaceutical company and a leader in a new industry model – Growth Pharma. Allergan is focused on developing, manufacturing and commercializing innovative branded pharmaceuticals, high-quality generic and over-the-counter medicines and biologic products for patients around the world. Allergan markets a portfolio of best-in-class products that provide valuable treatments for the central nervous system, eye care, medical aesthetics, gastroenterology, women’s health, urology, cardiovascular and anti-infective therapeutic categories, and operates the world’s third-largest global generics business, providing patients around the globe with increased access to affordable, high-quality medicines. Allergan, with commercial operations in approximately 100 countries, is an industry leader in research and development, with one of the broadest development pipelines in the pharmaceutical industry and a leading position in the submission of generic product applications globally.
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