Mega Merger? Allergan-Pfizer Deal Being Discussed
In what could well be the largest corporate merger of 2015, Pfizer and Allergan, two of the world’s biggest pharmaceutical companies, announced in late October 2015 that they were in early negotiations about a possible merger.
With 2014 sales of nearly $46 billion, Pfizer ranked second in PMLive.com’s list of the top 25 pharmaceutical companies in terms of global sales. Headquartered in New York City, Pfizer manufactures and markets a number of best-selling drugs, including Celebrex, Detrol, Diflucan, Eliquis, Enbrel, Lipitor, Lyrica, Prevnar, Spiriva, Viagra, Xeljanz, and Zoloft.
Allergan Markets Botox
Probably best known for its Botox and Juvederm injectables, Allergan is headquartered in Dublin, Ireland. In addition to its varied portfolio of specialty brand-name drugs, including Linzess, Namenda, and Restasis, Allergan until mid-2015 also manufactured a wide array of generic drugs. However, in late July 2015, Israeli-based Teva Pharmaceuticals acquired Allergan’s generic division in a deal estimated at $40.5 billion. Allergan in 2014 reported gross revenues of just over $13 billion.
The Los Angeles Times predicted that the price tag for a Pfizer-Allergan merger would be well in excess of Allergan’s stock market valuation, which was estimated at $120 billion in late October. It would be by far the biggest 2015 merger in the pharmaceutical industry, which has seen a high level of consolidation in the first 10 months of the year.
Pfizer Shopping for Takeover Candidates
Pfizer has been actively shopping for an acquisition candidate based in a more hospitable tax environment for some time now. In the spring of 2014, Pfizer abandoned its attempt to acquire U.K.-based AstraZeneca after the latter rebuffed what Pfizer described as its final offer, estimated to have been $119 billion. After its proposed takeover of AstraZeneca fell apart, Pfizer then approached Actavis with an acquisition proposal but was once again turned away.
Subsequently, in early 2015, Actavis acquired Allergan and shortly thereafter renamed the newly merged company Allergan. Thus, Pfizer is now in discussions to acquire some of the same operations it pursued unsuccessfully roughly a year ago.
Mergers and acquisitions in pharmaceuticals in the first half of 2015 totaled 304, down slightly from the 308 recorded during the same period in 2014. However, in terms of the dollar value of the deals struck during the first six months of the year, 2015’s total of $221 billion was more than three times the $69 billion chalked up in the first half of 2014.
Other Mergers & Acquisitions
In addition to Teva’s $40.5 billion acquisition of Allergan’s generics division, other major mergers and acquisitions thus far in 2015 have included Pfizer’s acquisition of Hospira in a deal worth $17 billion and AbbVie’s $21 billion deal to acquire Pharmacyclics. In late October 2015, Shire Pharmaceuticals announced its intention to continue its unsolicited pursuit of Baxalta Inc., which specializes in producing drugs to treat rare diseases. The price tag for a Shire takeover of Baxalta, if it should occur, has been estimated at roughly $30 billion. Pfizer also discussed a possible merger with U.K.-based GlaxoSmithKline earlier in 2015 but was reportedly rebuffed by GSK.
Also active on the M&A scene has been Canadian-based Valeant Pharmaceuticals, which most notably scooped up North Carolina-based Sprout Pharmaceuticals only days after the latter’s drug to treat female sexual dysfunction won FDA approval. That deal, under which Sprout will operate as a subsidiary of Valeant, was valued at a relatively modest $1 billion.
Valeant a ‘Serial Acquirer’
Described by some observers as a “serial acquirer,” Valeant will continue to shop for companies that fit into the company’s overall corporate strategy. In an interview with Chemistry World, Laurie Little, Valeant’s senior vice president of investor relations, said, “Acquisitions will continue to be an important part of Valeant’s growth strategy, and we still see many attractive market opportunities.”
As news of Pfizer’s negotiations with Allergan spread, attention in the United States focused primarily on the possible tax implications of a merger between these two Big Pharma players. Because Allergan is based in Ireland, Pfizer might consider a corporate inversion — re-incorporating at least a portion of its operations outside the United States in order to avoid high corporate tax rates in this country.
Inversions Under Attack
The practice of corporate inversion has come under fire from both Democratic and Republican candidates for president. Democrat Hillary Clinton has been outspoken in her opposition to inversions and has called for tax code reform “to encourage investment in the U.S., rather than shipping earnings and jobs overseas,” according to Clinton spokesman Ian Sams. No less strident in his opposition to inversions is GOP presidential candidate Donald Trump who said, “We need leadership in Washington to get the tax code changed so companies will be coming to America, not looking for ways to leave.”
Should Pfizer’s discussions with Allergan advance to a merger agreement, any such proposed accord would face a hostile political environment given the current opposition to corporate inversions.
Price Could Be an Obstacle
Another likely hurdle to a successful merger agreement between Pfizer and Allergan is the matter of price, according to an article posted at TheGuardian.com. The article quotes Jonathan Morgan, head of research at Edge Consulting Group, as follows:
“Looking at valuations, Allergan trades at a higher multiple versus GSK — or for that matter AstraZeneca — and we believe the pricing of the deal may be something of an obstacle. If the deal does go through, a further restructuring at Pfizer would be a possibility, as the company at some point would like to separate its patent-protected drug portfolio from its off-patented drugs.”
While acknowledging that any Pfizer-Allergan merger must clear a number of hurdles before it becomes a reality, Forbes columnist John LaMattina questioned how such a merger would affect research and development operations at Pfizer. LaMattina noted that Pfizer’s previous mergers with Warner-Lambert Parke-Davis in 2000, Pharmacia in 2003, and Wyeth in 2009 all prompted major realignments in the merged companies’ R&D divisions and activities.
Could Be a Non-Issue
However, noting that Allergan has a much smaller R&D operation than Pfizer’s three previous merger candidates, LaMattina suggests that a similar shakeup in Pfizer’s R&D division is less likely. He says that Allergan’s R&D efforts focus primarily on ophthalmology and Botox, neither of which overlaps much with Pfizer’s current R&D program and could be easily added to the overall R&D operation without causing a major realignment.
As previously noted, Pfizer manufactures and markets Viagra, which in 1998 became the first of the new wave of impotence drugs known as PDE5 inhibitors. Readers who are looking for a reliable online supplier of Viagra or one of the other PDE5 inhibitors are encouraged to check out eDrugstore.com and its ED medication guide.
Photo credit: Matthew Hengst
Don Amerman is a freelance author who writes extensively about a wide array of nutrition and health-related topics.