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Allergan, Pfizer Deal Goes Through with Allergan Bigger Than Pfizer: But at What Cost to R&D?

Curator: Stephen J. Williams, Ph.D.

Just recently this site had a post entitled Pfizer Near Allergan Buyout Deal But Will Fed Allow It? 

Now, as Bloomberg reports the international deal between Allergan and Pfizer has gone through, resulting in a tax inversion and nary a discouraging word from the US Federal Government (their blessing for future tax inversions?).  And as Bloomberg Go guest speculate finally it may spark Congress to do something about it, or perhaps not.  For details see Bloomberg transcript below:

 

Pfizer Inc. and Allergan Plc agreed to combine in a record $160 billion deal, creating a drugmaking behemoth called Pfizer Plc with products from Viagra to Botox and a low-cost tax base.

QuickTake Tax Inversion

Pfizer will exchange 11.3 shares for each Allergan share, valuing the smaller drugmaker at $363.63 a share, according to a statement Monday. That’s a premium of about 27 percent above Allergan’s stock price on Oct. 28, before news of the companies’ discussions became public. Pfizer investors will be able to opt for cash instead of stock in the combined company in exchange for their shares, with as much as $12 billion to be paid out.

The transaction is structured so that Dublin-based Allergan is technically buying its much larger partner, a move that makes it easier for the company to locate its tax address in Ireland for tax purposes, though the drugmaker’s operational headquarters will be in New York. Pfizer Chief Executive Officer Ian Read will be chairman and CEO of the new company, with Allergan CEO Brent Saunders as president and chief operating officer, overseeing sales, manufacturing and strategy.

The deal will begin adding to Pfizer’s adjusted earnings starting in 2018 and will boost profit by 10 percent the following year, the companies said. Pfizer’s 11 board members will join four from Allergan, including Saunders and Executive Chairman Paul Bisaro.Pfizer dropped 2.1 percent to $31.51 at 9:34 a.m. in New York, while Allergan fell 2 percent to $306.17. The combined company will trade on the New York Stock Exchange.Pfizer said it will start a $5 billion accelerated share buyback program in the first half of 2016. The deal is expected to be completed by the end of next year.

Unprecedented Deal

Pfizer, based in New York, makes medications including Viagra, pain drug Lyrica and the Prevnar pneumococcal vaccine, and Allergan produces Botox and the Alzheimer’s drug Namenda. Together, barring any divestitures, the companies will be the biggest pharmaceutical company by annual sales, with about $60 billion. The deal will be unprecedented on many levels. It’s the largest acquisition so far this year. It’s the largest ever in the pharmaceutical world, eclipsing Pfizer’s purchase of Warner-Lambert Co. in 2000 for $116 billion. And if the new company is able to establish itself abroad for a lower tax rate, a controversial process called an inversion, it will be the largest such move in history. The U.S. Treasury Department has increasingly targeted such strategies, most recently announcing new guidance on how it will value assets owned by U.S. companies that undertake inversions. The U.S. has the highest tax rate for businesses in the world, at 35 percent, and is one of the only countries to tax corporate profits wherever they are earned. Previous moves by the U.S. Treasury have derailed other proposed inversions, including AbbVie Inc.’s plan to buy Ireland’s Shire Plc for an estimated $52 billion. Pfizer and Allergan’s deal appears structured to avoid the tax inversion rules.

Read has already reached out to lawmakers in both houses of Congress, including Senate Majority Leader Mitch McConnell, and is calling the White House Monday, according to a person with knowledge of the matter. His pitch is that that the deal will help the companies invest in more innovative drugs and that Pfizer Plc would have 40,000 U.S. employees at the close of the transaction.

Facilitate Split

An agreement may also facilitate the widely discussed potential for Pfizer to reconfigure itself by splitting the newly enlarged company into two: one focused on new drug development, the other on selling older medications. Pfizer said Monday it will decide on a potential separation by the end of 2018. Pfizer earlier this year bought Hospira Inc., the maker of generic drugs often administered in hospitals, in a transaction valued at about $17 billion. The deal bolstered Pfizer’s established-drugs business, which combines strong cash flow and slow growth. Allergan itself has been recently transformed, created through an acquisition by Actavis Plc that kept the Allergan name. The company agreed to sell its generics business to Israel’s Teva Pharmaceutical Industries Ltd. for about $40.5 billion and has been on a buying binge of its own. It now has more than 70 compounds in mid-to late-stage development.

But What About Pfizer R&D?  Will that be put on the Back Burner?

A little while ago this site posted a talk given by Pfizer on their foray into personalized medicine in

11/19/2015 8 a.m. Building a Personalized Medicine Company & Keynote: President, Worldwide R&D, Pfizer Inc. 11th Annual Personalized Medicine Conference, November 18-19, 2015, Harvard Medical School

Here Pfizer had emphasized its commitment to discoveries in the personalized medicine area however the emphasis on worldwide may have been a hint of what is to come.

Just a few days ago Allergan CEO wrote a guest post in Forbes  (edited by Matthew Herper)

Allergan CEO Brent Saunders: Here’s What I Really Think About R&D

There has been a lot of discussion about my views about pharmaceutical research and development. Let me cut to the chase. I’m pro-R&D, but I don’t believe that any single company can corner the market on innovation in even one therapeutic area. It doesn’t mean they shouldn’t do basic research where they have special insights, but even then they need to be open to the ideas of others. Innovation in healthcare is more important than ever. Other companies have had success with different models based on different capabilities, and we applaud every new drug approval. Here at Allergan, we’ve adopted a strategy we call “Open Science.” It is based on a simple concept: Sometimes great ideas come from places where they are least expected.

Allergan’s CEO goes on to stress innovation centers around academic centers such as in Boston and an emphasis on Alzheimer’s research and development but is this just shop talk or is there a agenda and strategy here?

It is known that Allergan has not felt that building big labs to support an R&D strategy was in their best interests but Derick Lowes Science blog In the Pipeline shows the changes in feeling about R&D, that Allergan is in fact pro-R&D they just don’t feel it is in their best interests to do it “in house”. (see Come to Think of It, Brent Saunders Likes R&D, Too! and the comments)

And check out CEO Saunder’s Twitter feed which gives some insight into his feeling on in house R&D.

Retweeted

on a R&D approach that can deliver big for patients.

This is all very interesting and might mean, with the size of this deal and that Allergan owns 40% of Pfizer, a massive sea-change in the way big pharma conducts R&D, possibly focusing on smaller “open-sourced” smaller players.

Our Open Science approach allows us to strategically invest in innovation and be more nimble so that we can increase our R&D efficiency. It has led to a robust pipeline of experimental medicines. We currently have 70 mid- to late-stage programs in the pipeline, and since 2009, we have successfully brought 13 new drugs and devices to the market.

It also allows us to invest in areas that other companies have abandoned, like central nervous system (CNS) treatments. In CNS, clinical development costs are higher, and market approval probability is lower. But treating these disorders can bring hope to patients of all ages. According to the Centers for Disease Control & Prevention, one in 68 children has autism spectrum disease. Alzheimer’s affects one in three people over the age of 85, based on data from the Chicago Health and Aging Project. Yet despite the 634 current open clinical trials for these diseases, there are no approved medicines for autism’s three core characteristics, nor drugs that treat Alzheimer’s underlying disease or delay its progression.

Other related articles published in this Open access Online Scientific Journal include the following:

On Allergan

https://pharmaceuticalintelligence.com/?s=Allergan

On Pfizer

https://pharmaceuticalintelligence.com/?s=Pfizer

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