Pfizer’s $160 billion mega-merge with Allergan seems to have ruffled some feathers, to say the least. Headlines name it one of the largest deals in M&A history. But many are also calling it a “disaster” and a “disgrace” – emblematic of the corporate greed that’s swelling in the pharmaceutical industry.
The deal is being masqueraded as a means to “create a leading global pharmaceutical company with the strength to research, discover and deliver more medicines and therapies to more people around the world.” That’s how Pfizer Chairman and CEO Ian Read frames it in a statement, anyway.
But at core it’s an inversion deal driven by the financial lure of Ireland’s lower tax rates – Allergan’s home base – which will save Pfizer billions in taxes. It’s also a savvy business move – Ireland’s corporate tax rate is 12.5 percent, whereas the U.S. would levy 35 percent. Many companies – Medtronic included – have shifted their home bases to Ireland to take advantage of these tax rates – and more will likely follow.
With the Rise of AI, What IP Disputes in Healthcare Are Likely to Emerge?
Munck Wilson Mandala Partner Greg Howison shared his perspective on some of the legal ramifications around AI, IP, connected devices and the data they generate, in response to emailed questions.
“The Pfizer-Allergan deal will be the biggest inversion yet, and it is nothing short of a disgrace,” John Cassidy of the New Yorker writes. It encapsulates the kind of greed for which big pharma has developed a reputation: Benefitting from taxpayer-funded research coming from organizations like the National Institutes of Health – but avoiding paying taxes that fuel such breakthroughs from occurring.
“Even though the Obama Administration doesn’t have the legal powers to block the Allergan transaction, it should seek to shame Pfizer and its board of directors into calling it off,” he writes. It’s already been publicly lambasted by Hillary Clinton, whose pet cause of late has been to take down big pharma, and also by Bernie Sanders, as Vox points out. The already astronomical costs of drugs will not be helped by inversion deals such as these, politicians argue.
A successful annulment of this pronouncement looks unlikely, however. Despite Obama’s ramped up regulatory offense against inversion deals, this will likely pass without much trouble, as USA Today writes – because the deal is set up so Allergan, a much smaller company, is acquiring New York City-based Pfizer:
Allergan shareholders would own 44% of the new company while Pfizer investors would own 56%. Pfizer’s ownership share would fall below the 60% threshold to qualify as a tax inversion under the U.S. tax code, said Robert Willens, an international tax law expert based in New York City.
“If it’s not 60%, it’s not an inversion,” said Willens.
Treasury officials “may not care for” the pharma industry mega-deal, “but there’s not a lot they can do about it,” he added.
Instead of a tax inversion, the deal is “much more like a straightforward acquisition by a foreign company of a U.S. company,” said Larry Harding, who heads corporate development activities for Radius, a Boston-based company that helps U.S. firms deal with financial, tax, compliance and other logistics of operating overseas.
“There’s no U.S. legislation that would override a foreign company’s purchases,” said Harding.
A Personalized Approach to Medication Nonadherence
At the Abarca Forward conference earlier this year, George Van Antwerp, managing director at Deloitte, discussed how social determinants of health and a personalized member experience can improve medication adherence and health outcomes.
Only two other deals outpace this one in financial history, as The New York Times indicates: Vodafone AirTouch’s $183 billion takeover of Mannesmann of Germany and AOL’s $165 billion buyout of Time Warner. The Allergan-Pfizer merge has made 2015 the most robust year in terms of merger activity in history – despite its tricky structure as a reverse merger.
Read added that this should create a “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.”
So far, the shareholder bottom line has suffered some: Reuters points out that Pfizer’s shares dropped 2.6 percent – “making it one of the biggest drags on the S&P.” Allergan’s stocks dropped 3.4 percent.
And of course, in today’s era of pharmaceutical consolidation and R&D outsourcing, it remains to be seen what impact this deal will have on employee rosters. Pfizer has about 96,000 employees, and Allergan about 15,000. As with any merger, jobs will undoubtedly be cut. Pfizer has a long history of R&D layoffs; at present, as Bloomberg states, Allergan’s development pipeline is far more robust.
“The fact that Pfizer is leaving our country with a tremendous loss of jobs is disgusting. Our politicians should be ashamed,” Donald Trump said a statement.
The fact that we have such, ah, bipartisan condemnation of this Pfizer-Allergan merger speaks volumes about the state of the pharmaceutical industry. It began with the outpouring of hate directed toward our friend Martin Shkreli, but is underscored emphatically here. It remains to be seen, particularly in the next election cycle, if U.S. regulators will wrestle back control of the industry.
Photo: Getty images
