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Is Pfizer eyeing a merger with Allergan?

Combined company value could be $330bn
Pfizer

Pfizer is reportedly in merger talks with Allergan which if acted upon could create the world's largest pharma company.

While the discussions are said to be at an early stage, buying Allergan would give Pfizer a leg up in the specialty drugs business, which has been enjoying buoyant growth despite facing some headwinds at the moment as debate on the pricing of medicines gathers pace.

The combined company would be valued at around $330bn, ahead of Johnson & Johnson which has a value of just under $277bn at the moment, according to reports in the Financial Times and Wall Street Journal.

Meanwhile, Allergan is still in the throes of major M&A transactions of its own, having merged with Actavis in March in a $70.5bn deal, and since then reached an agreement to sell its generics business to Teva for $40.5bn.

Buying Ireland-domiciled Allergan would give Pfizer an opportunity to reduce its corporate tax burden, which was one of the reasons given for its failed pursuit of a merger with AstraZeneca (AZ) last year.

It has been suggested that Pfizer stepped back from trying to bring a reluctant AZ to the table because of negative political sentiment in the US about such 'tax inversion' deals.

Analysts have suggested however that with Congress seeming less likely to act on tax reform in the near-term, Pfizer may be looking again at that option. Read said the company needed to look at ways to limit tax but stressed companies considering inversion deals need to be cautious as the US Treasury's proposals to limit these are retroactive.

Pfizer's chief executive Ian Read was reticent on the subject of M&A on the company's third-quarter results call this week. However, he did say that the business development focus would be on strengthening the innovative rather than the established products arm of the group "especially in a potential split scenario."

There has been speculation for some time that Pfizer may consider splitting up the group, having already hived off animal health and nutrition divisions since Read took the reins in 2011, with some investors calling for a separation of its innovative and established products units.

"This management team is not afraid of taking bold steps, and we're looking at opportunities," he told investors yesterday, as the company reported a 2% drop in revenues to $12.1bn, equivalent to a 6% operating growth if currency exchange and other factors are excluded.

Allergan said recently that it expected 10% sales growth for its branded drugs in the second half of the year, with revenues expected to be a little over $8bn after off-loading the generics business.

Immuno-oncology pipeline growing

Pfizer also announced on the conference call that it will have up to 10 immuno-oncology drugs in clinical trials next year as it races to catch up with leaders Merck & Co and Bristol-Myers Squibb (BMS) in the fast-growing category.

These include Merck KGaA-partnered PD-1 inhibitor avelumab - which will be joined by another candidate in the class - as well as compounds targeting 4-1BB ligand, OX40 and CCR2.

Article by
Phil Taylor

29th October 2015

From: Sales

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