Drugmakers Pfizer and Allergan Merge for Tax Break

Two of the pharmaceutical industry’s largest producers will merge into one powerhouse drug company in 2016. It’s a move largely, if not exclusively, motivated by tax.

American company Pfizer, Inc. announced it will merge with Ireland’s Allergan PLC in a $155 billion deal. The combined drug company, which will be renamed Pfizer PLC, will be the largest drugmaker in the world by sales.

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In addition to acquiring Allergan’s diverse drug portfolio in the transaction, Pfizer will be moving the company domicile from the U.S. to Ireland, a strategy known as inversion.

Pfizer expects the move will grant the new firm a tax rate between 17 or 18 percent, down from its current rate of 25 percent. This is the largest so-called inversion deal to date.

Outside of on paper, the company will remain a predominately American one, with both its prime stock exchange listings and its corporate headquarters remaining in New York City.

Pfizer CEO Ian Read, who will become the leader of the new company, asserts the merger is not simply a tax transaction.

“We’re doing this because of the strategic importance of franchises, revenue growth we think we can get both in the U.S. and internationally, and the importance of combining the research approaches,” he said.

Allergen CEO Brent Saunders, who will become President and COO of the new company, likewise emphasized the merger’s opportunity for growth.

“Our robust research and development with Pfizer’s leading innovative and established businesses, vast global footprint and strength in discovery and development research [will] create a biopharma leader,” he said.

The new company’s portfolio will include Botox, Viagra, pneumonia vaccine Prevnar, and breast cancer drug Ibrance as well as treatments for Alzheimer’s, allergies and rheumatoid arthritis. The company will also have a combined pipeline of 100 mid-to-late stage programs in development.

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With so many different types of drugs in the company’s wheelhouse, executives said they would likely consider splitting into two in the future, but would not do so until 2018 so they can first focus on properly merging with Allergen.

The company executives said they anticipate an additional $2 billion in efficiencies from the deal within the first three years. The deal will also initially dilute Pfizer’s earnings per share in the first year, but it will boost them by more than 10 percent by 2019 and almost 20 percent by 2020.