Pfizer Approached Allergan About Merger: WSJ

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Possible Allergan Deal Could See Pfizer Split Up
  • A deal would be among the biggest ever in the pharma industry
  • Discussions are at early stage and obstacles remain, WSJ says

Pfizer Inc. and Allergan Plc are considering a merger, the Wall Street Journal reported, setting the stage for a deal that could be among the largest in the drug industry’s history and give Pfizer control of the Botox cosmetic drug.

Pfizer recently approached Allergan and the process is at an early stage, the Journal said, citing people familiar with the matter. Though details of the talks are unclear, they could face obstacles such as agreeing on price, layoffs and closing of facilities, the Journal said.

Joan Campion, a spokeswoman for Pfizer, said the company doesn’t comment on speculation, while Mark Marmur at Allergan didn’t comment.

With a combined market value exceeding $330 billion, a transaction between the two drugmakers could cap a busy year for deals in the pharmaceutical industry, with more than $200 billion in transactions announced.

An acquisition of Allergan, which has its legal domicile in Dublin, may also let Pfizer relocate outside the U.S. for tax purposes. That was one of the reasons Pfizer sought to acquire AstraZeneca last year before eventually withdrawing its proposal. Still, any renewed effort by Pfizer to strike an inversion deal faces new hurdles that the U.S. Treasury Department announced last year.

"Pfizer has been on the hunt for assets for awhile after the failed AstraZeneca deal," Bloomberg Intelligence analyst Elizabeth Krutoholow said. "Allergan is a great target given its growth and offers an inversion."

The deal would also add to Pfizer’s line up of biosimilars, or imitations of expensive biologic drugs. That would help Pfizer build on its $17 billion deal for injectable drug maker Hospira Inc. earlier this year.

Pfizer’s purchase of Hospira was seen as a potential signal that Pfizer was doing deals with an eye toward eventually splitting the company into a slower-growth business with off-patent medicines and a separate one with higher-growth brand name drugs.

Share Price

While Allergan stock is up about 12 percent this year, its last closing price of $287.20 is well below its July peak of $339.50. Shares of drugmakers have fallen in the U.S. as pricing in the industry has drawn scrutiny from lawmakers and candidates in the presidential elections.

"Allergan is trading lower than it was this summer before all of the pricing and specialty issues that have caused a general downturn, so it’s a good price but Pfizer needs a good premium to convince Allergan shareholders," Krutoholow said.

Allergan is itself the result of an acquisition earlier this year. It was purchased by Actavis, which took on the Allergan name. Pfizer looked at Actavis as a potential acquisition, people familiar with the matter said last year.

Allergan is also slimming down by selling its generic-drug unit to Teva Pharmaceutical Industries Ltd. for $40.5 billion. Sales at Allergan, which has a market capitalization of about $113 billion, have benefited from sales of specialty drugs including Botox and Namenda for Alzheimer’s disease.

The largest ever deal in the drug industry was Pfizer’s $116 billion acquisition of Warner-Lambert Co. in 2000, data compiled by Bloomberg show. Pfizer has sought deals in recent years as patents have expired for key drugs, including cholesterol-lowering medicine Lipitor.

Allergan has been active on both sides of the deal table, and has accounted for about $131 billion in deals over the past two years.

— With assistance by Hui Li, and Anjali Cordeiro

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