New Tax Rules Won’t Stop Pfizer From Bidding U.S. Goodbye

The U.S. attempt to block companies from leaving the country for tax reasons wouldn’t stop Pfizer Inc. from moving America’s biggest drugmaker overseas if it finds an attractive deal, Chief Executive Officer Ian Read said.

“If we believe the value is still there and we believe, under our interpretation of these rules, there is still value, I see no reason why we wouldn’t be able to do an inversion,” Read said yesterday in a telephone interview.

Pfizer has been on the hunt for a multibillion-dollar deal that would add to the New York-based drugmaker’s pipeline, cut costs, and help it escape the U.S.’s 35 percent corporate tax rate. Under the strategy called inversion, U.S. companies use mergers to shift their legal address to a lower-tax country without moving their operations.

The ideal transaction has all three components, Read said, though U.S. Treasury Department rules announced last month could lower the value Pfizer assigns to the tax advantages. A tax inversion isn’t required for a deal, Read has said.

“Certainly I feel a sense of urgency on utilizing our balance sheet and our capital to do deals that are incremental, add incremental value and certainly add revenue growth in the innovative space,” Read said on a conference call with analysts today. “We are aggressively looking at all alternatives.”

Pfizer rose less than 1 percent to $29.09 at the close yesterday in New York. The shares declined 5 percent this year through yesterday.

Treasury Rules

The Treasury Department rules, announced last month, include a prohibition on “hopscotch” loans that let companies access foreign cash without paying U.S. taxes, and impose curbs on actions that companies can use to make such transactions qualify for favorable tax treatment.

Read’s remarks are in stark contrast to a wave of pulled tax inversions in recent weeks. AbbVie Inc. and Shire Plc agreed on Oct. 20 to terminate what would have been the biggest U.S. inversion after AbbVie’s board ended its support for the deal over the rule changes.

AbbVie, based in North Chicago, Illinois, had planned to buy Shire for an estimated $52 billion, then move the combined company’s legal address to the U.K. to lower its tax bill and access cash trapped overseas. Salix Pharmaceuticals Ltd. and Cosmo Pharmaceuticals SpA also ended a $2.7 billion deal after the rules were announced.

Pfizer has so far this year failed to complete a major deal. The drugmaker walked away from a $114 billion attempt to buy London-based AstraZeneca, a purchase that would have boosted the company’s roster of medicines and moved its legal address overseas.

Actavis Deal?

Last month, Pfizer was said to have approached Actavis Plc about a deal. Actavis is run from Parsippany, New Jersey, but obtained an Irish domicile by acquiring Warner Chilcott Plc last year.

For Pfizer, a major deal would help offset a lack of revenue growth in coming years as its major drugs lose patent protection. The company is considering breaking up into individual companies but that probably wouldn’t happen until at least 2017, according to Read.

Pfizer yesterday reported third-quarter net income rose 3 percent to $2.67 billion, or 42 cents a share, from $2.59 billion, or 39 cents, a year earlier. Earnings excluding one-time items of 57 cents a share beat by 2 cents the average of 18 analysts’ estimates compiled by Bloomberg.

Sales of Pfizer’s highest-selling drugs, the pain drug Lyrica and the vaccine Prevnar, which helps prevent pneumococcal infections, rose. Lyrica sales grew 16 percent to $1.32 billion and Prevnar grew 19 percent to of $1.14 billion.

Need for Deals?

Pfizer still needs to either find an acquisition or consider a breakup because its pipeline of new drugs is only enough to keep revenue growth unchanged in coming years, said Ashtyn Evans, health-care analyst at Edward Jones, in a telephone interview.

“They could acquire attractive assets to supplement their different segments currently so that it makes more sense to break them up,” she said, or opt to do one large deal. “They’ve got both of those strategies in their back pocket right now.”

While Pfizer’s newest drugs are growing, they still aren’t large enough to replace multibillion-dollar medicines like Celebrex, an arthritis treatment, which is losing patent protection this year.

That includes Xeljanz, a rheumatoid arthritis medicine approved for sale in the U.S. in November 2012. It sold $85 million, more than double a year ago.

Pfizer lowered its full-year sales and earnings forecasts for the second straight quarter.

Revenue for the third quarter fell 2 percent to $12.4 billion, Pfizer reported yesterday. Full-year sales will be as much as $49.7 billion this year, compared with a prior forecast of $50.7 billion, the company said. Profit excluding one-time items will be in a range of $2.23 a share to $2.27 a share, narrowing from a prior forecast of $2.20 to $2.30.

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