Pfizer CEO Read Is Open to Mega-Merger; Inversion? Not So Much

  • Government opposition makes tax move near impossible, CEO says
  • Big pharmaceutical companies could start snapping up biotech

Pfizer Inc. Chief Executive Officer Ian Read says his failed attempts to buy major pharmaceutical companies Allergan Plc and AstraZeneca Plc haven’t soured him on mega-mergers, though he’s throwing in the towel when it comes to tax-cutting acquisitions.

Pfizer’s management is open to any deals that will create value for shareholders, regardless of size, Read said at the Sanford Bernstein Annual Strategic Decisions Conference. The drugmaker continues to look for opportunities, he said.

“If you believe you can reorganize your research into productive smaller units, there is a logic to consolidation of the industry by taking out duplicative expenses,” particularly if the two companies can generate dramatic cost savings, Read said. “The biggest pressure for that, if it comes, will come from constrained budgets on health care.”

Pfizer isn’t likely to reduce its costs through an inversion, a process that allows companies to lower their U.S. taxes by buying a foreign company and adopting its international address. The Internal Revenue Service taxes U.S. companies on profits earned around the globe, at a 35 percent rate that’s among the highest in the world. Most other countries have lower tax rates or collect tax only on local sales.

Allergan Merger

Pfizer terminated its planned $160 billion mega-merger with Allergan in April after the U.S. Treasury announced rules that would have reduced the tax benefits of the deal. The New York-based company dropped its efforts to buy AstraZeneca, also a potential inversion, in May 2014 after the British drugmaker rejected its offers as too low.

“The administration has made it clear they will do whatever it takes to stop an inversion,” Read said. “Nothing is off the table, but the inversion would have to be so clean as to be almost impossible in the present environment.”

Another possibility would be pharmaceutical manufacturers buying out biotechnology companies, essentially the smaller siblings in the drug development world that may be surpassing the older, more established organizations.

“The prices in biotech have realigned somewhat,” Read said, referring to the decline in biotech stocks in the past year. “I’m not sure that even now management and shareholder expectations for biotech have readjusted to the realignment. Once that happens, I think you could see it.”

Any large purchase by Pfizer would have to make sense for its shareholders, he said.

“It’s all driven by the internal rate of return,” he said.

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