Pfizer and Allergan are in talks about a potential deal, the companies said Thursday.
In separate, printed statements, both companies said that they were in “preliminary friendly discussions.”
A merger could enable Pfizer, the world’s second-biggest drugmaker by revenue, to surpass Switzerland’s Novartis AG and regain the industry’s top spot. It would also add Allergan’s brand-name medicines for eye conditions, infections and heart disease to Pfizer’s extensive portfolio of vaccines and drugs for cancer, pain and other conditions.
Allergan Plc said there’s no certainty that the talks with Pfizer Inc. will lead to a deal.
Pfizer Inc., which has been damaged by waves of generic drugs that have entered the market and cut into sales of one-time blockbuster drugs like cholesterol fighter Lipitor, has a history of making large acquisitions to boost revenue and cut costs. It’s done so at least three times since 2000, acquiring Warner-Lambert, Pharmacia and Wyeth, the last of which it paid a whopping $68 billion for.
A deal for Allergan, based in Dublin, would allow for additional growth, and Pfizer might pursue an “inversion,” a tax-saving maneuver in which a U.S. company reincorporates in a country with a lower corporate-tax rate.
Inversions have become a hot political topic, raising the ire of lawmakers in Washington and public-interest groups.
Pfizer spent months in the spring of last year pursuing another top-10 drugmaker, Britain’s AstraZeneca PLC, in an attempted inversion, but those talks eventually collapsed when the two sides couldn’t agree on a price.
However, with other companies announcing or pursuing inversions, the Obama administration acted. By the end of the year, the U.S. Treasury Department had initiated new regulations designed to limit the financial benefits of inversions. The rules, among other things, bar certain techniques that companies use to lower their tax bills, and they tightened ownership requirements.
Last week, billionaire investor Carl Icahn announced that he was setting up a $150 million Super PAC bent on revising U.S. corporate-tax law and ending the practice of inversions, ratcheting up political pressure even more.
Pfizer, based in New York, said in its statement that it won’t comment “on speculation regarding the terms of a potential transaction.
“Any further announcement will be made if and when appropriate,” Pfizer said.
Analysts that follow Pfizer were not surprised that deal talks were underway, but warned that an inversion might trigger a more intense pushback from Washington.
If Pfizer is pursuing Allergan “for purposes of tax inversion, it seems likely that there could be near-immediate political” backlash, wrote SanfordBernstein analyst Dr. Timothy Anderson.
That could compound public anger over soaring prices for prescription drugs, which have become another big issue in the 2016 presidential race.
Beyond any potential tax benefits, however, Anderson said the deal would be a good fit.
“Allergan is (mostly) a U.S. company operating mainly in the primary care markets, which Pfizer understands well. The two organizations are geographically close, and the post-merger integration would therefore be easier than a transatlantic deal,” Anderson wrote. “Second, Allergan management is unlikely to be an obstacle to a transaction.”
AstraZeneca’s management had opposed an acquisition by Pfizer.
In trading Thursday, Allergan shares jumped $17.18, or 6 percent, to $304.38. Pfizer shares dropped 68 cents, or 1.9 percent, to $34.77.