Analysts Love to Speculate on Pfizer Acquisition Rumors, Now Eying Allergan

October 16, 2015
By Mark Terry, BioSpace.com Breaking News Staff

Since Pfizer Inc. 's $119 billion bid for UK-based AstraZeneca PLC fell apart in May 2014, analysts have speculated on who Pfizer might buy. A lot of that speculation centered on Dublin-based Actavis PLC and then UK-based GlaxoSmithKline . Now analysts suspect Dublin-based Allergan PLC will be the big target.

Much of analysts’ interest is based on Pfizer’s last several years of sagging sales. In 2014, the company indicated a 4 percent drop in revenues, which totaled $49.4 billion. This year it’s project $47.5 billion in revenues, which would be a 3.8 percent decline.

Company boss, Ian Read, Pfizer’s chief executive officer, apparently seemed open to a big buy at a recent investor dinner, at least hinting that if the company were to change its headquarters location, he would want it to close before the next year end. His argument for that was the potential for tax reforms to return to the new U.S. Congress’ agenda in calendar year 2017 after the election.

Allergan, headquartered in Ireland, would make for a significant change in corporate tax structure if, indeed, a Pfizer-Allergan deal occurred. Ireland has a 4.8 percent effective tax rate as of last year, compared to the U.S. effective tax rate of 25.5 percent.

Such a deal would also reinforce Pfizer’s portfolio, strengthening its central nervous system (CNS) and gastrointestinal (GI) market position. Writing for BidnessEtc, Hannah Ishmael notes that based on Pfizer’s free cash flow-to-debt position, an offer could go as high as $103 billion.

Any such deal would probably not occur until Allergan completes its sales of its generic drug business to Israel-based Teva Pharmaceutical Industries Ltd. . That deal was announced in July. Teva paid Allergan $33.75 billion in cash and about $6.75 in stock, and is expected to close in the first quarter of 2016.

Allergan is also reportedly considering splitting its remaining company into two businesses. If that happens — assuming a Pfizer deal isn’t pending — the most likely scenario is having one company handle branded products and the other focus on generic drugs. The company was acquired in Nov. 2014 by Actavis for $66 billion in cash and stock.

Allergan is best known as the maker of Botox, as well as breast implants. Allergan popped at the rumors, jumping from $262 per share on Oct. 15, to a current price of $276.26.

“It is the cheapest high grade pharma there is,” said Jim Cramer in an interview on TheStreet Wednesday, “We think the idea they can make $25 a share in the very near future, after perhaps they close the Teva deal where they sell the generics, is such a reality that it is the cheapest high-growth pharma there is. That said, people are lumping it in with Valeant (VRX) as someone that raises prices and doesn’t do new R&D. Go in and see my interview with Brent Saunders, that’s untrue. They’re lumping it in with something the Democratic Party won’t like. I have to tell you, Allergan is the cheapest growth stock in the market. And yet it’s going down. And that’s okay. Because we’re gonna buy more.”