Pfizer Will Wait Out Midterm Elections For Favorable Inversion Laws: Analyst

September 30, 2014

By Riley McDermid, BioSpace.com Breaking News Sr. Editor

Wall Street is being much too premature in tracking a potential deal between global drug conglomerate Pfizer Inc. and smaller target Actavis because Pfizer is likely waiting to see if a Republican victory in November midterm elections can overturn potential inversion legislation, said Cowen Group analysts Ken Cacciatore and Tyler Van Buren in a long-form hypothesis of the biotech industry.

Titled “Biotechnology: Our View On The Likely Accelerating Industry Consolidation–Buckle Up,” Van Buren and Cacciatore argue that Wall Street has been far too slow—and much too unimaginative—in envisioning how biotech could look if all these deals are consummated.

They wrote in a note to investors that although there is potential for Pfizer to buy Actavis-Forest, such a transaction likely premature.

“Pfizer clearly has attempted to purchase AstraZeneca PLC and we understand their desire to alter their disadvantageous tax status,” write Van Buren and Cacciatore. “However, Pfizer buying the Actavis-Forest assets for the tax status at a likely $280-300 per share price, or $75-80 billion in market capitalization, to accomplish an inversion would seem excessive. Why wouldn't Pfizer wait for the mid-term election results to see if the Republicans can secure the Senate?”

The two posit that were to occur, it is possible that a Republican Senate and a Republican House will be able to structure comprehensive tax reform legislation that could potentially garner bipartisan support and finally end what Cowen said is the “exceedingly painful tax paralysis that has led to suboptimal investment decisions to avoid the onerous U.S. corporate tax rate, and has been trapping corporations' cash offshore.”

“There seems to be an emerging bipartisan consensus for such an action and it would seem difficult following the elections, especially with a Republican-controlled Congress if it were to occur, for the current Administration to veto a thoughtful, bipartisan, comprehensive reform package,” the two concluded. “We would think that Pfizer would want to show a bit more patience concerning these mid-term elections and await the outcome. Additionally, Pfizer might have what it views as more attractive inversion options, such as possibly AbbVie-Shire.”