November 13, 2015
By Mark Terry, BioSpace.com Breaking News Staff
As the possible Pfizer Inc. and Allergan merger talks proceed toward a possible Thanksgiving announcement, analysts are trying to get a handle on what the behemoth would look like.
After months of speculation on who Pfizer Inc. (PFE) might acquire after its attempted bid for AstraZeneca collapsed in 2014, the focus appears to have settled on Allergan (AGN). There has been speculation that if they do merge, Allergan’s chief executive officer, Brent Saunders, would run the joint company, which would have a combined value of about $330 billion, which would make it the largest drug company in the world. That’s larger than Johnson & Johnson ’s current $300 billion. And as Dan Stanton, writing for in-Pharma Technologist, points out, it’s more than the gross domestic product (GDP) of Malaysia and Singapore. (Although probably worth noting that it’s well below the State of California’s GDP which was $2.31 trillion in 2014.)
There has also been speculation that if the companies merge, it will likely split into two companies by 2017. One would focus on research and development and faster-growing drugs, and the other would focus on generics and mature drugs whose patents have expired or are about to. Analysts suggest that Saunders would likely run the research-and-development-focused company. The role of Pfizer’s chief executive, Ian Read, who is 62, hasn’t been discussed much. Perhaps he would chair the companies.
More recent speculation—at least today’s speculation—has focused on the merged company’s manufacturing capabilities. Specifically, Pfizer currently operates a network of 55 internal production facilities. Allergan operates more than 40. That brings the base total to 95-plus, although it doesn’t take into account Pfizer’s acquisition of Hospira in September. This brings in another 16 manufacturing plants, subtracting the Clayton, N.C. plant that was closed in June. That brings this mega-company’s worldwide manufacturing network to 110 sites at minimum.
For comparison, Paris-based Sanofi had indicated it has a network of 102 manufacturing plants. Novartis has about 100. Both companies are currently restructuring, which will involve shuttering some of those facilities, in order to cut costs and reduce operating expenses. There are likely to be job layoffs to go along with that restructuring.
Further complicating the numbers, though, is that Israel-based Teva Pharmaceutical Industries Ltd. acquired Allergan’s generic drug business for $40.5 billion in late July. This is likely to cut some of those manufacturing facilities, as well as staff.
At the end of 2014, Pfizer indicated it employed 78,300 people. This is a major drop from its headcount of 130,000 after it merged with Wyeth in 2009. The Hospira, Inc. acquisition brought in around 19,000 people. Allergan employs about 30,000. So, at first glance, the merged company would have 127,300 people, although the number is probably lower because of the TEVA deal. And at this early stage there’s really no indications of how many layoffs would occur to reduce duplicate operations.
Some analysts suspect Saunders would run the fast-growing drug company, and that he himself criticized Valeant Pharmaceuticals International Inc. for its focus on mergers and acquisitions to grow revenue instead of creating new drugs. Earlier in the year, reported by Bloomberg, reported Saunders told Forbes, “The idea that to play in the big leagues you have to do drug discovery is really a fallacy. You have to do research, you have to be committed to innovation. I strongly believe that, but discovery has not returned its cost of capital.”
There seems to be at least some conflict between Saunders’ philosophy and what has typically been Pfizer’s. Pfizer coughs up more than $1 billion each quarter on research and development. Its successes include Lipitor and Zoloft. Pfizer spends almost double on research and development than Allergan does as a percent of net sales. In the last quarter, Pfizer spent about 14.1 percent of net sales on research and development, while Allergan spent about 7.5 percent. And, as Bloomberg points out, “Pfizer’s sales are nearly three times Allergan’s.”
If the deal does come together, analysts will be keeping a close eye on how Saunders positions the companies in terms of innovation.
