November 23, 2015
By Alex Keown, BioSpace.com Breaking News Staff
NEW YORK – The world’s largest pharmaceutical merger between Pfizer Inc. and Allergan announced Monday morning could result in up to 10,000 employees being laid off as duplicate services are eliminated, Maxim Jacobs, an analyst at Edison Investment Research said today.
The two global companies have an approximate employee base of 117,000 people, about 87,000 with Pfizer and 30,000 with Allergan.
“A deal would naturally involve some headcount reduction. In manufacturing alone, Pfizer is going from 65 to around 105 plants so I am sure there will have to be a rationalization,” Jacobs told BioSpace in an exclusive interview.
With such a large workforce combining, Jacobs said he estimated layoffs could be up to 10,000 employees, although he added those reductions won’t take place immediately. The $160 billion merger is not expected to be finalized until the middle of 2016 and will have to face a few hurdles, including a possible investigation from the Federal Trade Commission concerning Pfizer’s relocation to Ireland, which some see as an effort to avoid paying higher corporate taxes.
Some Allergan employees see the threat of layoff due to mergers as a bit routine, given the number of deals Allergan has been part of over the past few years, including a merger with Actavis earlier this year. One unnamed Allergan employee who works at an Irvine, Calif. Facility, told the Los Angeles Times the threat of a layoff is always there with M&A heavyweight Allergan.
“For us, it’s just other news like the news we’ve had for the past two years,” he said, referring to the numerous acquisitions that Allergan has made. But the employee also pointed out that, “When you have an acquisition, people have to go.”
In 2014, Allergan announced 1,500 layoffs, with nearly half taking place in southern California.
Allergan has been one of the most active pharmaceutical companies involved in M&A activity. Some of its noted recent deals include:
•The sale of its generics brand to Teva for $40.5 billion.
•The acquisition of depression drugmaker Naurex Inc. for $560 million.
•The purchase of Merck & Co. ’s small molecule oral calcitonin gene-related peptide (CGRP) receptor antagonists to treat migraine for more than $250 million.
•The acquisition of Bay Area’s Oculeve, a maker of eye care therapies, for $125 million+.
•The acquisition of Kythera Biopharmaceuticals, Inc. , which is focused on the treatment of double chins, for approximately $2.1 billion.
•The completion of its merger with Actavis Plc and the official name change to Allergan Plc.
Pfizer said the merger with Allergan will enhance the company’s research and development capabilities in both new molecular entities and product line extensions. A combined pipeline of more than 100 mid-to-late stage programs in development and greater resources to invest in R&D and manufacturing is expected to sustain the growth of the innovative business over the long term. Company executives told analysts on the morning conference call that the merger wouldn’t be disruptive to ongoing development and that the portfolios of both companies didn’t overlap much.
Even though Pfizer will significantly grow through the Allergan deal, the company had been exploring the possibility of breaking itself up into three separate entities. Pfizer is currently operating as essentially two separate companies, Innovative Products and Established Products. To date, the company has spent $300 million in total on the breakup, including $164 million spent this year, Frank D’Amelio, Pfizer’s chief financial officer, said in August. Pfizer had initially said it would let investors know about a possible breakup in 2016, but that decision has now been pushed back to 2018. The idea of Pfizer breaking up into smaller units has been floated for several years. Pfizer announced in 2012 it would shed units that were non-essential to its stated goal of focusing on the development of new medications. Analysts cited in a Wall Street Journal article predicted a split is more likely by 2019, with Pfizer taking advantage of the next few years by integrating Allergan’s business into its operations.
Pfizer said it anticipates the Allergan deal will deliver more than “$2 billion in operational synergies” over the first three years after closing. Some analysts on the morning conference call were concerned that the $2 billion in synergies was too small. The combined company is expected to generate annual operating cash flow in excess of $25 billion beginning in 2018.
