January 13, 2016
By Mark Terry, BioSpace.com Breaking News Staff
Now that Pfizer and Allergan are going to merge, the two companies’ leaders are trying to explain, or perhaps justify, the rationale behind the merger.
At the ongoing J.P. Morgan Healthcare Conference in San Francisco, the two companies’ executives got a shot at clarifying their missions. “There has been a lot of attention on financial aspects of the deal,” Pfizer research head Mikael Dolsten told Reuters, “but there has been an underestimation of the Allergan pipeline.”
The deal, which technically has Allergan acquiring Pfizer and shifting Pfizer’s domicile to Dublin for its lower tax rate, has an enterprise value of about $160 billion. So it’s understandable that most analysts and investors would be following the money.
But the companies want to assure everyone that it’s not just about the money and the tax inversion. Particularly since both companies have gotten to where they are through acquisitions—Pfizer bought 20 companies in the last 15 years, including Warner-Lambert, Pharmacia and Wyeth , and Allergan in its present state is the result of extensive deals, such as Actavis plc acquiring Watson Pharmaceuticals, and Forest Laboratories and Warner Chilcott. Actavis acquired Allergan in March 2015, and changed its name to Allergan.
Both have had a tendency to buy companies, then close facilities and lay off thousands of workers. This usually provides a quick profit increase, but it doesn’t generally last.
“This isn’t about cost-cutting,” said Brett Saunders, Allergan’s chief executive officer at the J.P. Morgan conference. “This is about leadership and growth.”
Both Saunders and Pfizer’s chief executive, Ian Read, have said that the two companies’ operations don’t overlap much, and previous acquisitions have already led to cost cutting. As a result, they argue, the integration, which is just starting, will focus on how to create value for shareholders and what the best research investments will be.
“This is going to be a powerhouse company with a strong dividend,” Saunders said, “and the best pipeline in the industry.”
In terms of what company executives are referring to as underappreciated pipelines, Dolsten brought up Allergan’s rapastinel, a drug for depression, which he suggests could be “transformational.” Another drug, Vraylar, for schizophrenia and bipolar disorder, which was approved in September, also shows great promise, he says. As does relamorelin, which appears to delay emptying of food from the stomach and has potential for the treatment of diabetic gastroparensis and constipation.
Projections by Allergan have predicted $2 billion in peak annual sales for rapastinel, up to $1 billion for Vraylar and relamorelin each. That same figure, $1 billion, is being floated for experimental treatments, Esmya for uterine fibroids, and a recently approved Viberzi for irritable bowel syndrome.
Allergan also has some pipeline products for migraine headaches and macular degeneration, each of which could hit annual sales of $2 billion.
“Right now there are almost no expectations for Allergan’s pipeline,” Vamil Divan, an analyst with Credit Suisse told Reuters. “Even if they get just a few billion dollars out of these products, that would be more than people give them credit for.”
David Nicholson, head of research for Allergan’s branded products, told Reuters, “We have 70 products in mid- to late-stage trials, but I think our pipeline is under-recognized.” Perhaps, he says, that’s because for the last year or two all of the news about Allergan has involved mergers and acquisitions. “It takes time for people to realize these are all part of one company’s pipeline.”
Shibani Malhotra, an analyst with Nomura, notes that about 80 percent of Allergan’s sales are in the U.S. “The biggest advantage for Allergan would be in leveraging Pfizer’s global sales forces,” he told Reuters.
Meanwhile, right from the beginning of talks about the marriage it was apparent that the companies were already planning a divorce with a sooner-than-later breakup of the merged companies into two. One of those companies would focus on research and development and the other would focus on mature, branded and generic drugs. Read has indicated that, as of now, that breakup will not occur until at least 2018.
