November 3, 2015
By Mark Terry, BioSpace.com Breaking News Staff
It has been unofficially confirmed that GlaxoSmithKline turned away Pfizer Inc. ’s acquisition bid. This makes sense, in that it was confirmed last week that Pfizer is in talks with Allergan for a possible acquisition.
Although neither GlaxoSmithKline’s chief executive nor Pfizer’s would comment on the deal, The Financial Times cited three unnamed sources who said Pfizer approached GSK, but “received a cool reception from GSK and the talks are now dead.”
Ever since Pfizer’s $119 billion bid for UK-based AstraZeneca PLC collapsed in May 2014, analysts and investors have speculated on who Pfizer might buy. GSK has been the subject of many of the rumors, although Dublin-based Actavis PLC and Dublin-based Allergan PLC have also been in the air.
The UK, and probably more specifically, Dublin-based companies, have often been cited because of those countries’ lower corporate tax rate. Ireland has a 4.8 percent effective tax rate as of 2014, compared to the U.S. effective tax rate of 25.5 percent. Pfizer has made no secret of its desire for a tax-inversion deal, in which it would acquire a company in a country with a lower corporate tax rate, then shift its headquarters to that country.
According to Bloomberg, since 1982, about 51 U.S. companies have reincorporated in low-tax countries, with 20 of those deals occurring since 2012. It’s not a popular concept among the U.S. government — or probably U.S. taxpayers — and a law was passed in 2004 that was supposed to halt it but didn’t, and the Obama administration tightened up some of its rules in 2014, but it really hasn’t done much to stop the practice. In reality, the government isn’t likely to be able to prevent it any more than it could — or would even want to — prevent mergers and acquisitions.
A dislike of inversion deals is common among both Democrats and Republicans, although they differ on what should be done about them.
Pfizer’s talks with Allergan, which are reported to be friendly, are a continuing outgrowth of Pfizer’s hunt for an inversion deal. Such a deal would reinforce Pfizer’s central nervous system (CNS) and gastrointestinal (GI) market position. Pfizer is best known for Viagra, the erectile dysfunction drug, and Lipitor, formerly the best-selling cholesterol drug in the world. Allergan is best known for Botox, to remove wrinkles.
If the two companies merged, the combined company could be worth more than $300 billion. That would make it the largest healthcare company in the world, a slot currently occupied by Johnson & Johnson .
A GSK deal apparently would have faced significant opposition from British politicians. The Financial Times points out that “it was widely agreed that any further attempt by Pfizer to buy a big UK drugmaker would need to be on a friendly basis to soothe domestic concerns.”
GSK, for its part, is holding a meeting today with investors. The company’s chief executive, Andrew Witty, is under pressure to show the company is back on track for growth and out from under a major China scandal that cost the company $500 million in fines and significant loss of goodwill with the Chinese government.
GSK has indicated it plans to profile about 40 experimental drugs at today’s event. Some of those drugs are likely to be ready to enter Phase III clinical trials in the next 12 months. There is particular interest in several of its drugs, including an experimental shingles vaccine, Shingrix, an asthma medication called Nucala, and sirukumab for rheumatoid arthritis. If approved, the combined annual revenue for the three drugs could exceed $2.2 billion.
There have been talks about a GSK breakup, with one of the company’s top investors, Neil Woodford, of Woodford Investment Management, pushing for it. Others disagree, believing the company is showing hints of a turnaround, with a lot of interest being paid to today’s meeting.
“[It] comes at a time when the company is facing strong headwinds on several fronts, including delivering on pipeline, executing strategy and the sustainability of the dividend,” Ketan Patel, an associate fund manager with EdenTree Investment Management told FT Adviser. “The question for long-term investors is whether it makes sense to sell the fastest growing business ViiV and the consumer healthcare division, which like all GSK businesses uses the same distribution network.”
