Breakup of Pfizer and Allergan shaped the year

Smaller deals filled the void left by a megamerger that wasn’t to be

Ann M. Thayer

Pfizer CEO Ian Read (left) and Allergan CEO Brent Saunders at Pfizer’s New York City headquarters when they still had a deal. Credit: Brent Saunders on Twitter
Pfizer CEO Ian Read (left) and Allergan CEO Brent Saunders at Pfizer’s New York City headquarters when they still had a deal.
Credit: Brent Saunders on Twitter

In the life sciences merger and acquisition world, 2016 will be known more for the deal that didn’t happen than those that did.

The year began with the expectation that Pfizer and Allergan would join to become the world’s largest drug firm. But the record-setting $160 billion deal collapsed in April after the U.S. Department of Treasury proposed a set of unfavorable rules.

The rules would have prevented an “inversion,” in which U.S.-based Pfizer would reduce its tax rate by buying Ireland’s Allergan and shifting its headquarters overseas. The failed deal was Pfizer’s second attempt to lower its tax rate, following an attempted $119 billion takeover of AstraZeneca in 2014.

Allergan and Pfizer quickly got over it. In June, Allergan closed a $40.5 billion deal to sell its Actavis generics business to Israel’s Teva Pharmaceutical Industries. Allergan then went on a buying spree, spending $2.9 billion, plus possible milestone payments, on seven small acquisitions.

Now twice burned, Pfizer spent nearly $20 billion on four purchases in 2016. The biggest was the $14 billion acquisition of Medivation and its cancer drug Xtandi. Pfizer beat out competing big pharma firms including Sanofi, which had bid about $9 billion. By the end of the year, Pfizer also finally decided not to split itself into separate generics and innovative product companies.

Despite some active companies, mergers and acquisitions in 2016 will likely lag 2015 and 2014. Through the first nine months of the year, the number of life sciences deals had fallen 17%, to 282, and the combined value of those purchases had dropped 19%, to $162 billion, according to the consulting firm PricewaterhouseCoopers. PwC includes pharmaceuticals, biotechnology, medical devices, diagnostics, and services in its life sciences category.

Pharmaceutical and biotech deals together numbered 136 and were worth $90 billion in the first nine months of 2016. About two-thirds of the deals were on the pharmaceutical side, although they accounted for only 46% of the dollars. Medical devices was another big area, with 60 deals worth a combined $54 billion.

The slowdown in deal-making is caused by general uncertainty around rising interest rates, PwC says. A more industry-specific concern is the attention given to drug pricing. However, PwC points to a few key areas—including orphan, inflammation, and niche generic drugs—that continue to generate interest.

Leave a comment