The Pfizer-Allergan pharmaceuticals merger is huge by all accounts: Assuming the $160 billion deal passes US and European antitrust regulators, it will be the largest merger of the year, the second largest of all time, and create the largest drug company in the world, sales-wise. This could have a serious impact on what new drugs and medicines we'll see coming down the pipe.
On Monday, Pfizer, which makes Lipitor and Viagra, and Allergen, of Botox fame, announced their plan to combine into one megacorp pharmaceutical giant (dubbed "Pfizergan" by the Financial Times). In the wake of the deal, the companies' approach to R&D has been under a microscope, as well it should be. Pharmaceutical companies foot the bill for a majority of the enormous cost of discovering new drugs, and "Pfizergan" would be the biggest of big pharma.
What's got healthcare analysts wringing their hands is that the CEO of Allergen, Brent Saunders, has a sketchy record when it comes to R&D. He's said the idea that drug discovery is necessary for major pharma companies is "a fallacy." Rather than inventing drugs in-house, Allergan boosts its portfolio by buying up smaller companies with existing products or buying compounds from biotech startups and universities.
It's a business model that's gaining fashion as pharma corps face pressure to show a steady profit. Developing new drugs is a slow and expensive process (though big pharma is often accused of inflating the cost of discovery to justify raising drug prices) and can take too long, in the eyes of shareholders, for a firm's bottom line to see the results.
Saunders will be the number two guy at the "Pfizergan" giant and could step into the top role when current Pfizer CEO Ian Read reaches mandatory retirement age in three years. And though Saunders walked back his rhetoric on drug discovery in the weeks leading up to the deal, his influential role reportedly has some Pfizer scientists worried research will be squeezed at the new drug company.
Ken Getz, a Tufts University faculty member and associate professor at the Tufts Center for the Study of Drug Development, told Motherboard that "research has shown that mergers and acquisitions really are quite disruptive to short-term innovation, because the uncertainty of the merger can cause an exodus of some of the best talent."
Allergen currently spends about $1.3 billion on R&D and is sponsoring about 400 clinical trials, which you can browse on ClinicalTrials.gov. It's testing about a dozen different compounds, the majority of which are eye care products or new applications for Botox like Botox for migraines, Botox for incontinence, and Botox for depression. (A company's drug pipeline includes not only new drugs but variations of existing drugs and new applications for them.)
On the eye care side there's bimatoprost, eye drops that reduce pressure in the eye and can be used to help eyelashes grow; abicipar pegol, an implant for treating glaucoma; and AGN-232411 for dry eyes.
Pfizer devotes about $7 billion to R&D and is currently sponsoring about 2,900 clinical trials. It says it has 84 drugs in its product pipeline as of October, for diseases including diabetes, acute coronary syndrome, psoriasis, arthritis, Crohn's Disease, Huntington's Disease, Alzheimer's, schizophrenia, Parkinson's, cognitive disorder, chronic pain, breast cancer, and lung cancer.
The current top-selling drugs in Pfizer's portfolio are vaccines, cholesterol fighter Lipitor, nerve pain treatment Lyrica, Enbrel for arthritis, and Viagra.
Getz said research at Tufts found that after a major merger, companies tend to drop drug candidates with less promise from the portfolio and devote more resources to the most promising molecules, in terms of efficacy and also market potential.
Exactly how the "Pfizergan" mega-merger will impact these drug pipelines remains to be seen. Pfizer CEO Read stated the goal of the partnership is to "research, discover and deliver more medicines and more therapies," but it's clear the true motive for the deal boils down to one thing: dodging taxes.
Pfizer will move its headquarters to Ireland, where Allergen is based, and adopt the country's significantly lower corporate tax rate (12.5 percent versus 35 percent), an increasingly common strategy called tax inversion. It means technically Allergan is acquiring Pfizer, even though the former is a much smaller firm. It's earns the "Pfizergan" deal another superlative in the press: the biggest inversion of all time.
As you may expect, this move has pissed Uncle Sam off pretty bad. The proposed deal has been met with political backlash, especially since it's an election year in which big pharma is already under the gun for soaring drug prices.
Hillary Clinton said the legal loophole let Pfizer avoid paying its "fair share" of taxes said "will leave US taxpayers holding the bag." Bernie Sanders said the firm was hiding profits overseas. And Donald Trump called the inversion deal "disgusting" and shameful, reports CNBC.
The US government is cracking down on tax inversion, but it may not be enough to thwart Pfizer's jump across the pond. Experts say the details of the deal are carefully structured to get around new inversion rules. "There's no US legislation that would override a foreign company's purchases," corporate tax expert Larry Harding told USA Today. If the deal does go smoothly, the companies expect to complete the merger by the second half of next year.