Turing Pharmaceuticals, for one, came under fire after hiking the price of an anti-parasite tablet to $750 per pill from $13.50 – a 5,000 percent increase – after the company bought the 62-year-old drug this year.
Advertisement
The merger allows Pfizer to relocate its headquarters to Ireland, where Allergan is incorporated and the tax rate for corporations is 12.5% – less than the USA rate of 39.2%. Not only is Pfizer big and prominent – it would become the first foreign member of the Dow Jones industrial average, the quintessential USA market indicator – but it takes tax avoidance to a whole new level.
Inversions have always been attacked by a few politicians as a tax dodge, and Hillary Rodham Clinton and Bernie Sanders, the leading Democratic presidential contenders, criticized the deal.
The merger has raised concerns from consumer advocates about higher drug prices resulting from decreased competition in the industry.
According to The Hill, Clinton’s camp will unveil in the coming weeks “specific steps” to avoid transactions that “take advantage of loopholes” in the USA tax system.
The combined companies’ will produce major drug brands like Viagra, Celebrex, Botox and Juvéderm and generate roughly $63 billion in combined sales.
The combination will essentially be Pfizer “but with a lower tax rate”, wrote Bernstein analyst Dr. Tim Anderson.
U.S. Treasury secretary Jack Lew can complain about the inversion deal, but he can’t really do anything about it, said Jon Najarian, co-founder of Optionmonster.com and Trademonster.com, who added that the deal is likely to be approved by regulators. The White House said that it didn’t have a comment on the deal specifically, but that Congress should act to prevent these types of moves.
So the right thing for a lame-duck President Obama to do is issue rules preserving the status quo for his successor.
Most USA corporations pay federal income taxes at rates much lower than 35 percent because the tax code is filled with breaks for businesses.
While the deal is structured as Allergan buying Pfizer, Pfizer would retain control of the company. Each new deal puts pressure on smaller rivals to bulk up. If finalised, the deal will be the biggest pharmaceutical merger.
“We’re all going to feel this”, he said. Allergan also sold $328 million worth of dry-eye therapy Restasis, and generated $269 million of revenue from Nemanda, which treats Alzheimer’s disease. The deal is expected to close in the second half of 2016 and create a combined company with an operating cash flow of more than $25 billion by 2018.
Because of the deal’s structure, as I will explain in a bit, Pfizer PLC will be able to play awesome tax games.
Allergan as well as Pfizer shares were down more than 2% on the news.
Several USA drugmakers have performed inversions through acquisitions in the past several years, including generic drugmaker Mylan.
Allergan is best known for its flagship product, Botox.
Real-estate mogul Donald Trump isn’t happy with Pfizer and Allergan’s Monday announcement that the two companies would merge to form a corporate drug-making behemoth.
Under the agreement announced Monday, Allergan’s shareholders will own 44 percent of the stock, and Pfizer’s 56 percent.
Advertisement
The merger is the biggest announced this year, beating the $121 billion combination of top brewers Anheuser-Busch InBev and SAB Miller clinched earlier this month.
