Allergan, Pfizer Strike Off Down Separate Paths After Merger Killed
Big pharma Pfizer ( PFE ) contemplated splitting itself, while specialty drugmaker Allergan ( AGN ) campaigned to regain investor confidence Wednesday, after the two companies announced that their planned merger was off. Pfizer early Wednesday confirmed rumors that the companies had canceled their $160 billion merger, two days after the Treasury Department released new guidelines that would have removed most of the tax benefits of the deal for New York-based Pfizer. After its stock tanked Tuesday, Allergan’s CEO went on a media blitz to promote his company’s prospects as a stand-alone. On a conference call with analysts Wednesday morning, Allergan CEO Brenton Saunders maintained that Treasury’s action against tax inversions will have no impact on the stand-alone Allergan, which redomiciled to Ireland through an inversion deal with Warner Chilcott three years ago. The company will retain its 14% corporate tax rate, he said, and it should also be free to deploy capital however it chooses. Saunders also said Allergan’s $40 billion sale of its generic unit Actavis to Teva Pharmaceutical Industries ( TEVA ) is unaffected by the spiking of the Pfizer deal and is on track to close in June. The timeline for that buyout was delayed from its original Q1 closing date, as Teva works its way through a multi-country regulatory clearance process, but Saunders said the two companies are determined to get it done. “Teva is doing a lot of work,” said Saunders. “They’ve restructured their company; they have named their entire leadership through a few levels that include 200 Allergan executives moving to Teva. … This is a great deal for Allergan, but also a great deal for Teva.” Allergan stock, down 15% Tuesday, rebounded 3.5% Wednesday, to 244.74. Teva stock rose 4% to 56.73. Allergan Hunts For Growth Assets The closing of the Actavis sale should give Allergan a big wad of cash, so many of the analysts’ questions on the call related to what it will do with the money. Several seemed to be rooting for share buybacks, given that Allergan stock is trading near a 52-week low in the wake of the Pfizer breakup. Saunders said all options are on the table, but he emphasized that Allergan’s “growth pharma” model means that it’s constantly on the hunt for growth assets. He said that Allergan’s business-development team has stayed active since the Pfizer deal was announced, and if the right opportunity came along “we could announce it tomorrow.” A couple of analysts raised the name of contact-lens giant Bausch & Lomb, with which Saunders has a personal history. He headed the company from 2010 until 2013, when it was sold to Valeant Pharmaceuticals International ( VRX ) for $8.7 billion. Given Valeant’s recent spectacular crackup , many on Wall Street have speculated that B&L might again go on sale, with Allergan a suitable buyer not only because of Saunders, but also because of Allergan’s large ophthalmology business. Saunders’ response to this seemed to be a swipe at Valeant’s infamously opaque financial reporting. “It sold for $8.7 billion three, four years ago, with a late-stage pipeline of 30-some programs, and a strong organic growth profile,” he said. “I can’t tell that any of those things today are still true. Based on public information, it’s impossible to tell that it’s worth more than it sold for four years ago.” Pfizer Split-Up Could Move Up Pfizer, meanwhile, rose 5% to 32.93, hitting a four-month high, as investors looked toward another possible major catalyst for its stock. Back in 2013, the company reorganized so that it would be able to split its innovative drug-development business from its established products, and perhaps divide itself into more pieces if necessary. The company had originally planned to make a decision on that this year, but when the Allergan buyout was announced, the issue was pushed into next year. In Pfizer’s press release announcing the end of the Allergan deal, however, it said the decision date is back to this year. That itself could bring some more M&A, writes Evercore ISI analyst Mark Schoenebaum. “After a recent acquisition of Hospira, Pfizer probably has critical mass to transform its Global Established Products business unit to an independent company, but Innovative Products business units might benefit from additional assets acquired from outside,” Schoenebaum wrote in an email to clients. The prospects of both companies going back on the hunt may have been what lifted drug stocks as a whole Wednesday, especially biotechs. Distressed big-cap biotech Biogen ( BIIB ), which has been subject to buyout speculation given that it’s trading 35% off its high, rose 5.3% to 279.57. Smaller Anacor Pharmaceuticals ( ANAC ) rose 16% to 73.20, likely because its late-stage eczema drug is seen as a fit for Allergan’s dermatology portfolio.