BUZZ-Pfizer’s India unit shares rise on Allergan buy

24 Nov 2015 | Author: | No comments yet »

Drug Merger Reignites Tax Reform Discussion.

The blockbuster business news Monday was Pfizer Inc.’s $155 billion takeover of Allergan PLC, a deal that would create the world’s largest drug company.WASHINGTON — For almost four years, Congress and the White House have done little to make their long-promised overhaul of the corporate tax code a reality.Finance Minister Michael Noonan has rejected suggestions that a $160bn (€150.3bn) mega tie-up between US rivals Pfizer and Allergan will throw Ireland’s low corporate tax back into the world’s spotlight.

A $160 billion megamerger announced on Monday would turn U.S. pharmaceutical behemoth Pfizer Inc. into an Irish drug company, using a controversial tactic that allows companies to dodge billions of dollars in corporate taxes by renouncing their U.S. citizenship. While the trans-Atlantic transaction says much about the fixation of big pharmaceutical companies with scale and costs, a small deal disclosed around the same time highlighted what makes the Massachusetts biotech industry tick: cutting-edge science that is increasingly driving the development of treatments. Idera Pharmaceuticals Inc. of Cambridge, which conducts cancer and rare disease research, struck a collaboration and licensing agreement with GlaxoSmithKline PLC.

Read, told them that a merger with Allergan, the maker of Botox that is based in Dublin, would significantly cut Pfizer’s tax bill and give it more cash that it could invest in the United States and ultimately add jobs, according to people briefed on the calls. Pfizer’s takeover of Ireland-based Allergan — the largest deal to date to avoid American taxes by reincorporating in a lower-tax country — provoked a leading Republican on Monday to call for at least stemming so-called corporate inversions, if a sweeping rewrite of the tax code remains out of reach. “The best way to resolve these issues would be through a comprehensive tax overhaul,” Senator Orrin G. A major advantage for New York-based Pfizer is that the deal will allow it to piggy back off Allergan’s Irish tax domicile and slash its US corporation tax bill. They slammed the tax loophole called an “inversion,” in which a U.S.-based company buys or merges with a foreign company and moves its headquarters to the country with a lower tax rate. “By nominally moving overseas while continuing to take all the benefits of a U.S. company, Pfizer is gaming the system and will avoid paying its fair share of U.S. tax dollars,” Senate Minority Leader Harry Reid, D-Nev., said in a statement. “It’s time for Congress to get serious, close the loopholes, and prevent these kind of inversions from happening in the future.” Republicans also denounced the deal, which would slash Pfizer’s corporate tax rate to 17 percent or 18 percent, according to company leaders, compared to its effective 25 percent rate. But some were reluctant to place the blame on companies. “Other nations have restructured their tax code to make themselves more attractive to multinational corporations and we must do the same so American businesses can compete on a level playing field,” said Rep.

Taken together, they underscore a trend that is likely to accelerate with industry consolidation: Big Pharma ceding research to smaller and more nimble biotechs, acquiring experimental drugs through partnerships with biotechs, and focusing on shepherding drug candidates through clinical trials and filings with regulators. In a call with analysts on Monday, Pfizer chief executive Ian Read said company leaders had paid attention to the political debate around inversions but decided to proceed with the deal because it was a good business move. “On the political risk, we’ve assessed this deal looking at the present regulations, the new notices and all the information we can glean, and we believe this deal is a great deal for shareholders, both of Allergan and Pfizer,” Read said. An aborted bid by Pfizer to acquire AstraZeneca of Britain in an inversion last year set off a public uproar — leading President Obama to call such deals “unpatriotic” — and prompted moves by the Treasury to curb them. In a raft of statements from Capitol Hill on Monday, lawmakers in both parties condemned Pfizer’s move and reiterated their calls for comprehensive tax reform. Speaking to reporters in Brussels yesterday, Mr Noonan, noting that both companies have large operations here, said the mega deal would not put Ireland’s tax regime into a bad light. “We are not pushing for inversion, the IDA never promotes inversion — it’s a decision by the two companies.

Allergan, which is about half the size of Pfizer as measured by annual revenues, is technically buying Pfizer – even though the new company will be named Pfizer, it will be led by Pfizer’s chief executive, and 11 of the 15 board members will come from Pfizer. President Obama’s Treasury Department released a detailed framework for rewriting the code in 2012, proposing to close corporate loopholes, broaden the base of taxable business income and reduce the corporate income tax rates that are sending businesses like Pfizer overseas.

Allergan’s current shareholders will ultimately own 44 percent of the combined company, while Pfizer shareholders will own 56 percent, a division of ownership that is structured to avoid triggering additional taxes. They’ll be going through internal reorganizations that could put a pause to that.” Previous rounds of biopharma consolidation did just that, including Pfizer’s acquisition of Wyeth in 2009 after Wyeth earlier purchased the Cambridge-based Genetics Institute.

Read has made clear publicly and privately, his main priority is doing well by his shareholders — and that means finding a way to compete with huge foreign rivals that enjoy much lower tax rates. “We’ve assessed the legal, regulatory and political landscape and are moving forward with our strategy to combine these two great companies for the benefit of the patients and to bring value to shareholders,” Mr. With a little more than five weeks left in 2015, the Pfizer-Allergan deal brings the value of M&A announced this year to $3.42 trillion, compared with the $3.4tn in 2007, according to Bloomberg data.

Obama has hardly made corporate tax reform a priority, and a reluctance by the generally assertive Republican-controlled Congress to move without the president suggests that Republicans worry a signature issue may be better politics than policy. It makes more sense for them to sit on the sidelines and watch what we’re doing and then swoop in and write a check.” Many large US and overseas drug companies have set up shop in Massachusetts specifically to work with and monitor the research of local biotechs as well as university and hospital labs that work in the life sciences. The details inevitably divide business allies into winners and losers. “Any permanent solution to combating inversions should be legislated by Congress,” Mr. Even after its takeover campaign for AstraZeneca collapsed, the Pfizer chief made no secret of his desire to try again, while criticizing a tax code that he said leaves his company fighting with one hand tied behind its back. Novartis AG of Switzerland, Merck & Co. of New Jersey, Merck KGaA of Germany, Sanofi SA of France, Shire PLC of Ireland, Takeda Pharmaceuticals Co. of Japan, AstraZeneca PLC of England, Amgen Inc. of California, and Baxalta Inc. of Illinois all have bought companies or opened research labs here.

But “for that to happen,” he continued, “we must have strong leadership from the White House.” A Republican chairman of the tax-writing House Ways and Means Committee, former Representative Dave Camp of Michigan, put forward a comprehensive plan in 2014 but got little support from party colleagues. The proximity of Big Pharma to early-stage research companies has sparked an environment of almost nonstop deal-making in recent years, ranging from partnerships like that struck by GSK and Idera to outright acquisitions such as Merck & Co.’s $9.5 billion purchase of Lexington’s Cubist Pharmaceuticals Inc. in January. Bernie Sanders of Vermont called on the Obama administration to block the deal, but Democrats weren’t the only ones worried about companies taking advantage of inversions to avoid taxes.

President Barack Obama has called inversions “unpatriotic,” and his adminstration has made a major effort to crack down on such transactions by making them less profitable. Mindful of the sensitivity in Washington, Pfizer included in its advisory team the boutique investment bank Moelis & Company, whose vice chairman is Eric Cantor, the former House majority leader. Hatch — one of the few current lawmakers who were in office for the tax rewrite nearly 30 years ago — has not initiated a similar tax overhaul effort since Republicans took over the Senate in January.

Two committee members, Senator Chuck Schumer, Democrat of New York, and Senator Rob Portman, Republican of Ohio, have worked toward a bipartisan framework along with Mr. Raleigh, North Carolina-based Salix Pharmaceuticals and the Italian firm, Cosmo Pharmaceuticals terminated a reverse merger, citing changes in the political environment.

Cantor will not lobby lawmakers, people with direct knowledge of the matter said, he has advised the company on political aspects of the deal and maintains friendly contact with his former colleagues. The initial impetus for the Portman-Schumer-Ryan effort to overhaul international taxes was both parties’ desire to come up with billions to finance the cost of a multiyear transportation and infrastructure bill this year. In a conference call last week, Treasury Secretary Jacob Lew acknowledged the agency’s limitation in ending inversions. “Our actions can only slow the pace of these transactions. Only legislation can decisively stop them,” Lew said in the conference call. “There is only so much Treasury can do to prevent these tax-avoidance transactions.” Edward Kleinbard, former chief of staff of the Joint Committee on Taxation, agreed that the Treasury Department has limited power to stop corporate tax dodging. “Treasury is trying to hold back the tide with a broom, but that is an unfair position into which to put Treasury.

Hatch and Senator Mitch McConnell of Kentucky, the majority leader, cool to the idea of an international tax package, Congress made progress on a separate transportation bill, with its costs offset by assorted revenue provisions and budget changes. Congress owns the tax code,” he said. “What is going on here is a dereliction of duty by Congress, and Treasury is doing the best it can in an impossible situation.” Allergan is best known for making the wrinkle-smoothing treatment, Botox, while Pfizer is well known for making a wide variety of iconic drugs, including cholesterol-lowering Lipitor, the antidepressant Zoloft and the erectile dysfunction drug, Viagra. Then came the Pfizer-Allergan news, made official on Monday, and once again Americans were learning that brand-name companies were becoming corporate expatriates to cut their tax bills, while most of their operations remained stateside, with all the advantages of American residency. The deal may be additionally risky because it comes at a time when the pharmaceutical industry broadly is under intense scrutiny because of public and political outrage over high drug prices. Republicans, who control the House and the Senate, have called for a comprehensive regulatory overhaul and have shown reluctance to focus on particular companies. “It’s not clear what Washington’s wishes are,” said one person close to the transaction. “We tried to tell them to fix our tax system.

Moreover, it will give Pfizer enough size and product diversity to break itself up in three years’ time, dividing itself into a company focused on faster-growing innovative drugs and another built on more mature treatments that face competition from generic competitors. That would complement Pfizer’s $17 billion acquisition of the generic drug maker Hospira earlier this year, meant to bulk up its so-called established treatments division. The expected cost savings of about $2 billion over the first three years announced after the deal was made were well below most analysts’ projections. To some involved in the deal, the tax savings are all that matters. “If the tax stuff went away entirely, the deal would be off,” a person briefed on Mr.

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