USA politicians slam tax-avoiding Pfizer-Allergan deal

Pharmaceutical giant Pfizer has merged with Botox maker Allergan for a deal of $160 billion, one of the biggest takeovers in health care industry and the biggest too in a tax-saving strategy.

In what would be the biggest inversion ever, New York-based Pfizer could save hundreds of millions in USA taxes annually because it would move its tax headquarters to Ireland, where Allergan is based.

Although Pfizer has decried the high USA corporate tax rate, it has minimized its U.S. taxes for years by selling its drug patents to overseas subsidiaries and then using them to make drugs that are sold back to United States affiliates.

Republican Chair of the Senate finance committee Orrin Hatch expressed, “This (deal) only further underscores the arcane, anti-competitive nature of the U.S. tax code”.

Clinton noted, “This proposed merger, and so-called inversions by other companies, will leave USA taxpayers holding the bag”.

The new regulations “will prevent USA firms from essentially cherry-picking a tax-friendly country in which to locate their tax residence”, Treasury told Bloomberg News.

Pfizer shareholders will receive one share of the combined company for each Pfizer share and will be eligible to receive at least a few of their shares in cash.

Apart from male libido drug Viagra and cholesterol drug Lipitor, Pfizer’s major drugs include nerve pain treatment Lyrica and Prevnar, a treatment for pneumonia.

Saunders said the combination would provide access to about 70 additional worldwide markets for Allergan products, such as Botox wrinkle treatment, Alzheimer’s drug Namenda and dry-eye medication Restasis.

Currently, companies can do inversions if 25 percent of a company’s business is done in the foreign country providing the tax breaks. “We can not delay in cracking down on inversions that erode our tax base”, she said.

Despite attempts by Congress and the Treasury Department to thwart the practice, about 50 USA companies have inverted in the past decade, and more are considering it, according to the nonpartisan Congressional Research Service.

A Treasury spokesman said the department did not comment on specific transactions.

After Martin Shkreli’s pharmaceutical company raised the price of a drug used to treat a deadly infection by 5000%, a compounding pharmacy is now offering an alternative at a fraction of the cost.

For consumers, however, such combinations could lead to higher drug prices, as well as higher taxes to cover the lost tax revenue, said Jerry Reisman, a NY merger expert.

“We’re all going to feel this”, he said.

Perhaps anticipating the deal would draw fire, Pfizer CEO Ian Read sent a letter on Monday to senior senators. It costs upwards of $1.5 billion to get a new drug approved.

The businesses of Pfizer and Allergan will be combined under Allergan plc, which will be renamed Pfizer plc.

Executives wouldn’t discuss any layoffs, but they are considered inevitable, given that the companies predict annual savings of about $2 billion within three years of closing the deal. Pfizer has about 95,000 employees, Allergan 15,000.

Investors didn’t much like the deal. Target company Allergan closed 3.4-per cent lower after the deal announcement.

Allergan and Pfizer estimated their merger would increase earnings per share by 10 percent, excluding special items, in 2019 and add by a high-teens percentage rate in 2020.

Several US drugmakers have performed inversions through acquisitions in the past several years, including generic drugmaker Mylan.

Healthcare consolidation continues to pick up speed as Pfizer and Allergan announce their boards of directors have reached an agreement for a merger.

The biggest merger ever was in the telecommunications industry – Vodafone’s 1999 purchase of Mannesmann for about $172 billion.