Merger Frenzy: Pfizer Commits to Britain, Allergan Rejects Valeant

Source: Thinkstock

Source: Thinkstock

In the latest news from the throes of pharma’s ongoing merger drama, Pfizer, Inc. (NYSE:PFE) has responded to earlier concerns raised by the British prime minister regarding the company’s commitment to investing in Britain long-term, and Allergan, Inc. (NYSE:AGN) has formerly rejected Canadian Valeant Pharmaceuticals Intl Inc.’s (NYSE:VRX) acquisition offer.

Valeant Pharmaceuticals, which has partnered with American activist investor Bill Ackman (who, coincidentally, currently owns a 10 percent stake in Allergan) in its pursual of Botox-maker Allergan, Inc. has been aggressive about expressing its desire for a takeover.

Allergan has consistently deflected Valeant’s approaches. Last week, Ackman even censured the company for initiating talks with other potential suitors rather than directly responding to Valeant’s overture. On Monday, Allergan officially rejected Valeant’s offer, stating that Valeant “substantially undervalues Allergan, creates significant risks and uncertainties for the stockholders of Allergan and is not in the best interests of the company and its stockholders,” according to The New York Times.

“Valeant’s model of cutting and slashing really doesn’t work for more than a very short period of time,” said Allergan CEO David Pyott during a conference call with investors on Monday, referring to proposed cost cuts which Pyott views as being too steep and unwise in the long run, and would prevent the company from delivering growth, which it would be capable of on its own.

But analysts say they doubt we’ve seen the end of Valeant’s efforts. “They’re going to have to take this directly to the shareholders and frankly this looks like a big media battle,” said David Amsellem, an analyst with Piper Jaffrey who covers both Valeant and Allergan. “I think that Valeant really, really needs Allergan,” he added, per The New York Times.

Further, according to a Reuters report published Monday, Allergan has received little support in its effort to avoid a merger with Valeant. The company has been rebuffed in its talks with French drugmkaer Sanofi as well as New Jersey-based Johnson & Johnson, according to a Bloomberg report Saturday. Allergan apparently also contacted British GlaxoSmithKline and Swiss Novartis AG.

Bloomberg notes that Allergan is a tough sell, in part because its product line-up is so diverse; Allergan makes products in therapeutic areas ranging from eye care to neuroscience, dermatology to urologics. Since the company hasn’t specialized its operations in any particular area, a buyer would be left with one or more orphaned divisions.

As for Pfizer, the company has responded to earlier concerns regarding its commitments to Britain following a potential purchase of AstraZeneca. Last week, the British prime minister, David Cameron, spoke to the press about his concern that the American pharmaceutical giant would abandon British factories and pull up British jobs upon finalizing a deal with AstraZeneca, as previous companies have done, such as Kraft’s takeover of British candy company Cadbury.

In a written response to a parliamentary committee, Pfizer notes that AstraZeneca could use the help of a larger company in navigating a number of different patent expirations it will soon be faced with, according to Reuters.

“Looming patent expiries and near-term revenue losses jeopardize its ability to deliver on its very promising pipeline,” Pfizer said, in a written submission to the parliamentary committee, per The New York Times.”By combining our resources, we would bolster each organization’s ability to bring new innovative medicines to patients in need. A combined company would be stronger financially, enhancing our ability to invest in the best science — wherever we find it,” the statement continued.

But AstraZeneca is still reluctant to take the bait. The company says Pfizer’s $100 million offer undervalues the company and the line-up drugs in its pipeline. AstraZeneca has recently announced positive results from a phase 3 clinical trial of a drug developed to treat inflammatory diseases, according to The New York Times.

In its statement Monday, Pfizer pledged to keep at least 20 percent of its combined workforce in the UK, and promised to finish construction on a new research and development center in Cambridge. It’s commitments, Pfizer says, are “legally binding” according to British law.

Pfizer is also interested in AstraZeneca because it would provide the company the opportunity to reincorporate in Britain for a lower corporate tax rate.

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