Pfizer-Allergan deal would set up U.S. company for a split

Fri Nov 6, 2015 1:45am EST
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By Bill Berkrot and Ransdell Pierson

(Reuters) - A Pfizer Inc (PFE.N: Quote) merger with Ireland-based Allergan (AGN.N: Quote), in addition to providing tax benefits, would bolster the U.S. drugmaker's growth prospects should it decide to sell or spin off its portfolio of products that have gone off patent.

Many Wall Street analysts believe Pfizer will decide to split late next year, after compiling three years of financial data treating its "established products" division, which sells generic medicines, and its "innovative" patent-protected medicines unit, as if they were separate companies.

Such a split would dramatically boost the company's profitability, because in-patents drugs command much higher prices that rise every year, as opposed to off-patent medicines, that become commoditized and their prices decline.

"This would be the creation of two companies really, not one huge $350 billion Pfizer," Andy Summers, co-portfolio manager at Janus Capital Group, said of the likely Pfizer split post merger. Janus is the 11th largest Allergan shareholder with about 6.5 million shares, according to Thomson Reuters data.

Pfizer's $15 billion purchase earlier this year of hospital products maker Hospira, which sells generic injectable drugs and is developing biosimilar versions of top-selling biotech medicines, was widely seen as a move to make the established products business more attractive ahead of a sale.

A combination with Allergan would add lucrative product lines to Pfizer's core innovative business, including aesthetics such as anti-wrinkle treatment Botox and facial fillers, and opthalmology and neurology brands.

At a business review on Wednesday, Allergan highlighted some of its more promising new medicines, including Viberzi for irritable bowel syndrome, which the company believes will be a $1 billion drug.

Allergan could also contribute somewhat to established products as well, notably the Alzheimer's treatment Namenda, which was not included in the $40.5 billion agreement to sell Allergan's huge portfolio of generic drugs to Teva Pharmaceutical Industries. The deal is expected to close early next year.   Continued...

Pfizer drugs Advil and Robitussin, and Allergan's Refresh eye drops are pictured in this photo illustration in the Manhattan borough of New York October 29, 2015. REUTERS/Carlo Allegri