Drug giant Pfizer is not new to tectonic acquisitions. But if there’s one clear message from its $160 billion overture to buy Botox-maker Allergan, it is that drug companies are trying every trick in the book to keep their head above water.
As rumoured over the last several days, the deal will in fact allow US multinational Pfizer “to shift its legal base to Ireland in a so-called "inversion" that would reduce its tax rate,” foreign media reported. Or as one multinational chief explains, “it is called tax planning, not tax avoidance.”
In fact, a little over 18 months ago, another bunch of multinationals GlaxoSmithKline, Novartis and Eli Lilly had announced a global three-way transaction that had stirred up the marketplace for its sheer unconventionality.
Stepping aside from a straight forward buy-out format, these companies entered into an asset-swap arrangement, aimed at focussing on their strengths.
In the $23 billion deal between Novartis and GSK – GSK’s cancer drugs business moved out to Novartis, while vaccines move from Novartis to GSK. Parallely, the two companies also set up a joint consumer healthcare company that included Novartis’ over-the-counter drugs business. And in a linked but separate deal, Novartis’ animal health business moved out to Eli Lilly.
Explaining the rationale behind the deal, Novartis Chief Executive Officer Joe Jimenez had then told foreign media, “You have to be No. 1, No. 2 or No. 3 in your segment.”
Industry-hands point out that the day of the big transaction is not over, and companies will continue to explore different formulae, as the prevailing environment becomes increasingly difficult. Governments are under pressure to keep healthcare costs under control. And drug companies are under pressure to invest in research and bring out better products, priced affordably.
“Holy grail”
Mega deals work “if the patient’s health outcome, the holy grail, is kept at the centre of the transaction”, observes Ranjit Shahani, Novartis’ India Head and former head of the Organisation of Pharmaceutical Producers of India (OPPI) – a platform largely for multinational drug companies.
In about 15 years, there may be just one pharma company in each country, he says, except may be the US, that may have two or three, he adds.
Impact India
Last year, Pfizer completed the India-leg of its Wyeth merger. Pfizer had acquired Wyeth in a $ 68 billion deal in 2009. On its completion here,
Pfizer’s then head Aijaz Tobaccowalla had said that Pfizer and Wyeth’s combined ranking would get bumped up within the top 10 in India, from the earlier positions of 18th and 28{+t}{+h}. Tobaccowalla has since left the company. Pfizer has 2,500 employees and Wyeth 480, company management then said.
Allergan has a joint-venture in India with Piramal Enterprises Ltd, and company top brass said they are yet to get details of how it will pan out in India. Allergan, popular for its wrinkle treatment Botox, has a portfolio of eye products here in India.
While the Pfizer-Allergan deal will create the world’s largest healthcare company, the impact here is expected to be on a much smaller scale, an industry representative said, as the details trickle in.
jyothi.datta@thehindu.co.in