Irvine appears set to remain a hub for a core part of Pfizer PLC after it acquires Allergan PLC in an expected $155 billion deal that would create the world’s largest drugmaker, with more than $60 billion in sales.
“We’re committed to Irvine—we’re committed to what’s there,” Allergan Chief Executive Brent Saunders said last week during a town hall meeting with workers. “There’s no overlap, or virtually no overlap there. So I would suspect that that is going to, more or less—not perfectly, but more or less—look like what it is today.”
What’s in Irvine now is a nearly 4-acre campus with 2,085 employees who have only recently gone through Allergan’s $72.5 billion sale to Actavis PLC, which took on the acquired company’s name. The combined entity took on Actavis’ headquarters in Dublin, Ireland, for tax purposes; kept operations centered in Parsippany, N.J.; and designated the Irvine campus as a hub for its aesthetics and eye care lineup.
Saunders is set to be president and chief operating officer of the combined company, which plans to split into two companies by 2018.
When that happens, he’s expected to take the top job at the company that will include Pfizer and Allergan products that are still under patent and considered “innovative business.” A second company is expected to be created for products with patents that have expired or are on the verge of doing so.
The innovative side includes the eye drug and aesthetic medicine/dermatology businesses in Irvine. Products coming out of the Dupont Drive campus include aesthetic medicine entries Botox, Juvéderm, Natrelle and Kybella, along with eye care stalwarts Restasis, Combigan and Refresh Optive.
Future
Allergan and Pfizer expect the deal announced last week to be completed in late 2016.
Allergan is going to be the surviving corporate entity but will take on the name of Pfizer PLC. The new company will trade on the New York Stock Exchange under the PFE ticker and remain based in Dublin, Ireland, to get a lower corporate tax rate.
Allergan is currently based in Ireland for that reason and operates out of Parsippany, N.J., which is about 37 miles from New York, Pfizer’s home that’s set to be the operating base of the combined company.
“There’ll be a big office in New York City,” Saunders said.
Although he has emphasized the new company’s commitment to Irvine, Allergan and Pfizer have both said it’s too early to tell how many jobs would be cut and which facilities would remain open after the deal’s completion.
An early integration team co-led by Pfizer and Allergan executives has been set up.
Current Pfizer Chief Executive Ian Read, 62, will serve as Pfizer PLC’s boss. Saunders and Paul Bisaro, Allergan’s current chairman, are set to join the new company’s board.
Rationale
Pfizer and Allergan have said the rationale for the deal includes lower corporate tax rates; combining top selling brands like Botox and erectile dysfunction remedy Viagra; adding Allergan’s research and development capability to Pfizer; and adding Pfizer’s deep international presence to Allergan—Saunders said that the company would have a presence in almost 180 countries.
“This is a deal about growth, about building capabilities, and accomplishing what we’ve been working on: therapeutic-area leadership,” Saunders said.
The deal also will bring around $2 billion in operational savings within three years after closing, according to the companies.
Pfizer PLC is planning to spend $9 billion on research and development, according to Saunders.
“This budget will be one of the largest private R&D investments in the world, and our leaders here in [New Jersey], our leaders in Irvine, and those in Pfizer will work together to best spend that $9 billion,” Saunders said, mentioning Allergan’s new “Open Science” initiative, under which the drugmaker partners with others, as well as “deep capabilities in discovery research.”
Analysts’ Views
Allergan shareholders will get 11.3 shares of Pfizer for each share of Allergan share they own. A total of $6 billion to $12 billion in cash is also part of the deal.
Some on Wall Street initially had a measured reaction on the proposed combination, citing expectations of heavy scrutiny over tax, jobs and other concerns.
Aaron Gal of New York-based Sanford C. Bernstein & Co. wrote that there was “some concern around the federal government trying to block the deal – people are just not reassured.”
Besides that, “there is also a secondary concern that (some) investors in Allergan who are unhappy with the price, will revolt against the deal,” Gal added.
Saunders acknowledged that there was a “spot price” of $400 a share back on Oct. 28, when the deal was negotiated.
“We’ll have to see what 11.3 Pfizer shares are worth to us when this deal closes in the second half of 2016,” he said. “So a lot of work to do between now and then.”
Citibank analyst Andrew Baum noted the possibility that political opposition to the combination, which has drawn critics from both parties, could have executives soft-pedaling some of the benefits of the deal.
“We believe Pfizer and Allergan are strongly incentivized to understate potential tax, operating expenditure [savings], and earnings accretion given the heavy political scrutiny underpinning the planned inversion out of the US,” Baum said.
