Pfizer (NYSE:PFE) was a slow-moving, and slow-growing, maker of branded medicines that hit it big on the cholesterol-lowering drug Lipitor, the anti-depressant Zoloft, and became the poster child for the “patent cliff,” the collapse of brand-name drug companies that was threatened by the expiration of patents.
Lipitor and Zoloft are now off patent, and while Pfizer benefited from the new drug boom of the decade’s first half, its gains were relatively modest, the Pfizer stock price going from about $20/share to a little over $30.
Source: Pfizer stock price chart by amigobulls.com
All was quiet until November 23, when Pfizer announced it would do a $160 billion merger with Allergan (NYSE:AGN) that would give the combined companies a new home in Ireland, for tax reasons. The resulting company will be the industry’s biggest, by sales, when the merger closes later this year.
Such “tax inversions” are highly controversial, and the U.S. Treasury Department tried to stop them during 2015 with new rules. But Pfizer decided the rules didn’t go far enough for it to forego the opportunity, and now many people expect the combined outfit to become just a larger version of Allergan, directed by its hard-charging CEO, Brent Saunders.
Saunders helped start this decade’s merger mania at Bausch & Lomb, flipping and re-flipping drug companies into one another to create $25 billion in extra value for investors, without actually creating new drugs. A lot of his deals were done with the controversial CEO of Valeant Pharmaceuticals (NYSE:VRX), Michael Pearson.
“The idea that to play in the big leagues you have to do drug discovery is really a fallacy,”Saunders has said.
The plan instead is to push prices higher, move the profits offshore, and do more deals. With one transaction, due to close later this year, Pfizer has transformed itself from tortoise to hare.
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