Would an Allergan-Pfizer merger combine Botox and Viagra to create a senseless erection?

One of the nice things about Pfizer is we have the capacity to do any size deal that we want. ~ Frank d'Amelio, CFO Pfizer*

Pfizer is currently in friendly discussions with Allergan to create the world's largest pharmaceutical company with a combined market cap of $330 billion and a product portfolio with fascinating bundling opportunities for Botox and Viagra.

Should we be worried? Of course we should. 

No matter how much Pfizer tries to dress it up in pipeline and operational synergies, tax inversion--corporations behaving like deadbeat dads--is the main reason for the merger. Pfizer wants to marry Allergan so that it can move its tax domicile to Ireland and reduce its effective tax rate, while still benefiting from all the United States has to offer. Allergan's effective tax rate last year was 4.8% versus 25.5% for Pfizer.

Who will fill the $1 billion tax void left if Pfizer abandons the US Treasury?  

When corporations choose to invert and don't pay their fair share of taxes, they leave the rest of us to pick up the tab. That isn't right. ~ Senator Dick Durbin* 

Forbes, that wacky left-wing mag, calls Pfizer's tax inversion ploy "greedy, sleazy and unpatriotic" and suggests that the government use its control over contractors to taxpayer-funded programs such as Medicaid, Medicare and the Veterans Administration to force Pfizer to pay a fee equal to its corporate taxes to improve veterans' care and facilities.

It is a privilege for a pharmaceutical company to have access to over 320 million of the most affluent and drugged-up people in the world. If you are tax domiciled elsewhere, shouldn't there be a cover charge to do business in America that helps to pay for the great schools, the healthcare system and all the other infrastructure that makes the American market so attractive?

Tax inversion is the main motivation for Pfizer's pursuit of Allergan, but gobbling up other companies also provides an illusion of growth.

I think we're in the third or fourth inning of a nine-inning game. This industry is still very fragmented. ~ Brent Saunders, CEO Allergan*

Let's get to know Brent Saunders, CEO of Allergan, a little bit better. Mr Saunders' career can be summed up in the following movie quote. 

Saunders, arguably the world's hottest pharmaceutical CEO with $150 billion in deals since 2010, began his career in compliance, a highfalutin' word for clean up. From Schering to Bausch & Lomb to Forrest to Actavis to Allergan, where he just completed a $40.5 billion spin-off of Allergan's generic business to Teva, everywhere Brent Saunders goes, mergers and acquisitions and clean-ups follow.

Saunders leads the movement called "pharma growth" where the emphasis is away from old-fashioned drug discovery and toward buying drugs through acquisition. R&D is so old school. At least the R is.

The idea that to play in the big leagues you have to do drug discovery is really a fallacy. ~ Brent Saunders

Saunders cuddles up to drug companies before he flips them. He "loved" Bausch & Lomb's employees for the 24 months he spent with them before handing them over to Valeant, knowing that a firing squad was waiting for 10 to 15 percent of them. Saunders closed that deal and went straight to Forest as Carl Icahn's choice for CEO. Three months later, Forest became Actavis and Carl Icahn was $2 billion richer. As CEO of Activis, Brent Saunders waited ten days before becoming the white knight that acquired Allergan for $67 billion, saving it from the clutches of Valeant.

We're not the Borg; we don't go in and assimilate companies. We actually try to learn from their culture. ~ Brent Saunders

Brent Saunders puts a needle where his mouth is. At Allergan he took the stage in front of 1,000 sales reps and subjected himself to 30 vials of Botox and cheek filler. The crowd went wild and Brent Saunders' forehead became as smooth as a Natrelle breast implant.

Pfizer's CEO Ian Read has never taken Viagra on stage at a sales conference, but since a hostile attempt to takeover AstraZeneca stiffed, he has hardened his resolve to avoid paying American corporate taxes. Read began his career at Pfizer in 1978 as an accountant, and when he took over the CEO role after Jeff Kindler's tumultuous reign (read this if you're fan of epic corporate dysfunction) the biggest concern was that he might put someone to sleep.

Read has an air of insouciant I-don't-give-a-pfuckness that comes when your age plus seniority total 100 years and your annual compensation is north of $25 million. Here's a video entitled Pfizer's Read on How Tax Code Harms Company (aka Kiss My Tax) that tells you everything you need to know about Ian Read and tax inversion.

"I would use the word 'insane' for a company of Pfizer's size to potentially go for a transaction that would be tax inverting in an election year." Thank you Dennis Berman for going all MSNBC on Ian Read. Read's response to the insanity of pursuing tax inversion is to blame the American government for not having a broader tax base. Ideally, he would like the tax burden shifted from corporations to US citizens in the form of higher personal and sales taxes.

Read asserts that there was no political blowback to the AstraZeneca deal that was never consummated. That's not quite true…

Doesn't that bother you, Mr Read? Looks like a gale-force, finger-pointing blowback to me. Governments don't like the Pfizers of the world that are too big to nail because they'll threaten to bail. Sweden doesn't like Pfizer because they didn't honour their commitments after their acquisition of Pharmacia. Canada extended patent protection for pharmaceutical companies including Pfizer to twenty years in exchange for a broken promise to invest 10% of sales in Canadian R&D. 

Pfizer is making enemies all over the world, but Pfizer doesn't care because it's no longer a Brooklyn company founded by German immigrants with a treatment for intestinal worms. Governments no longer scare Pfizer. 

Drug prices are out of control, and allowing a merger like this is like giving Jesse James a much bigger gun. ~ David Balto, Federal Trade Commission*

All of our intelligence says that it is going to be hard for Hillary or any other candidate to really have a profound impact on drug pricing. ~ Brent Saunders

Pharmaceutical companies raise prices because they can. Biologics, the future of blockbusters, are low volume-high price propositions. Solvadi, the biologic for Hepatitis C costs $84K per treatment. Pfizer's Ibrance for breast cancer, a biologic that's on track to become a blockbuster in 2016, costs over $10K per month. Pfizer CEO Ian Read shrugs off the high price saying that's what insurance companies are for. And premiums are what people are for.

If Pfizer and Allergan merge, people will be Pfired and there is nothing anyone can do about it. Maximizing shareholder value has never been more aggressively pursued than it is now and it's turning pharmaceutical companies away from research-based healthcare toward finance-based shareholder care. Pharmaceutical companies are behaving more and more like hedge funds, growing through acquisitions and squeezing every ounce of profitability from their portfolios.

I have a duty to move to increase or defend the value of the company for my shareholders. ~ Ian Read

Employees, customers, countries and their citizens are not part of that duty, and that's why we should be worried. 

About the Author: Lynne Everatt worked as a  Forecasting Cassandra at a twice-merged pharmaceutical company, making predictions that nobody believed. Here are her fearless pharma predictions. Allergan and Pfizer will merge creating a new company called Alluzipfer. Pfizer CEO Ian Read will step down and retire to a golf course in Bonita Springs. Brent Saunders will jump into the role of CEO of Alluzipfer, his face remaining preternaturally smooth into his dotage. Alluzipfer will move its tax domicile to Ireland and will immediately begin the search for its next acquisition. Drug prices will continue to rise, jobs will be lost and there is nothing anyone can do to stop the senseless erections.

*Thanks to Trooclicks for providing a number of quotes on the proposed Pfizer-Allergan merger that were used in this post. 

Congratulations to Morgan O'Donnell and her little band of intrepid webbies at Authentic Web Solutions in Wylie Texas for correctly identifying the movie quote from Pulp Fiction and Harvey "The Cleaner" Keitel. A cheeky collection of cleaning products is in the mail.