Will Pfizer-Allergan Inversion Lower Drug Costs?

By Louis Garguilo, Chief Editor, Outsourced Pharma

There’re plenty of questions being asked about the Pfizer-Allergan reverse-merger inversion: Is it good for investors and the stock, and the future of the two companies? Is it a political stick in the eye? Will it affect tax policy in the U.S.? Will the companies subsequently break into two?

There’s talk about combined strength (the new company would be the world’s largest drug-maker, with $63.5 billion in yearly sales); promising pipelines ($9 billion in annual research spending projected); again taxes, and politics (Pfizer CEO Ian Read has railed against high U.S. corporate rates and policy); and even some highfalutin moral implications (Where’s the appreciation and allegiance to the U.S.?).

Remarkably really, all this seems to have knocked off the national stage (at least for the moment) the topic that has so occupied healthcare news throughout 2015: the prices of new drugs. The one question not being directly asked: “Will this move by Pfizer help to lower drug prices?” If it does get tied to lower prices, the rest of the surrounding cacophony will be deadened. This would be the most important result in the U.S. of this offshore merging. Who’d care so much anymore where Pfizer makes its corporate bed?

All Good Must Pass?

This March I had the opportunity to visit Pfizer’s global headquarters in Manhattan. It was the first time since a visit in the months just after 9/11 on a much different assignment, as liaison for the governor of New York. Now on this brisk spring day, I’d come to talk about global manufacturing. Walking by the large blue logo with the iconic “f,” I thought to myself: “For many of us, just the name ‘Pfizer’ still offers a certain long-held comfort. I’m glad Pfizer’s still headquartered here in New York, still one of the largest pharmaceutical companies in the world developing drugs for patients, and I’m glad it’s a profitable business.”

Two months after that visit, I wrote that I understood Pfizer’s announced attempt at an inversion strategy, as it went after Astra-Zeneca. Frankly, I’d tend to agree with any business attempting to escape a long-standing, disappointing tax climate (and anti-business attitude) brought on by a national government.

In fact, even prior to that article, I had written one titled, “What If Pfizer Didn't Exist In The U.S.?” It was an article with questions building on other questions, such as:

If we could work to mitigate the reasons Pfizer is pursuing this plan to acquire AZ, how would we go about it?

Actually, how would we go about it for any company in the U.S. so inclined? In that May editorial, I wrote, “According to The New York Times Dealbook article of April 28th, ‘(a)t least 50 American companies have completed mergers that allowed them to reincorporate in another country, and nearly half of those deals have taken place in the last two years.’”

Unfortunately, the answer leaders in our federal government agreed on – pass more laws that better prevent U.S.-based companies from taking advantage of environments more (tax) friendly – didn’t and won’t work. Moreover, repercussions from those tax and business-facing policies will be far worse than 50 or so companies performing inversions. Consider these quotes from a post in January by Jim Clifton, chairman and CEO of Gallup.

“The U.S. now ranks not first, not second, not third, but 12th among developed nations in terms of business startup activity. Countries such as Hungary, Denmark, Finland, New Zealand, Sweden, Israel and Italy all have higher startup rates than America does.”

“The U.S. Census Bureau reports that the total number of new business startups and business closures per year -- the birth and death rates of American companies -- have crossed for the first time since the measurement began.”

“When Gallup asked Americans to rate how much they personally worry about particular problems facing the country, the top three issues that respondents worry about a ‘great deal’ were the economy (59%), federal spending and the budget deficit (58%), and the availability and affordability of healthcare (57%).”

The economy, spending, and healthcare … which brings us back to where we started.

Is There A Different Future?

The U.S. will hold a presidential election next year. Candidates vying for that position are voicing opinions, concerns, questions, and even proffering new policies (e.g., price controls), specifically regarding the costs of drugs.

Maybe we would also benefit from hearing debate about whether higher taxes on U.S. pharma companies, and increasing the size of the federal government to intervene in all aspects of health care, adds to or reduces the cost of drugs.

Maybe Pharma should further step up to the podium as well: Let patients and consumers hear clearly that the moves to get out from under a larger tax burden and other tax policies (e.g., taxing revenues made outside the U.S. when trying to bring that money here) will eventually help reduce the cost of their drugs.

Maybe post-election in 2017 we’ll see changes from the political class to the healthcare system, tax policies, and attitudes towards business. If we do, maybe someday the new Pfizer will see the benefit of re-establishing home base in New York. I’d be one ready to welcome them back with open arms.