Pfizer (NYSE:PFE) & Allergan (NASDAQ:AGN)
On November 23, 2015 big pharma giant Pfizer announced that it had set a deal to merge with another pharmaceutical company known as Allergan. The deal totals about $160 billion, and ends up being $363 per Allergan Share. The combined company is expected to keep the Pfizer tickers symbol “PFE” and will trade on the New York Stock Exchange — NYSE. Why would Pfizer go out of its way to buy Allergan?
At first glance most pharmaceutical companies are bought out because of the drugs they have. That is probably one of the reasons why Pfizer bought Allergan, but it is not the primary reason. The main reason for Pfizer buying Allergan was so that it could perform a tax inversion. Such tax inversions are being done now to save money on taxes. For example, a company acquires another business that is domiciled in another country with lower taxes.
That said company then sets its headquarters in that lower taxed country, in order to pay lower taxes overall. In Pfizer’s case they will move their main headquarters to Ireland, where Allergan’s headquarter is, to not have to pay the higher tax rate in the United States. Once the deal closes the combined company is expected to save up to $2 billion over the next three years. This should certainly help keep some money in the company. Although, Pfizer won’t have to worry as the combined company is expected to make up to $25 billion in operating cash flow by the year 2018.
On November 25, 2015 an FDA advisory committee met to determine if, Kyndrisa, Biomarin’s Duchenne Muscular Dystroophy drug has enough efficacy, and safety for FDA approval. Duchenne Muscular Dystrophy is a neurodegenerative disease in which muscle loss occurs, and movement becomes difficult. The body fails to be able to produce enough dystrophin to achieve substantial muscle movement.
One problem right off the bat was that the FDA notes that came out prior to the panel meeting, showed that the panel had mixed feelings about the drug. To make matters worse, during the panel hearing, 15 of the 17 members concluded that the phase 3 studies received did not have sufficient evidence to prove statistical significance in meeting the primary endpoint. In other words, the documents the panel had read did not prove that the drug was efficacious enough for approval.
Things definitely don’t look good for Biomarin right now, because the FDA panel didn’t recommend the drug. Of course this panel wasn’t deciding upon whether Kyndrisa should be approved or not, but the FDA panel’s recommendation carries a lot of weight. This is because the FDA is set to decide upon approval of the drug by December 27, 2015. Although, it is more likely that the FDA will reject approval of Biomarin’s drug.
That is because the FDA panel’s recommendation is a huge plus for approval, and unfortunately Biomarin didn’t get that from the FDA advisory panel. There is no way of going in the minds’ of the FDA, but more likely than not Biomarin’s drug will not be approved in my opinion. Had Biomarin got the FDA panel’s blessing I could see an 80% chance for approval. Now the chance is very small somewhere around the 20% mark. In the end it won’t matter too much for this approval because Biomarin already has many FDA approved drugs to treat other rare diseases, so in the long-term the company is fine.
Who may end up doing better in the DMD department, is Sarepta Therapeutics (NASDAQ:SRPT). While its drug eteplirsen has only been in small studies with only 12 patients, it has shown superior efficacy in patients with DMD. More specifically Sarepta has shown greater biomarker data to date, compared to Kyndrisa. As Sarepta’s FDA advisory panel is expected to fall on January 22, 2016 it will probably obtain a more positive note than Biomarin did. Sarepta though, needs approval because ,unlike Biomarin, it doesn’t have any FDA approved drugs that bring in revenue. Therefore Sarepta is more dependent upon FDA approval for eteplirsen, than Biomarin is for Kyndrisa.
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