Allergan (NYSE:ACT) & Pfizer (NYSE:PFE)
On April 5, 2016 shares of Allergan had tumbled by 14.77% as investors had become skeptical that the deal with Pfizer would actually go through. The reason for investors becoming skeptical was because the government had implemented new tax inversion rules. Back in November Pfizer brokered a deal to buy Allergan for approximately $160 billion. The pipeline of Allergan is good, but the main reason for Pfizer doing the deal was for a reduction in taxes.
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The way Pfizer would save money on taxes is through a tax inversion. A tax inversion occurs when a company in the states for example, buys another company located in another country with lower tax rates. The company would then change its main headquarter to that new country, so that it could avoid having to pay higher U.S. taxes. Although, the Treasury introduced this new rule to stop these big tax inversions from happening.
There was even more bad news. With the new rules even if Pfizer had gone through with the acquistion, it wouldn’t have made a difference. This is because the newly formed company would still be considered under the U.S. tax code. Later that night, as you can imagine, both companies walked away from the deal as it would no longer be beneficial for either of them. While the Treasury stopped this deal from going through, the only ultimate way to stop it completely would be for Congress to pass a law on tax-inversions.
Intercept Pharmaceuticals (NASDAQ:ICPT)
On April 7, 2016 shares of Intercept Pharmaceuticals announced that the FDA advisory panel had completely backed the company’s drug known as Ocaliva, also known as obeticholic acid. This drug had been backed by the FDA panel for the treatment of Primary Billary Cirrhosis — PBC. This is a rare type of disease where the body mistakes the liver ducts as foreign objects and attack them. The panel voted in favor that Ocaliva should be used to treat these patients with PBC.
What’s even more impressive is that the drug received a unanimous vote, which is quite rare for an FDA panel vote. The vote was 17 – 0 in favor of the drug Ocaliva. There is no guarantee that the FDA will approve this drug, but analysts expect that after this unanimous panel vote, there is a 90% chance for approval. The only downside now is that the FDA won’t have to decide upon approval until a few months from now. The FDA decision date for possible approval of Ocaliva comes on May 29. At this time the FDA will decide whether or not it should approve the drug for use in PBC patients.
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Another drug Intercept Pharmaceuticals is working on is non-alcoholic fatty-liver disease or NASH. The FDA panel had skepticism about whether or not Ocaliva would be safe in the NASH patient population. The FDA panel had no worries about Ocaliva in PBC, but with NASH they were concerned. Thus, even with a huge panel recommendation the stock closed lower the very next day. The reason for this happening was because PBC can command $1 to $2 billion market, while NASH commands a much higher $6 to $8 billion market. Investors are more concerned with the NASH indication than anything else.
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