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$160 Billion Biotech Merger Called Off

04/06/2016 9:30 am EST


Michael Berger

President & Founder,

After Pfizer confirmed the termination of its merger with Allergan following comments from the United States Treasury Department, Michael Berger of shares his take on this announcement and highlights a pair of sector favorites.

The termination of the $160 billion merger between Pfizer Inc. (PFE) and Allergan Plc (AGN) has been confirmed.

The driving factor behind this decision stems from the rules issued by the United States Treasury Department which are focused on making tax inversion deals less profitable.

Moving Addresses, Not Assets

President Obama said the rules are meant to limit one of the most indirect tax loopholes available and to prevent companies from reducing their tax liability.

The reason why this deal came under such scrutiny is not only due to the size of the deal, but also on account of its structure.

Earlier this morning, PFE confirmed the termination of the merger which have moved the company’s address but not its headquarters or operations. If the merger was completed, Pfizer’s address would have changed to Ireland which has a lower corporate tax rate.

Wiped out Hundreds of Millions in Potential Savings

If the deal was completed, Pfizer would have been able to save hundreds of millions of dollars in taxes annually by doing the inversion.

In an inversion, a big company buys a smaller one in another country usually one with a lower tax rate, then moves the combined company's address on paper to that country.

Third Time is Not the Charm

This was Pfizer’s third attempt at an inversion deal with the last attempt being in 2014 when PFE tried to acquire Britain's AstraZeneca Plc.

Pfizer's management team has come under pressure from investors and analysts and has desperately tried to increase its value and stock price.

Many market participants wanted to see PFE break up so that its growth and profits could accelerate. We believe that the termination of this deal puts a break up back on the table and PFE is trading higher this morning.

Two Biotech Favorites

Biogen, Inc. (BIIB) has fallen more than 13% during 2016 and we think shares are set up for a significant rally once fundamentals matter again. BIIB is financially flexible and is one of the best at allocating capital in an accretive manner.

Although many investors expect to see BIIB announce a dividend, we do not expect that to happen. Instead of issuing a dividend, we expect to see BIIB acquire several companies that are currently trading at a discount. This would be a more appropriate move for this growth-oriented biotech company.

GW Pharmaceuticals (GWPH) remains a favorite of ours following the release of positive Stage 3 Clinical trial data for its Epidiolex product. GWPH is the only cannabis company traded on the NASDAQ which provides visibility, liquidity, and financial transparency.

We believe that GWPH represents an attractive investment for the following reasons: 1) Expects to announce positive phase 3 Epidiolex data for two trials in May, 2) Releasing several data readouts during 2016 which will serve as event-driven catalysts, 3) Continues to build out United States operations, and 4) Valuation has improved following the recent dip.

By Michael Berger, President of

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