Last week the world witnessed the biggest ever merger in the pharmaceutical industry when the US based Pfizer announced the acquisition of Allergen at $160 billion. With this, Pfizer emerged as the largest pharmaceutical corporation in the world once again with a valuation of $320 billion surpassing industry leader Johnson & Johnson valued at $284 billion. The deal received unanimous approval from boards of both the companies and is expected to complete in the second half of 2016. Pfizer’s acquisition of Allergen comes after its failed attempts to take over Anglo-Swedish drugs company AstraZeneca last year. According Pfizer chief, the merger will create a global pharmaceutical giant with greater financial flexibility and strength to do research and deliver more medicines and therapies to a larger number of people around the world. A hitch in the whole merger process, however, is likely as the US politicians are not quite happy about the possible move to shift the headquarters of the merged entity to Ireland where Allergen is registered and corporate taxes are much lower. Corporate tax in Ireland is just 12.5 per cent as compared to 35 per cent in the US. This inversion deal may allow Pfizer to assume a much lower rate of corporate tax. How this matter will be reconciled in the context of objections from US politicians is something to be seen in the coming days.

As per the terms of the transaction, Allergan is going to be made the parent company of the combined group. Then, a wholly owned subsidiary of Allergan will be merged into Pfizer under the umbrella of parent company Allergan plc and at that point Allergan plc will be renamed as Pfizer plc. The shares of the combined company will be listed on the New York Stock Exchange, but when the deal gets completed, the combined company is expected to maintain Allergan’s Irish legal domicile. Pfizer may still have its global operational headquarters in New York with its principal executive offices in Ireland. Mr. Ian Read, the present Pfizer chairman will serve as chairman and chief executive of the combined company, while Mr. Brent Saunders, his counterpart at Allergan, will become number two as president and chief operating officer. One of the main gains of the merged entity will be the access to Allergan's product pipeline and R&D. The combined company's pipeline will contain more than 100 mid-to-late stage drugs and the merger will result in $2 billion of cost savings over the first three years. What is to be watched now is what will happen scientifically to the two companies. There is a strong view that spending on basic research needs to be scaled down in the combined entity as such expenditure has not been found to be that productive in case of Pfizer for some time. And instead a development model of molecules from other sources needs to be adopted. A $2 billion cut in the R&D expenditure of Pfizer which is a 25 per cent reduction from the current level of R&D spending is thus likely. Considering the inevitable portfolio rationalization of both Pfizer and Allergan after the merger this possibility looks somewhat certain.