PFE Pfizer Inc

By Jonathan D. Rockoff 

Now that their $150 billion deal with each other is over, Pfizer Inc. and Allergan PLC will look to do deals of their own.

Pfizer must still find acquisitions to boost its revenue and growth, according to a person familiar with the matter. But the company has given up on doing another tax-inversion transaction, given the Treasury Department's clear opposition, according to the person.

Allergan CEO Brent Saunders struck a similar note, saying the company could do its own deal at any time to add to its pipeline or portfolio.

"We could act immediately if we saw the right opportunity with the right growth profile and the right strategic logic," he said in an interview.

Each company was seeking to quickly move past the planned combination Wednesday, after announcing they were abandoning the deal in the wake of new Treasury Department rules designed to deter so-called inversions like theirs, which garner lower tax rates by moving tax headquarters overseas.

Pfizer's decision to walk away marked the biggest withdrawal ever from a deal, according to Dealogic. Under the terms, Pfizer will pay $150 million to reimburse Allergan for transaction-related expenses.

By hooking up with Dublin-based Allergan, Pfizer would have not only benefited from lower tax rates. The tie-up would have also added Botox and other fast-growing Allergan products to Pfizer's modestly rising sales. Such a boost would have accelerated Pfizer's growth, and might have paved the way for Pfizer to set loose its slower-growing but cash-generating "established products" business selling older drugs.

Now, Pfizer must find a new way to put its new-drugs business on firmer ground if it is to go independent, some analysts say.

After a $16 billion takeover of Hospira solidified Pfizer's established-products business, "Pfizer probably has critical mass to transform" that into an independent company, but the company's patent-protected-drugs side may need "additional assets acquired from outside," Evercore ISI analyst Mark Schoenebaum said in a note to investors.

Pfizer moved up the deadline for deciding whether to shed the older-drugs business to the end of this year, the company said in a statement.

Pfizer has "the financial strength and flexibility to pursue attractive business development and other shareholder-friendly capital allocation opportunities," CEO Ian Read said in the statement.

In an internal company email, Mr. Read told employees that Pfizer "knew there would be risks," and even though it had to abandon the combination "based on the actions taken" by the Treasury Department, it would benefit from pre-integration efforts to simplify the company's structure and strengthen its commercial operations.

Allergan sales are growing by double-digit percentages, in part because of Botox's increasing appeal for antiwrinkle use and mounting treatment of medical conditions like chronic migraines and overactive bladders. Executives also see strong sales potential from new products, such as the antipsychotic Vraylar, which the company is launching this week.

Executives also tout strong commercial potential in several Allergan drugs in late-stage development, though analysts see some threats to key products like the Restasis dry-eye drug.

The deal would have allowed Allergan to take advantage of Pfizer's extensive operations outside the U.S., which the company said could have provided a sizable sales boost. Now, Allergan will have to build out its overseas business on its own.

After agreeing to a merger last November, Pfizer and Allergan had said they structured their combination to fit within U.S. tax law and federal tax regulations. The Treasury Department rules, issued Monday and effective immediately, added a new wrinkle: They took aim at tax inversions involving companies like Allergan, which has grown through several acquisitions over the past several years.

Yet, many Allergan employees welcomed the deal's cancellation, because it would mean an end to the disruption and uncertainty that accompanies being acquired, Mr. Saunders said. "This is a very easy pivot for us," he said.

In a call with senior management, Mr. Saunders acknowledged the distraction, and anxiety triggered by the prospective combination but said its termination wouldn't mean an end to change at Allergan.

"We have to be willing to work in an environment where the unexpected is expected," Mr. Saunders said.

Write to Jonathan D. Rockoff at Jonathan.Rockoff@wsj.com

(END) Dow Jones Newswires

April 06, 2016 19:56 ET (23:56 GMT)

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