Pfizer/Allergan: Deal could be biggest pharma merger yet

Merge lanes road sign

Pfizer and Allergan look like the latest pharmaceutical companies to start early dealmaking talks , according to reports, in a deal which may, if it goes ahead, mark the zenith of the industry's megamerger trend.

There has already been close to $850 billion worth of deals made in the sector made this year, as cash-rich companies either try to fix their pipelines or save on U.S. taxes by doing a tax inversion, where they exploit loopholes in America's labyrinthine tax system by buying smaller rivals based abroad and re-domiciling themselves.

The health care sector accounts for close to a quarter of U.S. focused mergers and acquisitions in 2015 so far, according to Dealogic figures, making it the biggest sector for dealmaking in the country this year.

This also suggests that attempts by the U.S. government to crack down on tax inversion, after a wave of mergers and acquisitions in 2014-5, particularly in the pharmaceuticals sector, were partly motivated by tax reasons, have been futile.

The company currently known as Allergan, which is headquartered in Ireland, was created when rival Actavis bought the company last year.

The Botox maker, which marked its fifth M&A deal in three years with the merger, has become synonymous with the frenetic pace of dealmaking in the industry.

The company is currently led by Brent Saunders, a veteran dealmaker in the pharma space.

Last year, Pfizer made a $118 billion bid for U.K. pharma company AstraZeneca, but a bid for the maker of Botox, which currently has a market value of $113 billion, could potentially be even bigger.

Further down the line, if a deal transpires, it could also mean that a break-up of Pfizer into one company which sells medicines that are still under patent protection, and another for so-called generic drugs, could be on the cards.

Analysts, led by Goldman Sachs analyst Jami Rubin, who said in March that Ian Read, the chief executive of Pfizer, seemed open to "going further with separations", have speculated for months that 2016 or 2017 could see a seismic break-up at the company.

- By CNBC's Catherine Boyle

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