Tax rules won’t stop Pfizer from bidding U.S. goodbye, CEO says

(Bloomberg) — The U.S. attempt to stop companies from leaving the country for tax reasons won’t stop Pfizer Inc., which is still considering a deal to move America’s biggest drugmaker abroad, said Chief Executive Officer Ian Read.

“I see no reason why we wouldn’t be able to do an inversion,” Read said in a telephone interview today following the company’s third-quarter earnings results. Read said that if Pfizer can find the right target for the right price under its assessment of the U.S. rules, Pfizer would still go ahead.

Pfizer has been on the hunt for a multibillion-dollar deal that would add to the New York-based drugmaker’s pipeline, let it cut costs, and help it escape the U.S.’s 35 percent corporate tax rate. Under so-called tax inversions, U.S. companies use mergers to shift their legal address to a lower-tax country without shifting their actual operations.

The ideal transaction has all three components, Read has said, though U.S. Treasury Department’s rules announced last month to limit the tax moves may lower what Pfizer is willing to pay, Read said today.

The Treasury Department rules, announced last month, include a prohibition on “hopscotch” loans that let companies access foreign cash without paying U.S. taxes, and impose curbs on actions that companies can use to make such transactions qualify for favorable tax treatment.

Read’s remarks are in stark contrast to a wave of pulled tax inversion deals in recent weeks. AbbVie Inc. and Shire Plc agreed on Oct. 20 to terminate what would have been the biggest U.S. tax inversion after AbbVie’s board ended its support for the deal over the U.S. rule changes.

DEALS FALL APART

AbbVie, based in North Chicago, had planned to buy Shire for an estimated $52 billion, then move the combined company’s legal address to the U.K. to lower its tax bill and access cash trapped overseas. Salix Pharmaceuticals Ltd. and Cosmo Pharmaceuticals SpA also ended a $2.7 billion deal after the rules were announced.

Pfizer has so far this year failed to complete a major deal. The drugmaker walked away from a $114 billion attempt to buy London-based AstraZeneca this year, a purchase that would have boosted the company’s pipeline and moved its legal address overseas.

Last month, Pfizer was said to have approached Actavis Plc about a deal. Actavis is run from Parsippany, New Jersey, but obtained an Irish domicile by acquiring Warner Chilcott Plc last year.

For Pfizer, a major deal would help offset a lack of revenue growth in coming years as its major drugs lose patent protection. The company is considering breaking up into individual companies but that probably wouldn’t happen until at least 2017, according to Read.

EARNINGS BEAT

Earlier today, the drug maker beat analysts’ estimates for the third quarter after sales of top vaccine and pain products grew and the company continued to buy back billions of dollars in stock.

Third-quarter net income rose 3 percent to $2.67 billion, or 42 cents a share, from $2.59 billion, or 39 cents, a year earlier. Earnings excluding one-time items of 57 cents a share beat by 2 cents the average of 18 analysts’ estimates compiled by Bloomberg.

Sales of Pfizer’s highest-selling drugs, the pain drug Lyrica and the vaccine Prevnar, which helps prevent pneumococcal infections, rose. Lyrica sales grew 16 percent to $1.32 billion and Prevnar grew 19 percent to of $1.14 billion.

Pfizer shares fell less than 1 percent to $28.96 at 1:10 p.m. New York time.

NEED FOR DEALS

Pfizer still needs to either do a deal or consider a breakup because its pipeline of new drugs is only enough to keep revenue growth flat in coming years, said Ashtyn Evans, health care analyst at Edward Jones, in a telephone interview.

“They could acquire attractive assets to supplement their different segments currently so that it makes more sense to break them up,” she said, or opt to do one large deal. “They’ve got both of those strategies in their back pocket right now.”

While Pfizer’s newest drugs are growing, they still aren’t large enough to replace multibillion-dollar medicines like Celebrex, an arthritis treatment, which is losing patent protection this year.

That includes Xeljanz, a rheumatoid arthritis medicine approved for sale in the U.S. in November 2012. It sold $85 million, more than double a year ago.

Pfizer lowered its full-year sales and earnings forecasts for the second straight quarter.

Revenue for the third quarter fell 2 percent to $12.4 billion. Full-year sales will be as much as $49.7 billion this year, compared to a prior forecast of $50.7 billion, the company said. Profit excluding one-time items will be in a range of $2.23 to $2.27, narrowing from a prior forecast of $2.20 to $2.30.