Mega pharma deal boosts biotech shares, but pharma shares trade mixes

November 24 23:22 2015

The biggest marriage in the drug industry’s history hasn’t provided the type of booster shot to shares of deal participants Pfizer and Allergan, nor has the merger provided a major lift to shares of other big pharma names. If there’s been any semblance of steroid-like reaction, it has been in biotech stocks, which are solidly in the black today. Not even the announcement of a record-breaking deal valued at roughly $160 billion could push shares of American drug maker Pfizer (maker of Viagra) and Irish-based Allergan (maker of Botox) higher today. Around 12:30 p.m. ET, Pfizer’s (PFE) stock was down 64 cents, or 2%, to $31.54. And even though Pfizer is offering $363.63 a share for Allergan (AGN) , well above Friday’s close of $312.46, Allergan shares were trading in the red today post-announcement. Allergan was off $7.68, or 2.5%, at $304.78.AP FINANCIAL MARKETS WALL STREET F FILE USA NY

There was speculation on Wall Street that investors were expecting an even better deal, according to CNBC. There were whispers in the range of $390 or $400 a share, which could be a reason why Allergan shares are not reacting positively, despite the fact the deal not only creates the world’s biggest drugmaker but also marks the biggest so-called “tax inversion” deal. A tax inversion is when an American company shifts its domicile abroad as part of a merger, in this case Ireland, to get better tax treatment for its profits. The deal is a continuation of the trend towards consolidation in the health care sector, as drug makers seek out growth drivers and cost savings. Speculation over what other deals might make sense is likely occurring on Wall Street trading desks. The size and heft of the new company, which will be called Pfizer plc, also adds to the new investing equation as it shifts the competitive landscape.

Wall Street is now looking for Pfizer to split up into pieces, or sell off some assets, once the deal with Allergan closes, which is expected in mid-2016. Those expected spin-offs could impact many other names in the drug sector, Irina Koffler, a pharmaceutical analyst at Mizuho Securities USA told clients in a note. “Overall this is a positive for the space, in our view,” Koffler wrote. “We think that this deal could spur a series of smaller product, pipeline and segment divestitures from both Allergan and Pfizer that could benefit (other) companies in search of accretive products or late stage assets.”