38 Annals of Health Law Vol. 25
The fourth factor is the expiration of patent protections for innovator drug compounds and processes. Widespread expiration of successful blockbuster drug patents, possibly the low-hanging fruit described above, can “decimate” a company’s revenues. 23 Of course, patent expirations have different impacts on the innovator companies versus generic companies. On average, generic competition results in about 90 percent revenue loss within the first two years of patent expiration for the innovator product. 24 Coupled with these patent expirations, the average development time from chemical identification to market approval has doubled to ten to fifteen years since the 1970s, causing a decrease in effective patent life. 25 Relatedly, the fifth factor driving consolidation is a desire to strengthen, broaden, or expand existing product and patent portfolios in order to create new value for the company. 26 If company patents are drying up, acquiring others’ patents will generate new revenue. The sixth factor for consolidation in bio-pharma is ample tax opportunities outside the United States for companies with a foreign address. 27 One very recent, and highly controversial, example was Pfizer’s proposed merger with Allergan, which houses its global headquarters in Dublin, Ireland. 28 Characterized as a tax inversion deal, Pfizer announced its $160 billion merger with Allergan at the end of November 2015.29 The merger would have created the world’s largest drug manufacturer and move the New York-based company’s principle executive offices to Ireland where the tax rate is
Pharma R&D, FORBES (Mar. 2, 2012), http://www.forbes.com/sites/johnlamattina/ 2012/03/02/there-has-never-really-been-low-hanging-fruit-in-pharma-rd/. 23. Patricia M. Danzon, et al., Mergers and Acquisitions in the Pharmaceutical and Biotech Industries, 28 MANAGERIAL & DECISION ECON. 307, 309 (2007). 24. Steve Elms & Mark Jones, M& A Market Reignites, TREASURER 40, 41 (May 2011), http://www.treasurers.org/ACTmedia/May11TTciti40-42.pdf. 25. Dror Ben-Asher, In Need of Treatment? Merger Control, Pharmaceutical Innovation, and Consumer Welfare, 21 J. LEGAL MED. 271, 276 (2000). 26. See Karlee Weinmann, Big Pharma Consolidation Underpins Deal Making in 2014, LAW360 (Apr. 8, 2014, 5: 14 PM), https://www.cov.com/~/media/files/corporate/ publications/2014/04/big-pharma-consolidation-underpins-deal-making-in-2014.pdf (noting the renewed emphasis on boosting value in pharma company collaborations). 27. KNOWLEDGE@WHARTON, supra note 14. 28. Ransdell Pierson & Bill Berkrot, Pfizer to Buy Allergan in $160 Billion Deal, REUTERS (Nov. 24, 2015, 3: 51 PM), http://www.reuters.com/article/us-allergan-m-a-pfizer- idUSKBN0TB0UT20151124. 29. Jim Puzzanghera & Samantha Masunaga, Pfizer and Allergan’s $160-Billion Pharmaceutical Merger Puts New Twist on Tax-Avoiding Inversions, L. A. TIMES (Nov. 23, 2015, 9: 35 AM), http://www.latimes.com/business/la-fi-pfizer-allergan-merger-20151123- story.html. Tax inversions are “instances where firms that consist of multiple corporations reorganize their structure so that the ‘parent’ element of the group is a foreign corporation rather than a corporation chartered in the United States.” DONALD J. MARPLES & JANE G. GRAVELLE, CONG. RESEARCH SERV., R43568, CORPORATE EXPATRIATION, INVERSIONS, AND MERGERS: TAX ISSUES 5 (2015).