What's with all the healthcare and pharmaceutical mergers?

James Dennin, Kapitall: Last Tuesday alone saw the announcement of $74 billion in potential healthcare and pharmaceutical mergers. In one day. 

Corporate inversion is the practice of buying another company so that you can relocate. Typically, inversion involves a larger "parent" company and a smaller acquisition target located somewhere with low corporate taxes, like Ireland. 

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That's because American companies are required to have at least 30% of their assets located overseas before they can be considered "headquartered there." When you buy an entire company, that threshold is usually pretty easy to hit, and you also get to benefit from saving on reduced competition and taxes. 

This is in part what's explaining all of the healthcare merger and acquisition activity that's been going on all year, particularly among drug makers. 

A lot of the biggest drug manufacturers, like Pfizer (PFE), have seen their costs go up in the last year. Part of it has to do with pressure from insurance companies to provide cheaper drugs. And part of it has to do with expiring patents on major blockbusters like Viagra. 

That, and the mountains of corporate cash that have been burning a hole in these company's pockets. The pharmaceutical industry has been spending money with particular fervor; a single day last week saw $74 billion in merger activity alone. 

The latest merger talk in pharmaceutical circles is Pfizer's pursuit of the British drug maker Astra Zeneca (AZN). The latter seems reluctant to be acquired, but Pfizer has been aggressive in its pursuit, despite a long-standing history as one of America's oldest companies. 

And yet there could also be another reason to account for the huge spike in activity. Congress is in the process of considering raising the amount of assets a US companies needs to maintain overseas from 30% to 50%, making inversion significantly less attractive. 

Besides, there are only so many attractive acquisition targets located in tax havens anyway. It certainly begs the question of whether pressure will prompt firms into overpaying.

Click on the interactive chart to view data over time. 

 Will these mergers and rumored mergers pay off? Use the list below to begin your analysis and let us know what you think in the comments. 

1. Valeant Pharmaceuticals International, Inc. ( VRX): A  specialty pharmaceutical company, develops, manufactures, and markets pharmaceutical products in the areas of neurology, dermatology, and branded generics. Market cap at $45.76B, most recent closing price at $133.71.

Valeant announced its takeover bid for Allergan last week for almost $46 billion. 


 

2. Allergan Inc. ( AGN): Operates as a multi-specialty healthcare company primarily in the United States, Europe, Latin America, and the Asia Pacific. Market cap at $50.44B, most recent closing price at $165.85.


 

3. GlaxoSmithKline plc ( GSK): Engages in the discovery, development, manufacture, and marketing of pharmaceutical products, over the counter (OTC) medicines, and health-related consumer products worldwide. Market cap at $132.77B, most recent closing price at $55.37.

GlaxoSmithKline has pursued a number of swaps and deals with the Swiss drug maker Novartis. 


 

4. Pfizer Inc. ( PFE): Pfizer Inc., a biopharmaceutical company, offers prescription medicines for humans and animals worldwide. Market cap at $198.24B, most recent closing price at $31.28.

Astra Zeneca turned down a $99 billion offer from Pfizer on Monday. They're not giving up however. 


 

5. Novartis AG ( NVS): Engages in the research, development, manufacture, and marketing of healthcare products worldwide. Market cap at $212.00B, most recent closing price at $86.94.


 

6. Forest Laboratories Inc. ( FRX): Develops, manufactures, and sells branded and generic forms of ethical drug products. Market cap at $25.49B, most recent closing price at $91.91.

Carl Icahn orchestrated a multi-billion takeover by Actavis worth about $25 billion.


 

7. Actavis plc ( ACT): Engaged in the development, manufacture, marketing, sale, and distribution of pharmaceutical products. Market cap at $36.61B, most recent closing price at $204.33.


 

8. AstraZeneca PLC ( AZN): Develops, and commercializes prescription medicines for cardiovascular, gastrointestinal, infection, neuroscience, oncology, and respiratory and inflammation diseases worldwide. Market cap at $99.73B, most recent closing price at $68.05.


 

(List compiled by James Dennin, a Kapitall Writer. Monthly returns sourced from Zacks Investment Research.)

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