A chain reaction of deal-making and acquisition talks is continuing to reshape the pharmaceutical industry, with a handful of big companies jostling to outmaneuver their competitors.
The flurry of activity remains strong despite the Obama administration’s efforts to curb the tax-avoiding deals called inversions, which have driven many of the health care deals this year. And in an indication of how quickly talks are progressing, new deals are coming together as soon as others fall apart.
Allergan, the maker of Botox that is itself an acquisition target, had been trying to acquire Salix Pharmaceuticals in an all-cash deal. Such a move probably would have made Allergan too large to be acquired by Valeant Pharmaceuticals and Pershing Square Capital Management, which are pursuing a $53 billion takeover effort for Allergan.
But talks have now ceased between Allergan and Salix. The full set of reasons for the collapse of the talks was not immediately clear, but it appears unlikely that the two companies will reach a deal.
That could increase the likelihood that Valeant and Pershing Square will prevail at a special meeting of Allergan shareholders scheduled for Dec. 18, when they hope to vote out a majority of the Allergan board and pave the way for a takeover.
“That was the last line of defense for Allergan before Valeant puts in place its six nominees,” said Phillip D. Torrence, a partner at the Honigman law firm.
Salix has not jumped off the deal carousel. The company, based in Raleigh, N.C., said on Friday that it had abandoned plans for an inversion, in which it would have acquired a unit of Cosmo Pharmaceuticals of Italy and reincorporated in Ireland to cut its United States tax bill. Salix and Cosmo cited political concerns in calling off their deal, a nod to new rules put forward by the Treasury Department last week that made inversions less lucrative.
“The changed political environment has created more uncertainty regarding the potential benefits we expected to achieve,” Carolyn J. Logan, Salix’s chief executive, said in a statement. Salix will make a $25 million termination payment to Cosmo.
Instead, Salix appears to be trying to sell itself, emboldened by the interest it received from Allergan. Salix is reportedly in talks with Actavis, a drug maker that recently completed an inversion of its own.
But Actavis has a broad appetite, and recently considered making a deal for Allergan.
That tangled web is still a long way from being sorted out. Yet the range of potential deals suggests the most robust market for pharmaceuticals mergers and acquisitions in recent memory.
One factor driving the wave of deal-making is simple pent-up demand. In the wake of the financial crisis, many companies held back from striking deals, exercising caution rather than expanding too aggressively.
“A lot of these companies that have global footprints did not go out and take advantage of opportunities during the downturn,” Mr. Torrence said.
In some cases, the deals underscore efforts by drug makers to bolster their product lines through acquisitions instead of spending money on research and development.
Yet another incentive is the enduring cheapness of debt.
“This is all driven by low interest rates,” said Ronny Gal, an analyst with the research firm Sanford C. Bernstein. “Deals you could not have conceived of before the financial crisis are suddenly very profitable.”
Had Allergan proceeded with its acquisition of Salix, it planned to borrow heavily to pay for the deal, taking advantage of low interest rates.
Cheap debt also allowed Medtronic, the medical device maker, to announce on Friday that it would restructure the financing for its $43 billion acquisition of Covidien of Ireland, another inversion.
And with financing expected to remain cheap through the spring, more megadeals are expected. Already, global health care deal-making has topped $385 billion, the highest amount on record, according to Dealogic.
“There’s a feeling that it’s now or never,” Mr. Gal said.
Though it remains unclear which deals will get done and which will be abandoned, a reshaped pharmaceuticals industry is beginning to come into focus.
If Allergan is unable to find a company it can buy in the next few months, its shareholders may replace its board and support a sale to Valeant. And if Actavis were to agree to buy Salix, it would be less likely to pursue Allergan, further increasing the likelihood that Valeant might prevail in its hostile takeover effort.
“Allergan is not a seller,” Mr. Gal said. “But it’s not always up to them.”
Acquiring Salix would also mean that Actavis could be too large to be acquired by Pfizer, which tried earlier this year to buy AstraZeneca for more than $100 billion and strike an inversion. Pfizer approached Actavis about a takeover earlier this year and is thought to still be on the hunt for a big acquisition.
And these are just the deals that have been announced or rumored. With the financial crisis fading in the rearview mirror, demand for consolidation still strong and financing still cheap, the boom in health care deal-making is unlikely to slow down anytime soon, Mr. Torrence said.
“The turtle is finally poking its head out from its shell now that the storm has passed,” he said.
Chad Bray contributed reporting.
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