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This story was updated with new information about the size of the merger.

Pharmaceutical giants Pfizer and Allergan announced a $160 billion merger on Monday that would create the world’s largest drug company.

The deal, which combines the makers of Viagra and Botox, may spark a political uproar because the transaction is designed to lower corporate tax bills. And it may also reignite concern about the extent to which drug discovery will remain an important part of the pharmaceutical playbook.


The merger is the latest in a string of such deals over the past couple of years that have transformed the pharmaceutical industry at a time when drug prices have come under increased pressure and the push to develop new medicines remains costly and risky. The deal, which comes after weeks of talks, would be the biggest merger ever among drug makers, exceeding the $116 billion that Pfizer paid to buy Warner-Lambert in 2000.

The combined company would be run by Ian Read, the current Pfizer chief executive, while Brent Saunders, who currently heads Allergan, would reportedly take a senior role. Its portfolio of products would include a variety of big-selling drugs and vaccines used to treat pneumonia, cancer, eye disease, and rheumatoid arthritis, among many other diseases.


A key feature of the deal is a lower tax rate thanks to a so-called tax inversion. While Pfizer is based in New York, the combined companies will establish legal tax headquarters in Dublin, where Allergan is based. The corporate tax rate there is 12.5 percent compared with 35 percent in the US. Such moves, which are popular in the pharmaceutical industry, have caused political tumult.

The merger terms were first reported by Reuters and the Wall Street Journal.

The deal comes just days after the US Treasury Department issued new rules in hopes of thwarting more tax inversions. This was the second time in 14 months the Obama administration took such a step. The first time followed an unsuccessful effort by Pfizer to buy AstraZeneca, which is based in the UK. Tax experts believe the rules are unlikely to deter inversions, but further government action is possible.

The merger between Pfizer and Allergan, meanwhile, could facilitate a long-planned move by Pfizer to split itself into two businesses — one that focuses on developing new medicines and another that emphasizes the sale of older medicines that have lost patent protection. Pfizer has openly considered the strategy for the past years as it faced declining revenues.

At the same time, the deal may raise questions about investment in research and the development of new drugs. Although Saunders has acknowledged that research remains a fundamental part of the pharmaceutical enterprise, he has not embraced the concept that drug discovery provides a sufficient return on capital.