In an unusual move, Allergan has touted a study detailing its many contributions to the economy in Waco, Texas, where the drug maker has a manufacturing facility. And the results could be used to bolster its case in Washington, D.C. for approval of its controversial merger with Pfizer.
Among the various findings, the study suggests that the total economic impact Allergan had on the central Texas economy last year amounted to $441 million; from 2010 to 2015, earnings for Allergan’s Waco employees rose nearly 39 percent, an average growth rate of almost 7 percent per year; and local employment rose nearly 28 percent, or 5 percent annually, on average.
The study, which was conducted by a Baylor University professor, emerges as Allergan and Pfizer hope to convince federal authorities to approve their $160 billion merger. Designed as a so-called tax inversion, the deal would shift corporate headquarters to Ireland, so the combined company could avoid paying higher US corporate taxes.
This is a “likely reminder for Congress that taxes are not the only benefit (the company) provides (to the American economy) and, maybe, (the company is) silently hinting that, without the Pfizer deal, other measures may need to be taken,” Sanford Bernstein analyst Ronny Gal wrote in an investor note. There is nothing, however, to suggest Allergan is contemplating cuts should the deal not be approved, he added.
The Pfizer deal, which needs approval from federal regulators, has generated considerable controversy because it would rob the US Treasury of revenue. A tax inversion is, essentially, a form of financial engineering in which a US company buys a foreign firm, and then moves its headquarters to an overseas location where corporate taxes are lower. Faced with declining sales, Pfizer, which is based in New York, pursued Allergan, which is domiciled in Dublin, Ireland.
An Allergan spokesman told us the university initiated the study. He added that the drug maker did not provide financing or make a payment to the academic, Baylor University economics professor Tom Kelly, who conducted the research. We asked Baylor and Kelly for comment and will update you accordingly.
“The study was conducted to simply showcase the economic impact of the company’s operations in Waco on the local and central Texas economies,” the Allergan spokesman told us. “As a company, it was important for us to showcase that impact and applaud the important work of our 750 employees at the site.” The plant makes several eye care and dermatological products.
Nonetheless, the timing is favorable for Allergan. After all, the drug maker could use the results to remind Washington that Allergan contributes more than just taxes. “I wouldn’t disagree with that statement, but it’s not really the purpose of the study,” the spokesman said. However, he demurred when asked if there would be repercussions, such as Waco cuts, if the Pfizer deal is not approved.
Given the case that Allergan can make about its contribution to central Texas, the drug maker may gauge the economic impact of its other facilities. Allergan currently operates 40 manufacturing plants around the world, including more than a dozen in the United States. And the Allergan spokesman acknowledged that “we’re considering possible additional studies,” although he did not provide specifics.