The high cost of R&D is used to explain why drugs giants merge, and why they must charge high prices. The reality is somewhat different.
On November 23rd, Pfizer and Allergan announced their proposed merger to create the world's biggest drugmaker.
The Pfizer/Allergan merger was rationalized with the firms' leaders stressing that the scale is needed to keep inventing blockbuster treatments. However, by shifting Pfizer's tax domicile to from the U.S. to Ireland, the combined group's tax rate will fall from about 25% to 17-18%. Besides that, the suggestion that size is needed to fund research and development of new novel pharmaceuticals does not stack up.
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