Ireland-based Allergan on Thursday confirmed that it has been approached by Pfizer and is in talks regarding a potential deal with the U.S. drug company, raising questions about another pharmaceutical tax inversion.
Allergan said no agreement had been reached, describing the talks as "preliminary and friendly."
Shares of Allergan popped about 8 percent in early morning trade. Pfizer stock began to trade higher, before falling about 2 percent. Both stocks were initially halted immediately after the news.
"Under any potential scenario with Pfizer, Allergan remains strongly committed to complete the proposed divestment of its global generics business to Teva Pharmaceutical Industries and expects the generics divestiture transaction to close in the first quarter of 2016," the statement said.
Allergan said it would make another announcement "when appropriate."
Pfizer also confirmed the talks in a statement released on Thursday. "Pfizer will not comment on speculation regarding the terms of a potential transaction," the company said.
The two companies are the latest pharmaceutical companies to start early dealmaking talks. Such a deal could mark the zenith of the industry's megamerger trend.
There has already been close to $850 billion worth of deals in the sector made this year, as cash-rich companies either try to fix their pipelines or save on U.S. taxes by doing a tax inversion, where they exploit loopholes in America's tax system by buying smaller rivals based abroad and redomiciling themselves.
The health-care sector has accounted for close to a quarter of U.S.- focused mergers and acquisitions in 2015, according to Dealogic figures, making it the biggest sector for dealmaking in the country this year.
This also suggests that attempts by the U.S. government to crack down on tax inversion, after a wave of mergers and acquisitions in 2014-5 were partly motivated by tax reasons, have been futile.
The company currently known as Allergan, which is headquartered in Ireland, was created when rival Actavis bought the company last year.
The Botox maker, which marked its fifth M&A deal in three years with the merger, has become synonymous with the frenetic pace of dealmaking in the industry.
The company is currently led by Brent Saunders, a veteran dealmaker in the pharma space.
Last year, Pfizer made a $118 billion bid for U.K. pharma company AstraZeneca, but a bid for the maker of Botox, which currently has a market value of $113 billion, could potentially be even bigger.
Further down the line, if a deal transpires, it could also mean that a breakup of Pfizer into one company that sells medicines still under patent protection, and another for so-called generic drugs, could be in the cards.
Analysts led by Goldman Sachs analyst Jami Rubin have speculated for months that 2016 or 2017 could see a seismic breakup at the company. In March, Rubin said that Ian Read, the chief executive of Pfizer, seemed open to "going further with separations."
— CNBC's David Faber contributed to this report