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* Drug companies have held early talks, WSJ and FT say
* Merger would create world's biggest healthcare group
* Pfizer and Allergan decline to comment (Adds Allergan shares up in premarket trade)
By Natalie Grover and Christian Plumb
Oct 28 (Reuters) - Pharmaceutical giant Pfizer Inc has held early talks with Botox-maker Allergan Plc todiscuss what could be the biggest takeover deal this year, theWall Street Journal and Financial Times reported.
Shares in Allergan jumped 11 percent in premarket trade to$320 by 1120 GMT on the reports.
The healthcare sector has seen an unprecedented wave ofdeals since early 2014, from large drugmakers buying up smallerrivals, to consolidation among makers of generic medicines andtie-ups between insurers.
A bid for Allergan, which has a market value of $113billion, would be Pfizer's second recent attempt to acquire abig rival, following its unsuccessful courtship last year ofAnglo-Swedish pharmaceuticals group AstraZeneca Plc.
Combining Allergan and Pfizer, which is worth $219 billion,would create the world's largest healthcare group with a marketvalue of around $330 billion, ahead of Johnson & Johnson on $278 billion.
A Pfizer spokesman said it "does not comment on marketrumour and speculation". Allergan also declined to comment.
The potential for lowering Pfizer's tax bill by switchingits headquarters from the United States to the United Kingdomwas touted by Chief Executive Officer Ian Read as a key reasonfor the proposed AstraZeneca deal.
A takeover of Allergan could offer similar advantages giventhat the Botox-maker is based in lower-tax Dublin. A U.S.attempt to crack down on such tax avoidance deals led to thecollapse of AbbVie Inc's bid to buy Shire Plc,but it is unclear whether those rule changes would precludepotential tax advantages from a Pfizer-Allergan deal.
"When you're the size of Pfizer, an acquisition like thismay be the only choice you have in order to be able to move theneedle for sequential growth...so the question now becomes, ifnot this, what, and if not now, when?" said WBB Securities'analyst Stephen Brozak.
Pfizer, the largest U.S. drugmaker, has also been suggestedas a possible acquirer of GlaxoSmithKline Plc and Shire,and shares in these two companies fell 1.5 and 1.8 percent onThursday morning in London.
REVENUE BOOST
Allergan would give Pfizer, whose revenues are expected toslide 3.3 percent this year, a boost in top-line growth. TheBotox-maker's revenue is seen increasing 39 percent this year,according to Thomson Reuters I/B/E/S estimates.
Bernstein analyst Tim Anderson said Allergan was a good fitand Pfizer might feel now was the right time to do a deal, givena recent market correction that has made Allergan look cheap.
The merger talks are in early stages, and may not yield anagreement, while other details are unclear, the Wall StreetJournal said. (http://on.wsj.com/1XA0qdo)
The Financial Times, which reported the talks later,described the talks as preliminary. Reuters was not immediatelyable to confirm the reports.
Allergan became the third-largest generic drugmaker in theUnited States after combining with Actavis in March.
Its chief executive, Brent Saunders, has been eager to dodeals, having first orchestrated the sale of Forest LaboratoriesInc, where he was initially CEO, to Actavis, then using thelatter to seal the $66 billion purchase of Allergan.
Following the Actavis tie-up, Allergan sold its genericdrugs business to Israel's Teva Pharmaceutical Industries in July for $40.5 billion in cash and stock. AndSaunders said after that he hoped to use those proceeds to doanother large, "transformational" merger.
In its first full quarter after the Actavis deal, Allerganreported second-quarter revenue of $5.76 billion, led by $632million in sales of wrinkle blocker Botox. Other top-sellingdrugs include dry eye treatment Restasis and Alzheimer's drugNamenda.
Pfizer recently reported third-quarter revenue of $12.1billion, including $1.58 billion for its Prevnar pneumococcalvaccines and $947 million for pain drug Lyrica.
While Pfizer wanted to buy AstraZeneca in part to boostPfizer's pipeline of cancer drugs, a deal with Allergan wouldinvolve dermatology drugs and generics. (Additional reporting by Ben Hirschler and Deena Beasley;editing by Lisa Shumaker, Greg Mahlich)
