The fast-growing and diverse product lineup that has drawn a hostile bid for Allergan Inc. could also be just the thing to attract a “white knight” for the Irvine-based drug maker.
The difference between a friendly sale—or perhaps a defensive buy—and an unsolicited takeover will likely make all the difference for employees at Allergan’s headquarters campus in the John Wayne Airport area.
Allergan, which makes Botox and other drugs, has an unsolicited $45.7 billion bid on the table from Canada-based Valeant Pharmaceuticals International Inc. Activist investor Bill Ackman—whose Pershing Square Capital Management LP owns 10% of Allergan—is backing Valeant’s bid.
Valeant Chief Executive Michael Pearson has signaled that the company would gut Allergan’s $1 billion-a-year R&D operation, which accounts for many of the estimated 2,500 jobs at its headquarters and others among its companywide headcount of 11,400.
Valeant executives have said they would trim about 5,500 jobs from the combined company if a deal goes through.
Allergan, which declined comment for this story, reportedly has contacted New Brunswick, N.J.-based Johnson & Johnson and Sanofi SA in France to see if either company would be interested in buying it.
It’s also reportedly looking at acquiring Shire PLC, which has an on-the-books headquarters in Ireland, as a potential defense against Valeant’s hostile bid.
Shire declined to comment on what its chief executive referred to as an “M&A frenzy” occurring in the drug sector, which most recently saw New York-based Pfizer Inc. make a $100 billion bid for U.K.-based AstraZeneca PLC.
At stake in the Allergan deal is Orange County’s most valuable public company, with a market capitalization of about $50 billion. Allergan had revenue of $6.3 billion last year, and analysts project continuous revenue gains to $9 billion by 2018.
The following is a look at some of Allergan’s products and how they might fit with its various potential buyers:
Neurotoxins and Dermal Fillers
Botox is by far the dominant player in the neurotoxin market, coming in with nearly $2 billion in sales in 2013, or 31% of Allergan’s total. Those numbers cover both cosmetic and therapeutic uses.
Allergan Chief Executive David Pyott has estimated that Botox still commands about 80% of the neurotoxin market.
Botox could be a particular attraction for J&J. It announced in mid-April that it was ceasing development of the PurTox botulinum toxin after regulatory issues and other stumbling blocks. J&J acquired PurTox in 2009 when it bought Santa Barbara-based Mentor Corp. for $1.1 billion.
Valeant got Dysport, when it spent $1.6 billion to buy Medicis Pharmaceutical Corp. of Scottsdale, Ariz., in 2012. Dysport has between 5% and 10% of the global neurotoxin market, according to estimates by various market trackers.
Allergan, Johnson & Johnson and Valeant all are part of the lower-face dermal filler market through Juvéderm, Evolence and Restylane, respectively.
Eye Drugs, Products
Prescription pharmaceuticals accounted for nearly $2.9 billion, or about 45%, of Allergan’s revenue last year. The lineup includes Restasis for dry eye and Lumigan and Alphagan P for glaucoma.
Valeant built up its presence in the eye drug and surgical market in 2013, when it bought Bausch + Lomb Inc., a diversified eye health company, for $8.7 billion.
Analysts generally like the idea of drug makers’ forays into the ophthalmic world: “[The industry] is growing at a solid pace, it has a high cash-pay component and generic products face strict barrier to entry. Ophthalmology is much more attractive than other specialty pharma segments like women’s health and central nervous system drugs,” said David Krempa and Damien Conover, analysts with Chicago-based Morningstar Research, in a note published last year on Valeant’s buy of Bausch.
Sanofi has a presence in some segments of ophthalmology through its buy of Bay Area-based biotech Genzyme Corp. in 2011 for $20 billion.
Dermatology
Allergan’s skin care business had $466.5 million in revenue last year, up 43% from 2012. It includes Tazorac for acne.
Its skin care business could fit in with one of Valeant’s core strategic thrusts.
Valeant has made several deals for dermatology companies since Pearson took over as chief executive in 2008. The company has said it hopes to reach the $500 million sales mark within dermatology but does not break out revenue by therapeutic area.
Valeant’s dermatology products include Acanya for acne; CeraVe, a moisturizer sold at stores and recommended by doctors; and Kinerase, a line of skin care products sold in doctors’ offices.
Sanofi left dermatology in 2011 when it sold its Dermik dermatology unit to Valeant.
Allergan is noted for its emphasis on research and development, such as finding new uses for Botox in therapeutic areas, including chronic migraine headache and overactive bladder.
