Allergan Spinoff Set to Debut
By VITA REED
A slow-and-steady medical products company may not be sexy, but it may just hit the spot in the stock market these days.
Advanced Medical Optics Inc., a maker of contact lens care and eye surgical products, is set to be spun off from Irvine-based drug maker Allergan Inc. on July 1.
Nearly 29 million shares of Advanced Medical are set to go to shareholders of Allergan, which isn’t raising any money in the offering. The new company is set to trade as AVO on the New York Stock Exchange.
Advanced Medical is set to join the middle ranks of Orange County public companies. James Mazzo, Advanced Medical’s chief executive, has said the company expects a market value of $500 million to $800 million.
That would place Advanced Medical alongside health companies such as Alliance Imaging Inc. of Anaheim, with a market value of $716 million at recent check, and Orange-based Sybron Dental Specialties Inc., at $732 million last week.
Allergan was OC’s most valuable public company as of last week with an $8.3 billion market capitalization.
Advanced Medical even has found itself a new home: It plans to move from Allergan’s Dupont Drive campus to a Santa Ana industrial park where its neighbor will be Ingram Micro Inc. Advanced Medical is leasing excess space from the technology products distributor.
Advanced Medical is profitable with annual sales of about $540 million. The company’s revenue is growing, albeit at a slower pace than Allergan’s drug business, which has been fueled by Botox, a neurotoxin popular with cosmetic surgeons.
Allergan’s drug business was two-thirds of its $1.7 billion in sales last year, up from 49% in 1996.
“At Advanced Medical Optics, we will not be competing in the future for financial and managerial resources with the high-growth pharmaceutical business of Allergan,” Mazzo said in a federal filing. “We believe that we will be able to operate our business with even more focus and agility.”
Advanced Medical reported an operating profit of $8.6 million on sales of $114 million in the first quarter. Sales were down from $121 million in the year-ago quarter, though operating profit was up from $1 million a year earlier.
Separation Costs
Breaking up has its costs, though. Advanced Medical stands to lose operating benefits from being part of Allergan, according to a company filing. Factoring in those losses, Advanced Medical’s first-quarter operating profit would have been about 20% lower, the company said.
And some analysts have grumbled about the cost of the spinoff, noting that banking fees and other expenses will come in at around $175 million for a company that could be valued at $500 million. The new company also is slated to inherit some $275 million in debt.
Earlier this month, Advanced Medical Optics said it would raise $200 million in a private debt placement. Proceeds, along with a $100 million new credit line, will be used to fund the spinoff and as working capital.
Other analysts like the move.
“The thought process behind the spinoff was to free up the companies to pursue different strategies,” said Angela Larson, a pharmaceutical analyst with Salomon Smith Barney in New York. With the spinoff, “there would not be management distraction or R & D; dollar sharing.”
Allergan should gain too, according to Ken Goldman, a Lehman Brothers drug analyst. After the separation, “Allergan will be valued as a specialty pharmaceutical company rather than a global eye care company,” Goldman said. “(The spinoff) will free Advanced Medical Optics to (act) like a specialty eye-care company.”
Advanced Medical is in a crowded market. Rivals include Alcon Inc., a unit of Nestle SA that had its own spinoff about three months ago, Bausch & Lomb Inc. and Pharmacia Ophthalmics, a unit of Pharmacia Corp.
Advanced Medical’s surgical products include acrylic intraocular lenses used to replace the natural lens of the eye during cataract surgery and other procedures. Other products include devices to remove the eye’s natural lens during surgery, and a microkeratome to create a flap on the cornea in laser vision procedures.
The Complete and Consept contact lens care products also are part of the company.
Advanced Medical is the second eye company based here or with big local operations to go public this year. Alcon, which is based in Fort Worth, Texas, and employs around 580 people in Irvine, makes back-of-the-eye surgery and cataract products.
Alcon, which still is predominantly owned by Nestle, debuted in late March. The company has held its own in rough seas on Wall Street, rising about 15% last month from its opening price and checking in about 6% higher than its debut last week. Alcon counted a hefty $11 billion market value at recent check.
The Team
Advanced Medical is set to have some 2,100 workers upon its spinoff. Besides OC, it is set to have research and development facilities in the United Kingdom and Tokyo, and production in Hangzhou, China, and Anasco, Puerto Rico.
Chief Executive Mazzo has spent 22 years with Allergan and most recently was president of the company’s Europe, Africa, Middle East region and global head of the eye surgical product line.
Other Advanced Medical executives include: Richard “Randy” Meier, corporate vice president and chief financial officer; Jane Rady, corporate vice president, strategy and technology; Russell Trenary, corporate vice president and president, Americas and Peter Nolan, vice president, operations.
Meier most recently was chief financial officer and executive vice president at ICN Pharmaceuticals Inc. of Costa Mesa. Rady comes to AMO from Integrated Genomics Inc. of Chicago, where she was chief executive.
Trenary, whose past includes a stint at Allergan, most recently was chief executive of Sunrise Technologies International Inc., a Fremont-based ophthalmic laser company. Nolan was senior vice president, global operation at GN Resound Corp., a Danish company that makes hearing aids and instruments.
Advanced Medical Optics Inc.
Business: optical surgery, contact lens care products
Sales for 12 months ended March 31: $536 million
Operating profit for 12 months ended March 31: $79.8 million
Q1 sales breakdown: surgical 51%, contact lens 49%
2001 sales breakdown: Asia Pacific 34%, U.S. 31%, Europe 30%, other 5%
Rivals: Nestle SA’s Alcon Inc., Bausch & Lomb Inc., Novartis AG, Staar Surgical Co.
