Allergan PLC is back in the hunt for deals in its seven core therapeutic areas, including ones that could complement products developed at its Irvine hub for Botox, medical aesthetics, dermatology and ophthalmology.
The drugmaker, which is based in Ireland for tax purposes and primarily operates from New Jersey, is expected to make an acquisition after its $160 billion mega-deal with New York-based Pfizer Inc. fell apart last week when the U.S. Treasury issued new rules against tax inversions.
Allergan also last week said it completed a licensing deal that could be worth up to $3 .3 billion with U.K.-based Heptares Therapeutics, a unit of Japan-based Sosei Group Corp., for neurology drugs. Allergan paid $125 million up front to Heptares; the deal also calls for $665 million in milestone payments for the successful completion of clinical trials. A further $2.5 billion in milestone payments, plus royalties, will depend on the eventual commercial success of the drugs.
“Our first focus is on executing our existing business opportunities, as well as advancing our existing pipeline,” Allergan Chief Executive Brent Saunders said last week on a business strategy call.
“That being said, we are always on the lookout for growth assets, and I don’t want anyone to think that we’re looking for a big M&A transaction versus a string of pearls. Everything is on the table.”
News reports have mentioned several companies as potential buys, including a few that could fit into Allergan’s Irvine-based businesses.
They include Newark-based Revance Therapeutics Inc., which is developing a pair of potential Botox rivals; Palo Alto-based Anacor Pharmaceuticals Inc., which sells nail fungus treatment Kerydin and is developing drugs to treat psoriasis and atopic dermatitis; and Menlo Park’s Dermira Inc., developer of drugs addressing chronic plaque psoriasis, acne and excessive underarm sweating.
Canada-based Valeant Pharmaceuticals International Inc., a former Allergan hostile suitor, also has been brought up. Valeant’s stock has cratered in recent months over accounting issues and heavy debt, but market watchers have said Allergan might be better off waiting for bankruptcy or an asset “fire sale” if the company has any interest.
Bausch & Lomb, the Valeant ophthalmology unit that Saunders once ran when it was independent, was part of the takeover buzz. Activist investor Bill Ackman, who teamed with Valeant on its unsuccessful hostile takeover attempt of Allergan, said in early March that Valeant could sell Bausch & Lomb to raise cash.
Saunders addressed the Valeant and Bausch & Lomb matters in response to a question from analyst David Maris of Wells Fargo Securities, who brought up Saunders’ appearance on cable channel CNBC, where Bausch & Lomb was discussed.
“… Just to be clear on the Bausch & Lomb comment, obviously I have a fondness for Bausch & Lomb that goes beyond my time at Allergan,” Saunders said. “And I think Bausch & Lomb is interesting at the right price, given that we are an eye care [company] and it’s a complementary business to us.”
Saunders exercised caution when considering a possible Valeant purchase.
“But that being said, first of all, Bausch & Lomb is not for sale. Second, as I said on TV, Valeant may be for sale or maybe it isn’t. I don’t know. But we only buy growth assets.”
Allergan, if it chooses to pursue a deal, will have a large stash of cash to do so. It’s expected to net $34 billion once it closes the divestment of its generic drug business to Israel-based Teva Pharmaceutical Industries Ltd., which is scheduled for the end of June, plus $150 million paid by Pfizer as a breakup fee.
Allergan and Pfizer “have been serial acquirers in healthcare, and both have significant financial firepower,” analyst Hartaj Singh of San Francisco-based BTIG LLC told Bloomberg. “With biotech valuations down since mid-2015, the sector looks more appealing to acquirers.”
Buybacks
Other options are on the table, according to Saunders.
He said the drugmaker would look at “potentially share buybacks and other ways of returning capital to shareholders and creating shareholder return.”
Allergan has been exhorted by some on Wall Street to buy back shares because its stock declined as the Pfizer situation crested. Its shares are down 20% since the start of the year and 19% since Nov. 23, when Allergan and Pfizer announced their intent to combine.
Pfizer wasn’t the only matter brought up on the call, which featured Saunders, a frequent Orange County visitor, and other Allergan executives.
Bill Meury, executive vice president and president of its branded pharma unit, said that four products, three of which fall under the Irvine businesses, are scheduled for launch in the second half of the year and early next year.
They’re new formulations of Allergan’s popular Restasis drug for dry-eye treatment that will be marketed with a neurostimulator it got with its 2015 buy of South San Francisco-based Oculeve Inc. and with XEN 45, a glaucoma treatment it picked up in a deal last year for Aliso Viejo-based AqueSys Inc.
