Allergan PLC will “double down on brands” in the wake of a deal to sell off its generic lines—a move that pushes the drugmaker’s Irvine operation further into the spotlight.
The $40.5 billion sale of the generic drug business comes a few months after Actavis PLC bought Irvine-based Allergan for $72.5 billion.
The acquisition—Actavis took on the Allergan name after the deal closed—created a company with a market cap of about $129 billion before the cash-and-stock deal with Israel-based Teva Pharmaceutical Industries Ltd. was announced.
The $40.5 billion for the generic lines equates to nearly one-third of the newly combined company’s value, leaving about $90 billion.
The price paid for the operations based in Irvine, meanwhile, accounts for about 80% of what will remain after the close of sale of the generic drug lines in the deal with Teva—which has a 400-worker manufacturing plant in Irvine—which is expected in next year’s first quarter.
Allergan said the deal would accelerate its evolution into a branded growth pharmaceutical leader.
“I assume that we have surprised everyone with this transaction,” Allergan Chief Executive Brent Saunders said on a conference call last week.
“Three weeks ago, I would have told you that in no uncertain terms that our global generics business was not for sale. While … this deal was unexpected, I believe it was the right deal at the right time,” he said, adding that the company was going to “focus on consolidating our fast-growing brand business, and this deal will further enable that.”
Allergan will focus on seven major product lines, Saunders said during an appearance on cable network CNBC’s “Squawk Box” program.
Several of those product lines—eye care, medical aesthetics and Botox, which crosses categories—come out of Irvine and were core components of legacy Allergan under the leadership of David Pyott, a newcomer to the OC’s Wealthiest list that’s the centerpiece of this issue of the Business Journal (see special section pullout; related stories throughout).
Allergan has a tax-friendly headquarters in Ireland and operates from Parsippany, N.J., where its women’s health, much of its neurology and its gastroenterology drug businesses are concentrated.
Saunders’ recent emphasis on eye care and aesthetics is his latest nod to Irvine. On a visit to OC in June, he said that Allergan’s campus near John Wayne Airport will remain “the epicenter of two of our most important businesses” and “our largest site anywhere in the world” in the combined company.
Wall Street, meanwhile, is keeping an eye on Allergan as it rejiggers its sources of revenue.
Thomson Reuters deals analyst Laura Vitez told industry newsletter Chemistry World that it was “intriguing to see it divest generics to focus on its branded drug portfolio.”
“I expect it will continue to grow by acquisition, but presumably now in the higher margin branded business,” Vitez said.
Saunders, during the conference call, drove home the notion that while the Teva deal came suddenly, generic drugs hadn’t been part of long-range planning for some time.
“This generics industry needs to consolidate, and we have always maintained that we are not going to be a consolidator,” he said.
Teva got top marks on Wall Street for buying Allergan’s generic business.
Analyst David Maris of BMO Securities, who also follows Allergan, upgraded Teva’s stock to outperform and said it would be a better fit than its now-scrapped deal to buy Netherlands-based Mylan Pharmaceuticals NV.
“We believe this brings Teva a leading pipeline of generics,” Maris said.
The generics business also had OC ties as a legacy of Actavis through its past as Corona-based Watson Pharmaceuticals Inc., which was founded by Anaheim Hills resident Allen Chao.
And Saunders and Allergan might not be finished.
The chief executive has talked of “reloading” the company’s balance sheet with the cash it received from Teva and possible further deals, although he has not been specific.
That hasn’t stopped market whispering. A poll conducted by New York-based investment bank Evercore ISI last week asked investors which companies could be good deal or combination targets for Allergan.
Cambridge, Mass.-based Biogen Inc.; North Chicago, Ill.-based AbbVie Inc.; New York-based Big Pharma stalwart Pfizer Inc.; Vertex Pharmaceuticals Inc. in San Diego; and Novato-based BioMarin Pharmaceutical Inc. came up at the top of poll participants’ responses.
Allergan does plan to look at “transformational M&A,” according to Saunders.
He also said on the call that a portion of the proceeds would be used to pay down the company’s $42 billion in debt in order to maintain its commitment to its investment-grade credit rating.
