Allergan PLC’s presence in Orange County is again under the microscope as the longtime local drugmaker, which keeps significant but shrinking operations in Irvine, is set to be bought by fellow big pharma firm AbbVie Inc. in Chicago.
The $63 billion deal marks the second acquisition in four years—and fourth attempted sale in the past five years—of Allergan, headquartered here until its March 2015 purchase by Actavis PLC for $77 billion. Actavis kept the Allergan name and a North American headquarters in New Jersey under Chairman and Chief Executive Brent Saunders.
While 11% less than the first deal, AbbVie’s price was 45% higher than Allergan’s share price as news of the deal broke in late June.
Raymond James specialty pharmaceuticals analyst Elliot Wilbur said in a research note that, “Christmas [came in] June for Allergan shareholders.”
AbbVie’s Allergan acquisition is expected to close early next year.
Deals, Declines
News reports on the proposed acquisition noted Saunders had been under pressure to make a deal: The Wall Street Journal cited some analysts’ call for the pharma firm to be split into two and added, “few expected … Saunders to pull off a sale, especially at such a lofty premium.”
Saunders had built the company and his reputation on a succession of deals.
Both had struggled since 2016, when New York-based Pfizer Inc. (NYSE: PFE) didn’t complete a $160 billion deal to buy Allergan that year, following U.S. Treasury rule changes affecting inversions—locating a firm’s formal headquarters overseas to save on taxes.
Allergan (NYSE: AGN) shares when the AbbVie deal was announced were down 60% from a high of $330 in 2015.
Biopharma trade publication Stat had a blunt assessment of Saunders’ stewardship at the company the past four years, calling it an “experiment” that “failed.”
Irvine’s Role
AbbVie Chairman and Chief Executive Rick Gonzalez pointed to a prominent part of Allergan’s local operations in conference call comments on the acquisition.
“The medical aesthetic market has the potential to double by 2025, making this franchise extremely attractive,” he said. The deal also includes “significant neuroscience assets … [a] core area” of future work for AbbVie.
Allergan’s Irvine campus has been built on the back of Botox—the famed anti-wrinkle beauty product. Initially developed to treat excessive blinking, its use later spread to treat migraines and urinary maladies among other issues both cosmetic and life-threatening.
Gonzalez’s comments seem to bode well for a key local concern of the deal: jobs.
Another OC focus for Allergan is eye care, which hearkens to its ophthalmology roots some 70 years ago.
Allergan was once the largest public company based here, a title now held by device maker Edwards Lifesciences Corp. (NYSE: EW) and its $45 billion market cap.
Leaking Jobs
Edwards now employs nearly 5,000 in OC, the 14th-largest local workforce and one primed to grow further once its new campus expansion is completed in a few years.
Allergan has about 850 local employees, according to Business Journal research. That’s down from several thousand prior to its sale to Actavis.
Along with Edwards, the company has been eclipsed locally in the workforce by a number of medical-related companies in and around Irvine, such as B. Braun Medical Inc. and Glidewell Laboratories.
More cuts seem likely, either voluntary or otherwise. Former high-level execs at Allergan told the Business Journal that they’re expecting to see layoffs, and that they’ll be keeping an eye open for potential hires as a result.
“The only question now is whether the original Allergan unit—based in Irvine—can thrive as part as AbbVie,” said the June Stat report. “The biggest challenge may be whether teams that have already lived through one culture clash will stick around through another one.”
Some jobs have flowed to Irvine as a result of the recent changes.
When the Actavis acquisition closed back in March 2015, Actavis had announced plans to move its medical dermatology division assets to OC, while its corporate functions were cut.
“Naturally, when the company is sold … the finance and a lot of the legal stuff will go to Parsippany, N.J.,” said Allergan’s then-chief executive, David Pyott. “There’ll be a lot of positions here eliminated.”
The company had already pledged to trim its workforce to boost earnings and fend off a hostile takeover attempt that preceded—and precipitated—the Actavis deal.
Significantly for OC, where Allergan’s research has been a big facet of its work, Wilbur expects more than half of cost savings “from lower and optimized R&D investment, which we expect will come heavily from the AGN side.”
Such changes haven’t occurred yet. Allergan has more than half of its open job positions currently listed in Irvine—with some being added as recently as July.
Saunders is currently scheduled to talk with Goldman Sachs Managing Director Yassaman Salas at OCTANe’s Aesthetic Technology Summit, at Balboa Bay Resort in Newport Beach on Jan. 10.
Home of Humira, and Botox
AbbVie Inc. was spun out of Abbott Laboratories (NYSE: ABT) in 2013; its work doesn’t include operations in OC, though Abbott retained some workers here after the split—it has about 500 employees in the county.
Sixty percent of AbbVie’s revenue—$20 billion of $33 billion—comes from Humira, which treats chronic plaque psoriasis, Crohn’s disease, and ulcerative colitis, and arthritis.
AbbVie Chairman and Chief Executive Rick Gonzalez said an Allergan PLC tie-up “advances [company] strategy … to reduce dependence on Humira.”
The FDA last year approved Hyrimoz, a generic—biosimilar, in industry lingo—for Humira made by Sandoz, a unit of Swiss-based Novartis. Hyrimoz and Humira inhibit proteins overproduced by some autoimmune conditions.
Humira’s U.S. patent protection ends in 2023; overseas generics are already affecting its sales. While domestic sales in recent quarters have increased to the 8% to 9% range, foreign markets fell more than 30% for its most recent quarter, the company said last week.
It has attributed declines to “biosimilar competition in certain international markets” and overall Humira sales fell 5% to $4.9 billion.
Allergan products battling generics include feminine care cream Estrace and Alzheimer’s drug Namenda.
Platforms
Allergan, like AbbVie, also faces its share of new competition.
The U.S. Supreme Court in April denied Allergan’s bid to protect dry-eye drug Restasis; generics are in the works from competitors, including Israel-based Teva Pharmaceutical Industries Ltd. with Irvine operations.
Allergan also faces competition for its flagship drug Botox. Evolus Inc. (Nasdaq: EOLS) in Newport Beach got FDA approval this year for a similar product, Jeuveau; it’s now on the market.
AbbVie sees an upside in Allergan’s aesthetics and other drugs that it is developing.
Targeted-therapy drug Imbruvica sales grew about 30% in its recent quarter to $1.1 billion. Leukemia drug Venclexta sold overseas and recently fast-tracked by FDA has doubled sales to $169 million.
AbbVie shares profits from Imbruvica with Johnson & Johnson, and from Venclexta with Roche.
A half-dozen other drugs’ sales declined in the quarter and last month AbbVie discontinued development of a drug to treat a rare brain disease.
