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A Buyout, Not A Split


The unexpected announcement on 25 June that Allergan PLC will be acquired by AbbVie Inc. for $63bn far exceeded expectations that Allergan would appease its investors by splitting the company in two after years of watching its stock price sink.

Allergan's value surged on its reputation of aggressive dealmaking, rising above $300 per share based on rumors of Pfizer Inc.'s interest in buying the company and remaining near that level after a $160bn deal between the two firms was announced in November 2015. (Also see " Pfizer, Allergan In Third-Biggest Merger Ever " - Scrip, 23 Nov, 2015.) But Allergan's stock plummeted after the transaction was called off due to political pressure in April 2016 and has continued to drop after several setbacks. (Also see "Allergan's Back In The (M&A) Saddle Again Post Pfizer Breakup" - Scrip, 7 Apr, 2016.) 

The company has traded below $200 since September 2017, when it made an unpopular bid to protect its Restasis (cyclosporine) revenue with an ill-fated strategy of transferring the blockbuster dry eye drug's patents to a Native American tribe. (Also see "Allergan Shifts Restasis Patents To Native American Tribe To Invoke Immunity From IPR" - Scrip, 9 Sep, 2017.) and (Also see "Allergan's Restasis Defense Falters As PTAB Dismisses Tribal Immunity Ploy" - Scrip, 26 Feb, 2018.)

Now, the maker of Botox (onabotulinumtoxinA) is selling itself to AbbVie for $188.24 per share, including $120.30 in cash and 0.866 shares of AbbVie stock, which is a 45% premium to Allergan's 24 June closing price of $129.57 (see sidebar). The stock closed up 25.4% at $162.43 after the AbbVie deal was announced.

Mounting Pressure To Split In Two

Given the depreciation of its stock price since 2016, Allergan has been under pressure to split in two with one company focused on the Botox-led aesthetics business and the other focused on maturing brands. While CEO Brent Saunders has resisted that idea, he suggested in May that Allergan would take some kind of urgent action to regain shareholders' trust. (Also see "Allergan’s Saunders Speaks Of Urgency, But Not Of Specifics" - Scrip, 7 May, 2019.) 

This mea culpa came after the company acquiesced – to a degree – to shareholder demands to split the CEO and chairman roles, promising a separation of powers with its next CEO transition. (Also see "Allergan Acquiesces To Activist Appaloosa With CEO-Chairman Role Split, But Not Yet" - Scrip, 25 Mar, 2019.) 

The possibility of separating Allergan's market-leading medical aesthetics business from its neuroscience, ophthalmology, gastrointestinal, women's health and other products has gained traction since then, with executives suggesting to analysts that an announcement along those lines could be made soon.

Now, it appears, AbbVie will save Allergan the trouble of splitting itself in two – an effort that would have been particularly challenging since the aesthetic franchise's key product Botox is approved both for aesthetic and therapeutic uses, such as chronic migraine headache prophylaxis.



“In effect, today’s transaction gets Allergan to the valuation of a split (and more) without execution risk." – Jeffries’ David Steinberg



"For Allergan, this transaction represents a way out for management without having to deliver on an increasingly questionable R&D pipeline and pending competition to core franchises (particularly Botox)," Jefferies analyst David Steinberg said in a 25 June note. "And while there has been much recent discussion of an Allergan split, it wasn’t entirely clear if it was feasible given that Botox straddles both aesthetics and therapeutics. In effect, today’s transaction gets Allergan to the valuation of a split (and more) without execution risk."

Saunders and Allergan chief commercial officer Bill Meury have insisted that Botox is such an iconic brand in the treatment of both forehead wrinkles and migraine that it wouldn't lose much ground, if any, to newer botulinum toxins in the aesthetics market and CGRP inhibitors approved in 2018 to prevent migraine headaches. (Also see "Allergan Buys Bonti, Releases New Data In Defense Of 'Iconic' Botox Brand" - Scrip, 14 Sep, 2018.) and (Also see "Allergan's Botox Holds Its Own In Migraine, Despite CGRP Competition" - Scrip, 30 Oct, 2018.)

Indeed, Botox sales rose 12.9% to $3.58bn in 2018 and have continued to increase in 2019, although the rate slowed to 9% year-over-year growth with $868m in global sales for the first quarter.

It remains to be seen if a trio of CGRP inhibitors – one from Amgen Inc. and Novartis AG, the others from Teva Pharmaceutical Industries Ltd. and Eli Lilly & Co. – will grab substantial market share from Botox. (Also see "Migraine Market Gets Competitive With Second, Third CGRP Inhibitor Launches" - Scrip, 9 Nov, 2018.) 

However, investors also are nervous about Botox's ability to retain its leadership position in aesthetics with an aggressive marketing push promised for Evolus Inc.'s newly approved Jeuveau (prabotulinumtoxinA). (Also see "With Jeuveau Approval, Evolus Will Focus On The Beauty Business To Gain Market Share" - Scrip, 5 Feb, 2019.) In addition, Revance Therapeutics Inc. is expected to launch the potentially longer-acting neurotoxin RT002 in 2020; it also is making progress with partner Mylan NV on a Botox biosimilar. (Also see "Another Botox Competitor: Revance Prepares Longer-Lasting RT002 For BLA Submission" - Scrip, 22 Feb, 2019.) 

Worrisome Setbacks Add To Concerns

With the near-term threat of Restasis generics and the potential for various new Botox competitors, Allergan needs new products to diversify its revenue, but its research and development pipeline has come up short, contributing to the company's falling stock price after years of acquisitions meant to grow its branded drug business. (Also see "Going Generic: Big Brands Poised To Lose Marketing Exclusivity In The US In 2019 " - Scrip, 15 Mar, 2019.) 

Allergan's origins are in the generics industry, a business that was strengthened when Watson Pharma Inc., acquired Actavis Group for $5.6bn in 2012, eventually choosing to operate under the name Actavis PLC. (Also see "Watson confirms Actavis acquisition in deal set to take group revenues to $8bn this year " - Scrip, 26 Apr, 2012.) Actavis then began to build a branded drug business, which got a big boost from the $25bn acquisition of Forest Laboratories Inc. in 2014, bringing Saunders to the company. (Also see "Actavis in $25bn Forest buy " - Scrip, 18 Feb, 2014.) 

Saunders helmed Actavis when it agreed to buy Allergan Inc. in 2014 for $66bn – $3bn more than AbbVie is paying for the enterprise now. The company rebranded as Allergan PLC when that deal closed in 2015. (Also see "Actavis will become Allergan to emphasize branded pharma focus" - Scrip, 19 Feb, 2015.) It became a branded drug-only company with the sale of its generics portfolio to Teva in 2015 for $40.5bn, including $36bn in cash. (Also see "With $36bn from Teva, what should Allergan buy next?" - Scrip, 28 Jul, 2015.)

But after all of that consolidation, some of Allergan's acquisitions seeking both commercial products and R&D programs proved less than stellar.

For instance, the company paid $2.1bn for Kythera Biopharmaceuticals Inc. in 2015, but Kythera's double chin-reducing injectable Kybella (deoxycholic acid) has not been a big seller. (Also see "Allergan buys chin fat firm Kythera for $2.1bn" - Scrip, 17 Jun, 2015.) Dermatologists have said the product performs well in some people, but the treatment regimen is too burdensome for many patients. (Also see "Medical Aesthetics: Sales Rise For Popular Products, But Unmet Needs Remain" - Scrip, 12 Sep, 2018.) Kybella sales actually fell to $38.1m in 2018 from $56.4m in 2017.

In terms of R&D setbacks, Allergan agreed in 2016 to pay up to $1.7bn for Tobira Therapeutics Inc., but the firm's lead drug candidate for non-alcoholic steatohepatitis (NASH) may not be as effective as other later-stage NASH therapies. (Also see "Allergan’s Tab For Tobira’s NASH Cocktail With Akarna Chaser Tops $1.7bn" - Scrip, 21 Sep, 2016.) and (Also see "Allergan’s Two-Year NASH Data Fail To Show Fibrosis Benefit" - Scrip, 22 Sep, 2017.)

Also, Esmya (ulipristal acetate) for uterine fibroids, which the company licensed from the drug's European marketer Gedeon Richter PLC, was rejected by the US Food and Drug Administration last year due to liver safety concerns. (Also see "Allergan's Ulipristal, Dogged By Liver Concerns, Gets An FDA Rejection" - Scrip, 22 Aug, 2018.) 

That rejection was followed by an unexpected Phase III failure in depression for rapastinel in March. (Also see "Allergan Endures Another R&D Setback With Rapastinel Failing Three Pivotal Studies" - Scrip, 7 Mar, 2019.) The NMDA receptor modulator was purchased in the $560m acquisition of Naurex Inc. in 2015. (Also see "Allergan paying $560m for Naurex; stays quiet on rumored generics sale to Teva" - Scrip, 27 Jul, 2015.)

Allergan's abicipar pegol, licensed by Allergan Inc. from Molecular Partners AG, has shown efficacy in Phase III wet age-related macular degeneration (AMD) studies, but the longer-acting VEGF inhibitor may pose safety issues that make it a less attractive treatment option than established AMD injections. Allergan intends to submit abicipar for approval in mid-2019. (Also see "Allergan Improves Safety Of Abicipar, But Not Enough Compared To Lucentis, Eylea" - Scrip, 2 Apr, 2019.)

Some Successes Amid Notable Disappointments

It has not been all bad news for Allergan's R&D pipeline, however. The company recently won a long-anticipated new indication in bipolar depression for Vraylar (cariprazine). (Also see "Pipeline Watch: Phase III Readouts For QMF149, Korsuva And Valoctocogene Roxaparvovec" - Scrip, 3 Jun, 2019.)

In an earlier pipeline success, Saunders-led Forest paid $1.1bn for Furiex Pharmaceuticals Inc. while its own acquisition by Actavis was pending in 2014 and Allergan now markets the Furiex-developed irritable bowel syndrome drug Viberzi (eluxadoline). (Also see "Forest gaining 'relevant' GI position with Furiex buy" - Scrip, 29 Apr, 2014.) Viberzi sales totaled $177.8m in 2018, an increase from $157.1m in 2017.

A coming addition to Allergan's portfolio in gastrointestinal diseases may be relamorelin in diabetic gastroparesis; Phase III results are expected in 2020. (Also see "Allergan Relying On 'Six Stars' And Other R&D Programs To Blunt Restasis Blow" - Scrip, 19 Jan, 2018.) The asset was purchased in the acquisition of Motus Therapeutics Inc. in 2016. (Also see "‘Open Science’ In Action: Allergan Exercises Option For Motus After Gastroparesis Study" - Scrip, 28 Oct, 2016.)

The most anticipated R&D programs in Allergan's pipeline, however, are the company's oral CGRP inhibitors for migraine headaches, including ubrogepant, which is under FDA review for the acute treatment of migraines with an approval decision expected in late 2019. (Also see "Keeping Track: Two Goal Date Extensions, Another Herceptin Biosimilar Approval, And A BLA Withdrawal" - Pink Sheet, 15 Mar, 2019.) Its atogepant for migraine prevention is in Phase III. (Also see "Migraine Drug Atogepant Delivers Good News When Allergan Needs It Most" - Scrip, 11 Jun, 2018.) Both drugs were licensed from Merck & Co. Inc. (Also see "Allergan migraine portfolio grows with Merck CGRP antagonists" - Scrip, 8 Jul, 2015.)

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