MergerMarket
* Allergan not seen in rush for next deal
* Shire, Endo among possible targets
Allergan (NYSE: AGN) will likely look outside the US if it wants to use its USD 40bn in cash from the pending sale of its generics division to Teva Pharmaceutical (NYSE:TEVA) for another large deal, according to sector bankers.
Last Monday’s new US Treasury rules that scuttled Allergan’s proposed mega-merger with Pfizer (NYSE:PFE) will undoubtedly make it difficult for Allergan to consider doing another inversion deal.
As a result, Allergan may evaluate previous targets if it wants a transformative deal, with specialty drug company Shire (LON:SHP) a possible revisit, the bankers said. However, Allergan is in no rush to complete its next deal, they added.
A more modest bid could be directed at Endo International (NASDAQ:ENDP), but both companies may not fit the growth profile described last week by Saunders, the bankers added. At a market valuation of USD 6.5bn, Endo would be an easy tuck-in deal for Allergan, but the long-term reimbursement prospects for Endo’s portfolio are not as strong as other targets, said a second banker.
The break of the Pfizer deal was a setback for Allergan and CEO Brent Saunders, noted one banker, and Allergan likely will steer clear of any transaction with a US-headquartered company. Had it been completed, the Pfizer merger would have represented another “home run” in the series of deals Saunders has guided over the past three years.
Allergan needs its next deal to succeed but it does not have to be as grand as previous transactions, said the same banker.
Alternatively, Bausch & Lomb, the eyecare unit of Valeant Pharmaceutical International (NYSE:VRX), where Saunders previously was CEO, is a premium asset and a possible complementary tuck-in for Allergan, Saunders said during a media interview. But it does not fit into the company's strategy of acquiring purely growth assets that will impact positively on the company's current investment grade, he added during an analyst call the same day.
On the analyst call Saunders said Bausch & Lomb was worth USD 8.7bn in 2013 when it was acquired, and did not see how it could be worth more now. One of the bankers said the pharma business within Bausch & Lomb would be a good fit for Allergan, which has a market cap of USD 96bn, but it is unlikely Valeant would sell just the pharma business.
Valeant CEO Michael Pearson, who announced last month he would step down once a successor is found, previously said that a Bausch & Lomb sale was not under consideration. Pershing Square Capital Management’s Bill Ackman, who was recently appointed to the board and whose fund has a 9% stake in Valeant, said this week that Bausch & Lomb was a core part of the company and that it was not for sale.
Allergan’s internal acquisition track record over the past nine months points toward modest-sized deals that would yield long-term value, including its deal this week with privately held Heptares. Saunders, who previously was CEO at CNS specialist Forest Laboratories, has stayed close to his experience in the strategic acquisitions completed by Allergan in the last year.
With Heptares, Allergan paid USD 125m upfront to partner with Heptares to develop small molecule agonists to treat Alzheimer’s disease. Heptares also stands to receive up to USD 665m in milestone payments. Last year, Allergan completed a bigger CNS deal when it paid USD 560m for Naurex, which owned a Phase II injectable drug to treat depression.
Allergan’s largest strategic deal was its USD 2.1bn acquisition of Kythera, an aesthetics company which complements Allergan’s BOTOX franchise. In eye care, Allergan struck two deals with private companies, buying Oculeve for USD 125m and paying USD 300m for AqueSys, which is developing ocular implants that reduce intraocular pressure (IOP) associated with glaucoma.
With the exception of Kythera, all the deals bring in products that are expected to deliver high growth to Allergan within three to five years.