Ever since Valeant announced its intention to acquire Allergan—known for making Botox—on April 22 for $45.6 billion, this unfolding saga has been comprised of one attention-grabbing, headline-making event after another.
From an "activist" investor, to allegations of insider trading, to poison pill clauses and dramatic courtroom proceedings, the last seven months have made M&A history, culminating with Monday’s $66 billion acquisition of Allergan.
But there’s another reason that this story is making history, according to two Decision Resources Group (DRG) analysts. Dr. Anne-Elise Tobin, PhD, and Dr. Sangha Mitra, PhD, spoke to BioPharma Dive about the “unprecedented” nature of this M&A story.
BioPharma Dive: What are your thoughts on the deal between Actavis and Allergan?
DRG Analysts: Sales forecasts from DRG Pharmaview show that as a result of this merger, Actavis can significantly increase its sales in four key therapy areas—musculoskeletal/pain, dermatology, central nervous system, and genitourinary drugs. The most significant of these gains will most likely be in the musculoskeletal/pain and dermatology portfolios; sales of which, we predict, will grow by approximately two-thirds and one-third, respectively, going forward.
This acquisition will broaden Actavis’ therapeutic strengths into a new therapy area, ophthalmology, with a portfolio we forecast will make over $3 billion this year. We anticipate that the Actavis-Allergan merger will be positive for both parties. We see Actavis continuing its successful growth strategy with this highly targeted acquisition and that, because of this latest merger, Actavis has the potential to become one of the top 10 players in Dermatology and Ophthalmology.
BD: What are the implications of the merger with Actavis for Allergan?
DRG: Allergan successfully avoided a hostile takeover by Valeant, and Actavis’ $219-per-share bid provides Allergan’s shareholders a deal with good current value and a reassurance of continued development of their emerging therapies.
Another factor that makes this a good fit is the fact that Allergan, a company that focuses on growing through R&D, has more in common with Actavis than Valeant. Consider each company’s investment profile last year. In 2013, Allergan invested approximately 20% of its Ethical Drug revenue into Ethical Drug R&D, compared to 4% for Valeant and 10% for Actavis.
These numbers speak to the priorities of each company in terms of business strategy. Although Actavis and Valeant are both more focused on growth through M&A, Allergan is a company that focuses on R&D and part of the concern with an Allergan acquisition is what would happen to R&D in the event of an acquisition by Valeant.
Actavis has a very different approach to mergers. First, they focus on very targeted acquisitions. Things tend to go smoothly and they are good team players. Consider the Forest Labs acquisition, which was completed in July. During the merger, Forest Labs’ CEO, Brent Saunders, took on the role of the new CEO of the newly merged company. In addition, Actavis had an 83% increase in net revenues in the third quarter of this year, compared with last year, much of it driven by its recent acquisition of Forest Labs this year and Warner Chilcott last year.
BD: You have described Valeant’s takeover efforts as “unprecedentedly hostile” and have also spoken to how this struggle is historically significant. What do you mean by those statements?
DRG: There has been nothing like this before. Think about the media campaign between the two companies (Valeant and Allergan) and how they discredited each others’ accounting and business models. Also consider how Allergan used the poison pill clause to fend off Valeant for a while, and how Valeant continued to pursue Allergan, but Allergan continued to stop Pershing Square in its tracks.
BD: What are the implications of how this all played out?
DRG: Clearly this shows that companies are getting smart about defending themselves. This entire chain of events makes us wonder about smaller companies. When you go public, you are at the mercy of your shareholders. Allergan wanted to preserve their R&D culture, so they had to be prepared to defend themselves.
For many companies, M&As are the main way to grow and expand. And as all companies know, growth is often difficult. The M&A trend is here to stay.