The Executive Challenge: Allergan’s Path as a Pure-Play Specialty Pharma CompanyBy
Paul M. Bisaro, executive chairman and Brent Sanders, CEO and president, are leading Allergan through its transformation to a pure-play specialty pharmaceutical company. So what lies ahead? DCAT Value Chain Insights (VCI) examines the company’s strategy and product and manufacturing positions.
The executives are moving ahead in the wake of two mega deals. The first was the creation of Allergan from the approximate $70 billion acquisition of Allergan by Actavis, which closed in March (Actavis then took Allergan as the corporate name of the combined company) and then Allergan’s pending $40.5 billion divestment of its generics business to Teva Pharmaceutical Industries, a deal announced in July and scheduled to close in the first quarter of 2016. These deals, along with a series of bolt-on acquisitions, has further positioned in the market market. So where does Allergan stand?
Examining the moves
The transformational deal for Allergan was Actavis’ $70.5 billion acquisition of, Allergan, which closed in March 2015. The move followed Actavis’ $28 billion acquisition of Forest Laboratories in 2014. The Allergan and Actavis combination created a top 10 or near top 10 pharmaceutical company by sales revenue, with combined annual pro forma revenues of more than $23 billion anticipated in 2015. The combined company has six blockbuster franchises with combined pro forma 2015 revenues of approximately $15 billion expected, including franchises with annual revenues in excess of $3 billion in eye care, neurosciences/central nervous system, and medical aesthetics/dermatology/plastic surgery. The combined company has an expanded commercial presence, which includes approximately 100 countries, with an enhanced presence across Canada, Europe, Southeast Asia, and Latin America and a footprint in China and India. The combined company has R&D funding of approximately $1.7 billion expected in 2015, focused within brands, generics, biologics and over-the-counter (OTC) drug. The combined entity has more than 20 innovative products in near- or mid-term development.
That deal was followed by another mega deal, the announcement by Allergan of its decision to sell its generics business to Teva for $40.5 billion, a move Teva made following its now terminated efforts to acquire Mylan. In July 2015, Teva agreed to acquire Allergan Generics, the generics business of Allergan (formerly the generics business of Actavis) for $40.5 billion ($33.75 billion in cash and $6.75 billion in shares of Teva), which would give Allergan an approximate 10% stake in Teva. Allergan’s generics pipeline has approximately 230 abbreviated new drug applications pending at the US Food and Drug Admininstration, including approximately 70 first-to-file applications, as well as nearly 1,000 marketing authorization applications filed outside of the US, according to company information following the close of the Actavis and Allergan combination. The transaction was unanimously approved by the boards of directors of Teva and Allergan and is expected to close in the first quarter of 2016. The move positions Allergan as innovator-based specialty pharmaceutical company with 2015 pro forma sales of approximately $15.5 billion with a focus in seven therapeutic areas, including eye care, gastroenterology, aesthetics, women’s health, central nervous system, urology, and anti-infectives. Allergan will have a manufacturing network of 12 plants globally and a mid-to-late-stage R&D pipeline with 70 projects and a 2015 pro forma investment in R&D of approximately $1.4 billion. The transaction would result in after-tax net cash and equity proceeds for Allergan of approximately $36 billion.
At the time of the announced deal in July, Allergan CEO and President Brent Saunders said that the company had not been seeking to divest its generics business, but that an opportunity arose. “Over the years, our global team of highly capable and dedicated employees has dramatically expanded our generics portfolio, capabilities and footprint, with over 220 ANDAs pending FDA approval with 74 confirmed first-to-file opportunities, creating one of the most dynamic generics businesses in the world today,” he said. “While we were not actively seeking a buyer for our generics business, Teva presented an offer at a very compelling valuation that reflects and recognizes the significant value that our global generics team has generated in creating and managing a world-class generics business. As a result of the transaction, we will also obtain a minority equity interest in Teva, to share in the upside of the generic R&D pipeline we are transferring in this combination.”
The equity proceeds for Allergan of $36 billion following the close of its divestment of its generics business to Teva will create the potential of further acquisitions for Allergan for building its specialty pharmaceutical portfolio, something the company has already been actively doing through a series of bolt-on acquisitions in both pharmaceuticals and related businesses, such as medical devices, to support certain businesses, such as eye-care,products Earlier this month, Allergan agreed to acquire AqueSys, Inc. a private clinical-stage medical device company focused on developing ocular implants that reduce intraocular pressure associated with glaucoma, for a $300 million upfront payment and regulatory approval and commercialization milestone payments related to AqueSys’ lead development programs, including XEN45, a soft shunt that is implanted in the subconjunctival space in the eye through a minimally invasive procedure with a single use, pre-loaded proprietary injector. XEN45 has received a CE mark in the European Union where it is indicated for the reduction of intraocular pressure in patients with primary open angle glaucoma where previous medical treatments have failed. The CE mark allows treatment in conjunction with a cataract procedure or as a standalone procedure. XEN45 is also approved for use in Turkey, Canada, and Switzerland. AqueSys is pursuing reimbursement in these countries. In the United States, XEN45 is in late-stage development, with the final US investigational device exemption clinical trial fully enrolled in the second quarter of 2015. Final approval by the US Food and Drug Administration is expected by late 2016 or early 2017 via the 510K device pathway. The transaction is subject to the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Pending approvals, Allergan anticipates closing the transaction in the fourth quarter of 2015.
Earlier this year, Allergan acquired Naurex, a clinical-stage biopharmaceutical company developing treatments to treat major depressive disorders for $560 million ($460 upfront and $100 million contingent on milestones). Naurex’s lead development product is rapastinel, a once-weekly intravenous drug in Phase II in various clinical studies to treat depression, and NRX-1074, a Phase II IV antidepressant. Naurex has completed an end-of-Phase II meeting with the US Food and Drug Administration, and the Phase III program is expected to begin in 2016. Rapastinel and NRX-1074 are both targeted modulators of the N-methyl-D-aspartate (NMDA) receptor. Naurex’s discovery platform is centered on a pipeline of NMDA receptor modulators, including subtype-selective molecules, with the potential to treat a broad set of psychiatric and neurologic disorders. Immediately prior to the closing of the acquisition, Naurex will spin-out this discovery platform into a new company. Allergan and this new company will enter into a research collaboration focused on the discovery and early development of small-molecule NMDA receptor modulators for the treatment of certain psychiatric and neurologic disorders. Allergan will receive first right to in-license a defined number of drug candidates resulting from the collaboration for certain indications. Further details on the new company will be shared at a later date.
Other recent acquisitions by Allergan are: Merck’s small-molecule oral calcitonin gene-related peptide (CGRP) receptor antagonists for migraine; Oculeve, which has complementary dry-eye development programs to Allergan’s current eye care research and development programs; and Kythera, which enhances Allergan’s global facial aesthetics portfolio with the addition of Kybella (deoxycholic acid) injection, a non-surgical treatment for contouring moderate-to-severe submental fullness, commonly referred to as double chin. As a collateral deal, earlier this year, AstraZeneca acquired the rights to Actavis’ branded respiratory business in the US and Canada for an initial consideration of $600 million on completion and low single-digit royalties above a certain revenue threshold.
In 2014, then Actavis also acquired the specialty pharmaceutical company, Durata Therapeutics. Durata’s key product is Dalvance, an antibiotic for treating acute bacterial skin and skin structure infections. Dalvance was approved by the US Food and Drug Administration (FDA) in May 2014 and was the first drug approved as a Qualified Infectious Disease Product (QIDP), a recent designation by the FDA to encourage development of new antibiotics.
Allergan’s transformation to a pure-play specialty pharmaceutical company has occurred in a relatively short period of time for its recent position as primarily a generics company in the formation of Actavis as a company. In October 2012, the generic-drug company Watson Pharmaceuticals Inc. completed its acquisition of Actavis Group; Watson then changed its corporate name to Actavis in January 2013. The combination of Watson and Actavis created at the time third largest generic-drug company on a global basis and strengthened the company’s position in modified release, solid oral dosage, and transdermal products and broadened its portfolio to include semi-solids, liquids, and injectables. In October 2013, Actavis completed its acquisition of Warner Chilcott plc, which capitalized on the complementary specialty pharmaceuticals strengths and market positions of the two organizations, particularly in women’s health and urology, as well as in gastroenterology and dermatology. These deals were followed by Actavis’ acquisition of Forest Laboratories. Actavis announced the agreement to acquire Forest Laboratories in February 2014 and completed the deal on July 1, 2014 with Forest becoming a subsidiary of Actavis.
Following the close of its deal with Teva, Allergan will have a manufacturing network of 12 plants globally. Allergan had already begun the review of its global manufacturing network as part of its integration of Actavis and Allergan. In July 2015, Allergan announced that it decided to move production of its pharmaceutical plant in Iceland to other production units of the company. No changes are planned in the operation of the Icelandic plant in the near future, and the company said that decision will not affect jobs currently but the first changes will be felt, at the end of 2016 when the first phase of the transfer of production begins. It is expected that the activities of the plant in Iceland will be closed by mid-2017. Other activities in Iceland will be unchanged. Approximately 300 employees are in the production unit in Iceland, and about 400 employees are in other units of the company in Iceland. The company recently underwent a review of its production units globally and said in a statement that this audit showed that other facilities in the company were flexible to assume the production that will be transferred.