Allergan is a leading pharmaceutical company, best-known for its cosmetic enhancement drug Botox (sales of $3.2bn in 2017) and Juvederm "medical aesthetics" products ($1.0bn). Other key drugs include eye care treatments Restasis ($1.5bn), Lumigan/Ganfort ($689m) and Alphagan ($552m), Linzess/Constella for IBS ($723m) and beta-blocker Bystolic ($614m). Allergan agreed at the end of 2015 to be acquired by Pfizer for a whopping $160bn. However, that deal was eventually abandoned after US lawmakers introduced new rules to limit the benefits of "tax inversion" deals of the sort planned by Pfizer. As a result, Allergan continues as an independent company. The current business has itself been cosmetically enhanced by an extraordinary series of corporate manouevres, the most significant of which was the purchase in 2015 of the original Allergan entity by what was then fast-expanding generics developer Actavis $77bn including debt. Actavis adopted the Allergan name, becoming one of the world's top ten drug companies, with proforma sales that year of around $23bn. The merged group decided to focus on specialty drugs, and agreed to sell off its entire original generics business to rival Teva. After months of negotiation with regulators, that deal finally completed at the end of 2016, more than a year after it was announced. Allergan has also boosted its portfolio in recent years with multiple additional acquisitions including treatments for double chins, liver disease, dermatology ailments and inflammatory gastrointestinal diseases. In early 2017, it agreed to acquire cosmetic enhancement specialist Zeltiq, which makes machines to freeze and remove fat cells, for almost $2.5bn. The sale of the generics business generated a massive $15bn profit in 2016, but also significantly reduced stated revenues. The figure for 2017 was $15.9bn. Despite these corporate manoeuvrings, Allergan's share price has continued to fall, having more than halved since a mid-2015 peak. The company began life as US generics manufacturer Watson Pharmaceuticals before embarking on a series of ever larger acquisitions, including Warner Chilcott in Ireland (where the combined group is now located for tax purposes) and Forest Laboratories of the US, where its main administrative centre remains. Paul Bisaro was principal architect of the group's extraordinary expansion after 2010 and remains a director. Brent Saunders, former head of Forest, is now chairman & CEO.
Capsule checked 18th December 2018
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Adbrands Weekly Update 9th Aug 2018: Allergan continues to prune its portfolio, selling off a collection of dermatology drugs to Spanish company Almirall for up to $650m, a little over 4.5 times their annual sales. The most important product in the portfolio is new launch Seysara, an antibiotic treatment for dermatology, currently awaiting FDA approval. Further sales are expected from Allergan, which is struggling to shore up its deflated stock valuation.
Adbrands Weekly Update 7th April 2016: Pfizer abandoned its proposed $150bn acquisition of Allergan after receiving a curve ball from President Obama and the Treasury Department. The key incentive for Pfizer was to take advantage of Allergan's tax residency in the Irish Republic to transfer its own liabilities out of the US, where rates are significantly higher. However this sort of tax inversion deal - which was itself used previously by what is now Allergan - has been widely derided by lawmakers over the past year. "After an inversion," said Treasury Secretary Jack Lew, "many of these companies continue to take advantage of the benefits of being based in the United States - including our rule of law, skilled workforce, infrastructure, and research, and development capabilities - all while shifting a greater tax burden to other businesses and American families." Indeed, President Obama this week called it "one of the most insidious tax loopholes out there". That was a day after the Treasury introduced unexpectedly aggressive new rules which effectively eliminate any advantages in the proposed Pfizer-Allergan deal, or similar such inversion arrangements. The new rules specifically target "serial inverters" such as Allergan, which has mounted numerous such cross-border deals to reach its current size, making them significantly less attractive to buyers as potential targets. The new rules disregard in certain circumstances assets acquired by a target company within the previous three years. As a result, Allergan would be valued for tax purposes at its 2013 market cap, more than a third below its current value. This would make it too small to become a vehicle for tax inversion by Pfizer. At the same time, certain advantages previously enjoyed by foreign-based companies if they lend money to their US subsidiaries were also blocked. This removes one of the main incentives for US companies to pursue inversions while still being based operationally in the States. However, it will also remove some tax benefits for other multinationals with extensive operations in the US, such as Nestle, Unilever or Diageo.
Adbrands Weekly Update 26th Nov 2015: After almost two years in pursuit of several different potential targets, Pfizer finally bagged another prize, on paper at least, with an agreement to acquire Allergan, best known for the cosmetic drug Botox, but with a sizeable collection of other products either in the market or in development. If completed, the deal will be notable on several counts. At an astronomical value of $160bn including debt, it is the second largest acquisition of all time, behind Vodafone's takeover of Mannesman in 1999. Also, the accompanying tax inversion will result in one of America's biggest companies transferring its nationality to the Republic of Ireland where Allergan is based. The resulting tax savings are Pfizer's single most important incentive for the deal - its current rate is around 26%, whereas Allergan pays 15%. Presidential frontrunners Hillary Rodham Clinton and Donald Trump have both voiced their opposition because of the resulting erosion of US tax income and potential job losses. However, Pfizer CEO Ian Read is attempting to persuade regulators that the inversion would actually be good for America, freeing up cash for the group to invest in its domestic factories. Read will continue to lead the combined business, but Allergan's Brent Saunders will become president & COO, and the likely successor when Read steps down. That's if he's prepared to stick with the company - the whopping $187m Saunders will earn personally from the takeover might persuade him to seek early retirement instead. Combined revenues of the enlarged Pfizer would be $65bn. The group is ultimately expected to split in two following completion, separating its more lucrative new drugs from the stable of less profitable established medicines. However, Read said this week that such a strategy won't be implemented until 2018 at the earliest.
Adbrands Weekly Update 29th Oct 2015: Pfizer is reported to have made a takeover approach to smaller drugmaker Allergan. A deal would create a mammoth healthcare giant worth more than $300bn. It might also allow Pfizer to pull off a long-anticipated tax inversion, by transferring its corporate HQ to Ireland, where Allergan is based. Talks are at an early stage.
Adbrands Weekly Update 30th Jul 2015: Israeli pharma company Teva Industries abandoned its months-long pursuit of reluctant partner Mylan to seal a separate deal with Allergan (previously known as Actavis). Subject to regulatory approval, Teva will acquire Allergan's generic drugs division, currently the global #3, for $40.5bn. That combination will boost Teva's revenues from past-patent drugs to almost $16bn, around twice the sales of its closest rival, Novartis-owned Sandoz. Total sales will top $26bn, putting Teva among the top 10 drugmakers globally. Allergan will instead focus on its collection of in-patent products - the best-known is cosmetic enhancer Botox. It has already announced plans to use some of the cash from the deal to acquire biotech developer Naurex, which is developing a fast-acting antidepressant, for $560m. Other acquisitions are expected to follow, unless Allergan itself becomes a target, perhaps for Pfizer.
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