Monday 24 July 2017

Share Watch: Allergan is proving how dynamic 'big pharma' is

John Lynch

It's hard to keep up with modern business, a reality spectacularly proven by the company we have under the microscope today, Allergan. It was once a US-quoted pharma group domiciled in Ireland (with a plant in Westport) and an instantly recognisable, internationally famous brand, Botox. It's still called Allergan, but is a totally different operation, thanks to some head-spinning corporate antics over the last couple of years.

Things started to change for the 'old' Allergan three years ago when the pharma industry was going through one of its acquisition frenzies, fuelled by low interest rates. The company got caught up in the whirlwind.

In 2013 Valeant, a Canadian pharma company (owner of Bausch and Lomb) came up with a bid that did not sit well with the Allergan board.

Valeant's business model was based on heavy reliance on debt and included cutting R&D to fund acquisitions, inimical to how Allergan did its business. The proposed bid collapsed. The story didn't end there.

In late 2014 along came another pharma company Actavis with a bid of $66bn (€62bn). This time the bid was successful. Following the acquisition Actavis decided to continue with the name Allergan plc.

The merger was barely under way when the US drug behemoth Pfizer bid for the 'new' Allergan, offering a whopping $160bn (€150bn). Had it been successful it would have allowed Pfizer to escape the high US corporate tax by moving to Ireland. The idea caused a sensation in US government circles and the regulatory authorities gave it a firm 'thumbs-down'.

But even without Pfizer, Allergan continues to be a fascinating example of the merry-go-round that is 'big pharma' these days. Its involvement with Ireland makes it an even better story. Its headquarters relocation to Ireland made it one of the first big 'inversions' and raised the hackles of Donald J Trump.

Today, Allergan is a global pharma company but its brands keep changing. Prior to the takeover, Actavis revenues came mainly from generic drugs but last year it offloaded this business to the Israeli giant Teva for $40bn (€37bn). The new conglomerate combined the 'old' Allergan blockbuster Botox producer, with Actavis expertise in the central nervous system and dermatology. It also expanded its global footprint to include more than 100 countries, including China, India and Latin America and strengthening its position in Canada and Europe.

The new concern has four divisions: US brands, US aesthetics, international brands and a distribution arm called Anda. US brands consist of patented products that treat illnesses from hypertension to dementia. The aesthetics division is the leader in the US market with Botox and reconstructive plastic surgery. The group's international brands are products mainly from the stable of the 'old' Allergan.

The company's distribution arm is from Actavis and concentrates on products made by third parties. It will be interesting to see if the group continues with this business as its three largest wholesale customers, McKesson, Cardinal Health and AmeriBergen account for 60pc of the business.

Since the collapse of the Pfizer bid the company has been on an acquisition spree. It bought Heptares, a neurological drug concern. It also purchased Lifecell Corp, a regenerative medical company, and recently Zeltig, an aesthetics company that claims to be able to reduce body fat by freezing the growth of fat cells. All at a cost of $9bn (€8.4bn). However, I have a feeling its appetite for acquisitions is still keen.

In the last year the company's shares have moved from a yearly low of $184 (€173) to a high of over $300 (€282). Today they are trading at $246 (€231) a share, valuing the company at $82bn (€77bn).

The company is now one of the top 10 global pharmaceutical companies and the next few years will be interesting because there is no indication that it will let any grass grow under its feet.

However, with pharma shares there is always the shadow of Mr Trump.

Nothing in this section should be taken as a recommendation, either explicit or implicit, to buy any of the shares mentioned

Irish Independent

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