Valeant boosts offer for Allergan


Valeant Pharmaceuticals (VRX) increases its bid for Allergan (AGN). Its new offer is now $58.30 in cash (an increase of ~21%), 0.83 VRX share, one contingent value right (CVR) related to DARPin sales (worth ~$25/share based on $20B cumulative sales over 10 years) and a commitment to invest up to $400M in DARPin while retaining current AGN employees responsible for development.

Webcast this morning at 8 am EDT to discuss the proposal and provide clarity on VRX's operating performance and business model. 877-876-8393 confirmation code: 46457022.

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Comments (6)
  • Kingkang
    , contributor
    Comments (185) | Send Message
     
    What happens if VRX can't get deals done?
    28 May 2014, 09:04 AM Reply Like
  • Charles A. Smith
    , contributor
    Comments (1264) | Send Message
     
    Great question...Ackman et al are about to find out what it feels like to do "a deal too far".

     

    AGN is DOWN in early trading. No stronger message than this...VRX simply doesn't have the firepower to do this deal. They need to offer at least $100 in cash + VRX shares equaling $180 to $190 per AGN share. They just can't do it. It would blow up their balance sheet and their rollup would come to a grinding halt.
    28 May 2014, 09:34 AM Reply Like
  • Wall-Invest
    , contributor
    Comments (516) | Send Message
     
    I have grave doubts that this deal returns VRX's cost of capital to shareholders but no doubt would impact the competitive matrix for executive compensation. Seems like another example of corporate empire building at the expense of shareholders but it looks like the market is going to take some time to figure that out. I was long VRX but recently sold.
    28 May 2014, 10:21 AM Reply Like
  • josierocks
    , contributor
    Comment (1) | Send Message
     
    I think Allergan is a wonderful company with smart people in control and if VRX were to take control I would dump it so fast. I have no faith in VRX and feel they would destroy a great company. Obviously I hope this would never happen.
    28 May 2014, 11:39 AM Reply Like
  • plasmaman
    , contributor
    Comments (11) | Send Message
     
    IMHO, there are 2 x key questions to answer

     

    1). Is Pearson right when he considers that many companies don't allocate capital efficiently when it comes to R&D, and are therefore not optimally value generating (and by inference applies that to AGN R&D)?
    2). VRX has increased their offer, in part to assuage concerns about their business model, in part as a rebuttal to AGN's position of the importance of R&D on both lifecycle management (e.g. BOTOX) and in part as to the importance of the potential big future asset, the $20Bn 10-year cumulative value of DARPin based on AGN's estimation. Is DARPin worth this much.... and are VRX overpaying if DARPin isn't?

     

    Would AGN R&D be considered value generating according to Pearson?
    Despite a 17% spend as a proportion of sales and >$1bn in spend in 2013-2014, AGN Early Research (Discovery) has failed to produce from in house a single completely new entity / Mechanism of action / molecular target that has been commercially launched in the past 6+ years, relying on in-licensing or acquisitions, e.g. .. Serica.....Ozurdex....... so that is a lot of money being spent on Discovery and Pre-Clinical without a positive output, in line with Pearson's negative view.

     

    On the other hand recent AGN Clinical Development has delivered many regulatory approvals & new product launches involving line extensions / new indications or new formulations of existing products, and is benchmarked as one of the highest in the industry, (http://bit.ly/1hINiw6).

     

    Is DARPin likely to generate $20Bn in cumulative 10-year sales?
    DARPin (MP0112 / AGN 150998), was in-licensed from Molecular partners in May 2011 with a possible total $375MM+ price tag (http://bit.ly/1hINiw9)

     

    AGN's in house Development group took MP0112 into Phase 2 and hit a roadblock, leading to the recent 1-2 year delay, somewhat deflating AGN's good Development record (http://bit.ly/1hINiwb ). As such, DARPin may now not reach the market before 2018-2019 and David Pyott's prior comments of not 'getting' the importance of this delay is ironic (http://bit.ly/1hINlbh ), given that the company has just touted this as a $20Bn cumulative sales product,(http://bit.ly/1hINiw6 ).

     

    In my opinion, DARPin's value proposition in wet AMD vs. the current competition of Lucentis, Eyelea & Avastin, has been built upon possibly better (at least equivalent) efficacy through better binding to VEGF, combined with a duration of a single injection of up to 3-4 months, and the possibility of trans-corneal delivery based on its small molecular size facilitating transfer across the cornea or sclera (http://bit.ly/1hINiwj ).

     

    However, there are significant headwinds to DARPin success that may occur prior to it ever reaching the market.

     

    1). Impact of Biosimilars
    Avastin patent expires in USA in July 2019, and EU in 2022. Lucentis patent expiry in 2019 in US. Biosimilar / "bio better" entry are potentially expected shortly thereafter. Current regulatory guidance in EU, Canada are suggesting full indication extrapolation for the incoming Biosimilar and recent policy changes, e.g. France, also suggest bio-substitution at pharmacy level as a means to leverage potential cost reductions and better patient access.

     

    2). Avastin license in retinal diseases (vs. current off-label status)
    Regulatory pathway to wet AMD and DME indication(s) in USA under 505b2 grandfathering route are possibilities, given the wealth of clinical trial data available for Avastin.

     

    3). Competitors that are ahead of DARPin in the development race
    Combination therapies of anti-VEGF and PDGF or other MOA in the next 5-8 years that would directly compete with DARPin are advanced in development.

     

    Novartis' very recent purchase of Ophthotech's lead PDGF which has already delivered phase 2b data is an example of this competitive landscape. (http://bit.ly/1hINiME).

     

    In contrast, AGN and Molecular partners have previously announced their own collaboration for a dual VEGF/PDGF molecule back in August 2012 (http://bit.ly/1hINiMF ), but according to recent updates from AGN, it remains stuck in the pre-clinical stage and has not appeared to progress into humans nearly 2-years later which is slow as a development benchmark and again dose not highlight AGN Clinical Development in a good light (http://bit.ly/1hINiw6 )

     

    4). New Drug Delivery Systems
    There are a number of technologies that are now in development looking at combining proteins or antibodies into long acting delivery systems that could completely negate DARPin's theoretical benefits, that have demonstrated effects in pre-clinical settings and are likely planning to move into man shortly.

     

    (http://bit.ly/1hINlbs )(http://bit.ly/1hINlbu)
    31 May 2014, 06:10 AM Reply Like
  • Charles A. Smith
    , contributor
    Comments (1264) | Send Message
     
    Very insightful comments plasmaman...thorough and well documented...as good as any sell-side stuff I've seen. Great debut on SA. Keep them coming!
    31 May 2014, 07:39 AM Reply Like
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