BLOG: Allergan answers the market

ByDarrell E. White, MD

What in heavens is happening in eye care pharma? Allergan was just sold to one-trick pony AbbVie, maker of Humira, in the same 12-month period that Shire’s eye business was sold —twice! — and Novartis completed its disassembling of what we knew as Alcon. Heck, even teams in the second division were in play; Akorn was bought, returned to seller and then reluctantly kept by its buyer. You know we are living in strange times when Bausch is the most stable company in our space.

Right?

Here are the deets: AbbVie will pay a 45% premium over the preannouncement share price of approximately $130 for Allergan, roughly $188 per share in total. Why so much? AbbVie is staring at the imminent loss of that cash pony, Humira, when it loses patent protection in the U.S. in 2023. In the eye care world, we are all atwitter about Allergan losing its patents on Restasis, at most $1.4 billion per year in sales. Humira raked in $19.1 billion last year, roughly 60% of AbbVie’s revenue. This is a pure revenue replacement play for AbbVie, even though the precipice doesn’t arrive for 4 years.

How about Allergan? Why AbbVie, and why now? In 2015, Allergan was riding high, cruising along at a $330 per share clip after its “merger” with Actavis and the transfer of home court to Dublin, Ireland. Then came an effort to double down on the tax inversion thing by merging with Pfizer, a move that ran afoul of the Obama legal beagles. Bringing home that trophy would likely have shielded Allergan from the very real market distress at the imminent loss of its Restasis patents, not to mention the embarrassment that followed the too slick by half “sale” of domestic Restasis patent rights to a Native American tribe. Allergan’s stock price had been cut in half, and the investment community smelled blood. A couple of months ago, Allergan CEO Brent Saunders all but said some kind of deal should be expected.

Is this deal a good thing for dry eye disease doctors and their patients? That depends on what you want these deals to produce. If you held AGN in your portfolio, you are feeling pretty good at the moment. On the other hand, if you are looking for this, or any deal for that matter, to spark innovation in either drug development or access to medications, you are going to be sorely disappointed. These deals are about nothing more than moving big numbers across a balance sheet from one behemoth to another in the service of Wall Street. Nothing I’ve seen from any of the big players leads me to believe that they have any real interest in in-house innovation; nothing here convinces me otherwise. Our biggest hope, in DED and indeed across all of eye care, is that the new company continues to support the eye care business it now owns, and perhaps puts some of its new cash flow into purchasing a couple of the small startups that are actually doing some innovating.

Kinda grumpy, eh? Not all is a downer, though. There is likely to be some really fun stuff to watch from behind a big bucket of popcorn. For starters, what are they gonna call this thing? “Allergan” has already survived one merger, and “steady Eddie” ol’ B+L has kept its golden name and brand through, what, 17 changes in ownership? My bet is that AbbVie, all of 7 years old, gets dropped in favor of keeping the Allergan brand. How about the question of hometown? Does AbbVie (registered in Delaware and headquartered in Chicago) take its talents to Dublin and Ireland’s famously low corporate tax rates? Doubtful.

Admit it, though: You want them to do just that so that we can read the tweets coming out of the White House when you-know-who hears about it.

Disclosure: White reports he is a consultant to Allergan, Shire, Sun, Kala, Ocular Science, Rendia, TearLab, Eyevance and Omeros; is a speaker for Shire, Allergan, Omeros and Sun; and has an ownership interest in Ocular Science and Eyevance.