Actavis Wins Bid To Buy Allergan

Allergan has agreed to be acquired by the Dublin-based specialty pharmaceutical firm Actavis in a cash-and-stock deal worth $219 per share or a total of $66 billion. The deal appears to end a hostile bid for Allergan by Valeant Pharmaceuticals that became a referendum on the value of R&D.

Valeant and the activist investment firm Pershing Square Capital Management had been trying to acquire Allergan since April. But with Actavis’s offer more than 25% higher than the last one Valeant put on the table, Valeant seems to have walked away.

“While we will review any such agreement in determining our course of action, Valeant cannot justify to its own shareholders paying a price of $219 or more per share,” Valeant CEO J. Michael Pearson says.

Brent Saunders, Actavis’s CEO, says the deal will create a fast-growing, top 10 pharma company driven by a commitment to R&D. An estimated $23 billion in annual revenues will come from a mix of brand-name, generic, biosimilar, and over-the-counter drugs. Allergan is best known as the maker of ophthalmic pharmaceuticals and the cosmetic enhancer Botox.

Chemists and other scientists working for Allergan will likely be better off with Actavis than they would have been with Valeant, which is known for acquiring companies for their products and slashing R&D. Arguing against a takeover, Allergan’s board pointed to Valeant’s “unsustainable business model, which relies on serial acquisitions and cost reductions, as opposed to top-line revenue growth and operational excellence.”

Indeed, had it succeeded in a takeover, Valeant envisioned finding at least $2.7 billion in annual cost savings and planned to spend just $300 million on R&D to “complete high-probability projects.” Allergan is on track to spend more than $1.1 billion on R&D this year.

An active acquirer itself, Actavis isn’t leaving R&D alone. It is proposing about $1.35 billion in annual cuts by 2016, with $400 million of that coming in R&D, according to Evercore ISI analyst Umer Raffat.

These savings will come on top of a $475 million cost-cutting program that Allergan announced in July. That program will eliminate 1,500 jobs, or 13% of its workforce, this year, including about 650 in R&D.

Still, Actavis says that the combined company will spend about $1.7 billion per year on R&D.