Acquisitive Allergan gets top-line help, cost-savings potential with $2.9B LifeCell buy

Allergan
Allergan has agreed to buy LifeCell for $2.9 billion in cash.

It’s been a busy year of tuck-in deals for Allergan since its record-breaking Pfizer merger collapsed in April. And the company is sneaking in one more buyout agreement before 2016 draws to a close.

The Dublin drugmaker has inked a pact to pick up regenerative medicine player LifeCell for $2.9 billion in cash, it said Monday. LifeCell racked up about $450 million in 2016 revenue that’ll boost Allergan’s own top line going forward, and it’s expanding at a mid-single digit rate. “Overall, nice accretive tuck-in,” Evercore ISI analyst Umer Raffat wrote in a note to clients.

The way Allergan sees it, the addition of LifeCell’s product line—which includes human allograft tissue matrix AlloDerm, fat-grafting device Revolve and procine-based tissue matrix Strattice—will help it create “a world-class aesthetic and regenerative medicine business providing significant opportunity to enhance the overall product offering for plastic and general surgery customers globally,” the company said in a statement.

From Bernstein analyst Ronny Gal’s perspective, the buy is “a fit on strategy,” he wrote in his own investor note. For one, LifeCell’s business “appears to merge well” with Allergan’s Botox-led aesthetics business, which also includes breast implants and dermal fillers. That means there’s some cost-cutting potential for Allergan, and depending on what kind of savings it can squeeze out of the acquisition, “we expect this deal to offer ~3% accretion beginning in 2017,” Gal wrote.

Another bonus? “LifeCell is another long duration asset that is not protected solely via patent protection,” he noted.

Growth outside Allergan’s pharma brands is key for the drugmaker—especially since those pharma brands haven’t all been pulling their weight. For Q3, the company fell short of topline estimates, with falling Namenda XR sales and generics of ulcerative colitis treatment Asacol both taking their toll.

IP protection for key eye med Restsis is under siege, too, which isn’t helping matters. Earlier this month the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB) agreed to embark on an inter partes review of all six patents covering Allergan’s star, and Gal has predicted a “somewhat higher than 50%” chance of invalidation.

Allergan’s been doing what it can to bolster its portfolio and pipeline through dealmaking, though, and CEO Brent Saunders has stuck to his word about favoring so-called “stepping stone” deals instead of chasing the next megamerger. The challenge now, Gal said, is that Allergan needs to convince Wall Street that the $5 billion or so it’s spent on 2016 pickups will generate positive returns.

He, for one, is confident the company can.  With new launches on the horizon, “we see this happening throughout the next year or so,” he wrote.

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