Allergan launches $10B buyback, focuses on tuck-in deals

Investors hoping for another “transformational” deal from Allergan may not be too fond of the M&A plans the company laid out Tuesday. But a hefty share buyback could soften the blow.

When it has cash in hand from its $40.5 billion generics sale to Teva--expected to close in June--Allergan will be looking for tuck-in deals that bolster its position in its 7 core therapeutic areas, which include CNS, medical aesthetics and women’s health, CEO Brent Saunders said on the company’s Q1 conference call.

“The better way to think about it … is stepping stones to growth,” that will drive leadership in those areas, he said, noting that those buys could involve either marketed or pipeline products.

That may be a buzzkill for deal-happy investors who have gotten used to big buys from company. Between its $66 billion deal for Allergan--back when it was still Actavis--and its recently cancelled $160 billion Pfizer megamerger, a return to the Saunders-coined “growth pharma” strategy may feel like something of a let-down.

But Allergan had other news Tuesday, as well--including a $10 billion share buyback program. It expects to make $4 billion to $5 billion in repurchases over the next four to 6 months, it said, subject to “favorable market conditions.”

It’s a move that’s very reminiscent of Big Pharma--something Allergan has insisted it isn’t, all the way through its transaction with Pfizer. It’s used words like “lean” and “streamlined” to set itself apart as a quick-moving drugmaker that can grow faster than its large, encumbered peers. Toward that end, it also announced a new exec structure Tuesday, which will see the positions of chief commercial officer--a position to be held once again by Bill Meury, who had been serving as president of branded pharma--and COO, a post to be filled by Robert Stewart, reporting directly to Saunders.

“The new commercial structure will increase global focus, speed decision making, align resources and priorities with R&D, and ensure global brands are consistently developed,” the company said in an 8-K, while the COO job will involve overseeing global manufacturing ops, ensuring harmonization of IT systems and processes, and wrapping up previous integrations.

Lately, though, the company has spent more time warding off comparisons with its specialty pharma peers--many of which, such as Valeant and Mallinckrodt, have seen their shares tumble since August on account of political pushback to their price-hike strategies.  

“When the strategy is flawed, the outcome will be bad, even if it takes time,” Saunders said. “What is left will be high-quality" drugmakers that source R&D from both inside and outside the company and operate with strong “commercial engines”--and “that is how we are running this company,” he told shareholders.

Meanwhile, revenue fell below analyst expectations for the quarter, coming in at $3.8 billion to miss the $3.95 billion mark that they expected. Profits totaled $255.7 million, compared with Allergan’s $512.7 million loss in last year’s Q1.

- read Allergan's release
- see the 8-K

Special Report: The 25 most influential people in biopharma in 2015 - Brent Saunders - Actavis

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