Allergan continues M&A spree with $2.5B deal to beef up aesthetics unit

Allergan purchased Zeltiq for nearly $2.5 billion on Monday to get its hands on CoolSculpting medical aesthetic technology.

Since its massive Pfizer merger fell through last year, Allergan has persisted with “stepping-stone deals” rather than a transformational buy. Monday, the drugmaker unveiled its latest buy, Zeltiq, a $2.47 billion add-on for its aesthetics business.

With Zeltiq, Allergan will get the sales leader in body contouring—read fat-fighting—and a company that generated $354 million in 2016 sales, a 38% increase versus the year before.


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The deal will give yet another injection of oomph to its aesthetics business, its fastest-growing segment. Unlike the other prescription treatments in its stable, which are covered by insurance, many of the aesthetics products and services are cash-pay only. And that means, for those treatments, Allergan escapes the payer pricing pressure that has plagued other markets, and it's free to offer rebates and other incentives to doctors.

Zeltiq’s fat-freezing CoolSculpting system is “best-in-class,” Allergan said. It’ll become the third pillar in the company’s medical aesthetics portfolio, joining products in facial aesthetics, including Botox, plus plastic surgery and regenerative medicine.

Since its Pfizer megamerger collapsed last April, Allergan has announced a flurry of smaller buys. And there's plenty more firepower for additional M&A: In August, it closed on its $40.5 billion generics sale to Teva, generating cash to fund its deal ambitions.

Most recently in its deal spree, the company purchased regenerative medicine player LifeCell for $2.9 billion in an immediate boost to its topline.

Zeltiq’s CoolSculpting “may prove synergistic” to a previous Allergan acquisition, Kybella, according to analysts at Barclays. An injection to treat double chin, Kybella was the key component of Allergan’s $2.1 billion purchase of Kythera in 2015.

At the time, Allergan CEO Brent Saunders said Kybella and CoolSculpting weren’t competitors because the latter is “not necessarily” for the face, Evercore ISI analyst Umer Raffat pointed out in a Monday note. Importantly, Raffat said CoolSculpting will have repeat patients and is approved in a range of indications.

The Zeltiq purchase comes just days after Allergan reported Street-beating earnings and revenue to end the year as it looked to move past trouble in the third quarter.

If analyst predictions about the aesthetics business hold true, the growth could continue. Citing physician experts last year, Leerink analyst Jason Gerberry predicted the market for toxins, such as Botox, and fillers to “continue to grow at a healthy pace,” and Allergan “is expected to remain a preferred supplier.” The company's “strong” rebate and loyalty programs don’t hurt either.

Ad campaigns for Botox, an increasing level of comfort among consumers with the use of fillers, and an influx of men into the treatment pool have all boosted expansion in the aesthetics field, Gerberry said. Indeed, Saunders has touted Kybella as a treatment that could help attract men to Allergan's other products.

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