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Kythera going for $2.1 billion
August 2015
by Jeffrey Bouley  |  Email the author
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DUBLIN—It was in mid-June that Irish pharma Allergan plc announced that it would acquire Westlake Village, Calif.-based Kythera Biopharmaceuticals Inc., a biopharmaceutical company focused on the discovery, development and commercialization of novel prescription products for the aesthetic medicine market.
 
More recently, near the end of July, the companies announced that the U.S. Federal Trade Commission had granted early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 with respect to the pending acquisition. The early termination of the waiting period under the act satisfies one of the conditions to the closing of the pending acquisition, which remains subject to other customary closing conditions, including receipt of approval by Kythera’s stockholders.
 
Allergan sees the California company as complementary to its existing position in facial aesthetics and expects the acquisition will enhance its long-term growth profile. A notably attractive part of the acquisition for Allergan is that Kythera’s lead product, Kybella, is the first and as-yet only approved non-surgical treatment for reduction of moderate to severe submental fullness, more commonly known as double chin.
 
Allergan has agreed to acquire Kythera in a cash and equity transaction valued at $75 per Kythera share, which comes to a total value of about $2.1 billion. The fixed- value transaction consideration will be payable 80 percent in cash and 20 percent in new Allergan shares issued to Kythera shareholders. Allergan’s 2015 earnings-per-share forecast provided on May 11, 2015, remains unchanged as a result of the acquisition, which is expected to be break even in 2016 and be accretive thereafter.
 
Kybella (deoxycholic acid) injection was approved by the U.S. Food and Drug Administration (FDA) on April 29 of this year. Kybella injection is also being developed for potential introduction into international markets. In addition, Kythera has submitted Kybella injection for regulatory approval in Switzerland, Canada and Australia, with other market applications to follow. The acquisition will also add Kythera’s development product setipiprant (KYTH-105), a novel compound for the prevention of male pattern baldness, as well as additional early-stage development candidates.
 
 “The acquisition of Kythera is a strategic investment that strengthens our leading global position in aesthetics and continues to position us for long-term growth,” said Brent Saunders, CEO and president of Allergan. “Kybella is an exciting new product that offers patients the first and only clinically proven, non-surgical treatment for submental fullness (excess fat under the chin). As a leader in aesthetics, we know our customers are looking to offer their patients new options beyond traditional facial aesthetics. Kybella will do that while complementing our market-leading facial aesthetics portfolio, which includes Botox, Juvéderm XC, Juvederm Voluma XC, Latisse and Skinmedica. Kybella is also a pivotal entry point for expanding the use of facial aesthetic products in men, while Kythera’s setipiprant (hair-loss) development program can drive additional long-term value.”
 
As Allergan describes it, submental fullness is “a common yet undertreated condition that can detract from an otherwise balanced and harmonious facial appearance, leading to an older and heavier look. Submental fullness can affect adults—both women and men—of all ages, weight and gender. Influenced by multiple factors, including aging and genetics, submental fullness is often resistant to diet and exercise.”
 
According to a 2015 survey by the American Society for Dermatologic Surgery, 67 percent of consumers are bothered by submental fullness.
 
“Allergan’s world-class medical aesthetics, global footprint, history and commitment to developing leading aesthetic products makes them ideally suited to realize the maximum commercial potential of Kybella,” said Keith Leonard, CEO and president of Kythera. “I am deeply appreciative of the commitment and dedication of our Kythera team that worked so tirelessly to bring Kybella from early development through approval and launch. We look forward to working with Allergan to ensure a successful U.S. launch of Kybella, as well as to secure additional approvals globally.”
 
Barbara Gilmore, a Frost & Sullivan senior industry analyst, says of the deal, “Allergan is firing on all cylinders ... Both dermatology and aesthetic medicine are key areas of focus for Allergan, so the fit is natural for both companies. Kythera brings a leadership team with experience in the strategic commercialization of Botox Cosmetic, Juvederm and Latisse.”
 
She adds that Allergan’s strategy “is successful at a time when most major pharmaceutical companies are scrambling to recover from patent cliff income collapse. Allergan has invested in small niche markets while maintaining a strong broad patent portfolio on its products.”
 
BMO Capital Markets analyst David Maris noted that to keep its leadership position in aesthetics, “Allergan needs to be involved in almost all potentially game-changing technologies, and with approval already in hand, one of the largest risk factors for Kybella has already been addressed,” adding his opinion that no other company is better suited to develop new indications and commercialize the product.
 
Ronny Gal of Bernstein Research did express caution with regard to the fact that the deal seems pricey, since he projects Kybella will reach $300 million in revenue by 2020 and have peak sales of about $400 million. Given the price Allergan is willing to pay, Gal noted, “they obviously have much higher expectations than we do,” and points that very few aesthetic products have crossed $500 million. Gal also thinks ramp-up of the product will be slow.
 
In other Allergan news of late, the company said July 7 that it plans to acquire the exclusive worldwide rights to Merck’s investigational small-molecule oral calcitonin gene-related peptide receptor (CGRP) antagonists, which are being developed for the treatment and prevention of migraine. Under the terms of the agreement, Allergan will pay $250 million up front, $125 million of which is payable upon Hart-Scott-Rodino clearance and $125 million of which is payable in April of 2016. Allergan will be fully responsible for development of the CGRP programs, as well as manufacturing and commercialization upon approval and launch of the products.
 
The day before that announcement, Allergan reported that it would acquire Oculeve, a development-stage medical device company focused on developing novel treatments for dry eye disease, for a $125-million upfront payment and commercialization milestone payments related to Oculeve’s lead development program OD-01. The agreement also includes the acquisition of an additional earlier-stage dry eye device development program.
 

Teva acquires Allergan generics for more than $40 billion
 
In late-breaking news as the August issue off DDNews was going into production, Teva Pharmaceutical Industries Ltd. announced toward the end of July that it had agreed to acquire Allergan’s global generic pharmaceuticals business under a cash-and-stock agreement valued at $40.5 billion, a deal that is expected to close in the first quarter of 2016. Allergan will receive $33.75 billion in cash as well as shares of Teva valued at $6.75 billion, representing around 10 percent of the Israel-based company.
 
Aishwarya Vivekanandan, a Frost & Sullivan industry analyst, said of the deal that it “came as no surprise, especially since Teva has been on the prowl to acquire generic drug makers like Mylan and Allergan. This acquisition gives great insight into the pharma giant; their actions were not just intended to push them up to the top 10 pharmaceuticals in the world, but also to have enough competitive strength to keep up with highly competitive market.”
 
“In 2014, Allergan held the top position in the new first-to-file (FTFs) ANDAs, with 25, where Teva had only seven,” added Barbara Gilmore, a Frost & Sullivan senior industry analyst. “With the Allergan acquisition, Teva increases their generic portfolio presence from 53 percent to 61 percent ... establishing a substantial leadership position in the generic market. At a time when the healthcare industry is driven to cut costs, a generic drug presence is critical to ensuring revenue growth. Teva is well positioned to remain a top player in the global pharmaceutical space in 2015.”
 
Code: E081501

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