Allergan Seeks Opportunities To Dominate In Key Therapeutic Areas

CEO Brent Saunders reviewed past deals, but not the present negotiations with Pfizer, during R&D day.

Allergan plc is known as one of the most acquisitive players in the pharmaceutical industry, but the company asserted its commitment to in-house and early-stage innovation as well during an Nov. 4 R&D day, reflecting a strategy similar to its potential acquirer Pfizer Inc.

Dublin-headquartered Allergan could not comment on its previously disclosed, friendly discussions with Pfizer about a combination of business operations, due to Irish takeover laws (Also see "Pfizer Tests The Luck Of The Irish; Will The US Let Its Pharma Pot Of Gold Go?" - Pink Sheet, 29 Oct, 2015.).

But during a lengthy R&D pipeline update at the company's research and development campus in Irvine, California, Allergan showcased a company that's poised for growth regardless of whether it remains a stand-alone firm or helps Pfizer become the largest health care company in the world.

Allergan President and CEO Brent Saunders, who's overseen several billion dollars worth of deals on behalf of Allergan and its predecessor Actavis, said the company did not agree to sell its generics business to Teva Pharmaceuticals Ltd.for $40.5bn in July – strengthening Allergan's focus on brand-name drugs – to make itself more attractive to potential acquirers or to targets that the company might buy .

"The deal with Teva really was based on a few straightforward items," Saunders said in an interview following Allergan's R&D update.

Investing In Growth

Teva offered a great price for the generics business and the timing was right for a deal at that value, he said. The transaction, which includes $36bn in cash, also allows Allergan to wipe some debt off of its balance sheet, so that the company can invest more capital in growth opportunities.

Allergan revealed during its third quarter earnings conference call, which took place before the R&D event, that the company invested $50m up front in a partnership with Mimetogen Pharmaceuticals Inc. to develop the Phase III small molecule TrkA agonist tavilermide (MIM-D3) for the treatment of dry eye disease – a major segment of Allergan's ophthalmology portfolio led by the blockbuster topical therapy Restasis (cyclosporine) (Also see "Allergan Comes To Q3 Call With Deal News, But Nothing On Pfizer" - Pink Sheet, 4 Nov, 2015.).

While Allergan tends to acquire mid- to late-stage drug candidates, the company does not eschew earlier-stage development programs in its seven key therapeutic areas: ophthalmology, neurology, dermatology and aesthetics, gastrointestinal, women's health, urology and anti-infectives. In fact, its scientists conduct a fair amount of early-stage research in important segments within those therapeutic areas.

Saunders said Allergan does look at earlier drug development programs in diseases of interest, but it doesn't reveal discussions with those partners because of the early stage of those technologies.

Dominating Where Pharma's Fled

Allergan's seven therapeutic areas are markets in which big pharma generally does not have a large presence, including neurology, anti-infectives, women's health and, especially, aesthetics – an area in which the company dominates with products like the blockbuster wrinkle-reducer Botox (onabotulinumtoxinA), the Juvederm facial fillers, and the recently acquired double-chin eliminator Kybella (deoxycholic acid).

"In eye care, it's an oligopoly between us and Novartis," Saunders said. "In women's health, there's virtually no big pharma presence."

William Meury, Allergan's president of branded pharma, noted that the company has bid against big pharma on certain outside assets and it has been able to win deals that its larger counterparts couldn't.

That doesn't mean that Allergan overpaid to beat big pharma on those deals, however. Saunders noted that Allergan's acquisition of Furiex Pharmaceuticals for up to $1.46bn only cost the company about $900m after it sold off royalty rights unrelated to Viberzi (eluxadoline) for irritable bowel syndrome (IBS). The acquisition cost about as much as one year of peak Viberzi sales, he said, based on estimates for the IBS treatment's future sales.

Allergan's recent deal-making also extends to certain medical devices, such as Oculeve's dry eye device, which was acquired in a recent $125m deal.

"The way we like to think about devices is, 'Is this device something that makes us more relevant to our customer?'," Saunders said.

In terms of the Oculeve deal, he added, "We are the leaders in dry eye. As the leader, we are responsible to look more broadly" for treatments.

What Price For Innovation?

Like all pharma companies during the past month and a half, Allergan finds itself in the position of explaining its views on drug pricing following recent attention to the costs of certain medicines and political pressures to discuss some kind of price controls in the US.

Saunders said the price that payers are willing to pay is taken into account when Allergan looks to license an outside asset and the product's reimbursement potential is vetted before any deal is signed.

"The notion that companies have a free pass on pricing is wrong," Saunders said, calling out egregious price increases for certain niche products that fly under the radar of most US payers.

Meury noted that drug pricing dynamics are no different today than they were before the recent cost controversies involving Turing Pharmaceutical and Valeant.

But David Nicholson, Allergan's president of branded pharma research and development, noted that "R&D used to focus on 'What do we need to do to get regulatory approval?' Now, we also have to show payers why the drug shows a benefit over an existing therapy. We have two hurdles these days."