Allergan CEO Puts Split on Table in Urgent Review of Options

(Bloomberg) -- To split or not to split? Allergan Plc Chief Executive Officer Brent Saunders is finally asking that question.

The drugmaker is reviewing ways to reshape the company as its braces for competition for some of its biggest-selling products, including blockbuster eye medication Restasis. While Saunders had previously said that breaking up Allergan wasn’t on the table, he cracked the door open to a split during a call with analysts on Monday.

“There is a sense of urgency, and everybody’s looking at everything,” Saunders said. He said a breakup would be the “most disruptive” option, and that the company isn’t likely to do a large merger or acquisition.

Allergan, best known for top-selling wrinkle treatment Botox, has trimmed expenses in the face of impending generic competition for Restasis. The company said earlier this year it would cut as many as 1,000 jobs. That restructuring is largely complete now, the CEO said.

Saunders said Allergan has retained a number of advisers to help with the review. Shares declined 3.7 percent to $155.98 at 12:11 p.m. in New York even after the company also posted first-quarter earnings that beat Wall Street estimates.

A Number of Options

Saunders laid out a handful of different options Allergan could pursue, including selling lines of business that aren’t considered core; acquiring a smaller company to bulk up; splitting Allergan into smaller pieces; or buying back more stock.

Annabel Samimy, an analyst at Stifel Nicolaus & Co. who has a hold rating on the stock, said investors were likely looking for more clarity on Allergan’s review. The steps Saunders laid out were “obvious,” though the company appears “to be leaning toward divesting women’s health," Samimy said, and could consider selling the company’s anti-infectives franchise as well.

Earlier this month, Allergan said that it was considering making an offer for Shire Plc, but recanted hours later after shares sank on the news. Japan’s Takeda Pharmaceutical Co. is now the sole public suitor for Shire.

“We’ve been quite open that we’re engaged in a strategic review that includes evaluating our full range of options,” Saunders said in an interview with Bloomberg before the call. “Engaging in a transformational acquisition perhaps like Shire is never, wasn’t, still isn’t a top priority for us, but since Shire was put in play by Takeda, we felt we had an obligation to take a cursory look at it.”

Stifel analyst Samimy said the company’s direction for deals is “more of a string-of-pearls type of strategy.”

Saunders had said as recently as November that splitting up the drugmaker -- a possibility raised by some analysts -- wasn’t under consideration.

“If we pursue this option, it will take the longest time to complete,” he said on Monday. Later he added investors shouldn’t think “that Allergan management wouldn’t undertake an exercise that was difficult and time-consuming if it were the right thing to do for shareholders.”

Allergan raised its guidance for the year to a range of $15.15 billion and $15.35 billion in sales on earnings of $15.65 a share to $16.25 a share, excluding some items. First-quarter earnings were $3.74 a share, excluding some items, compared with analysts’ expectations for $3.35 a share.

Buying Time

Saunders had said he expected generic competition for dry-eye treatment Restasis early in 2018, but now anticipates it in the summer.

“It really is impossible for us to know with any certainty,” Saunders said in an interview. “All we can do is watch the public commentary made by the generic manufacturers and use that to give an estimate.”

Allergan, managed from Madison, New Jersey, with a legal address in Dublin, tried last year to shield Restasis from one type of patent challenge through an unconventional deal with a Native American tribe, but a judge later ruled the patents were invalid on scientific grounds.

Restasis is already under pressure. Sales in the first quarter of $274.1 million were down 15 percent from a year ago on what the company said were lower prices and changes in buying patterns in the quarter. Analysts expected sales of $298.9 million. Botox sales were higher than analysts anticipated.

Allergan still holds 34 million shares in Teva Pharmaceutical Industries Ltd. as a result of the divestiture of its generics business to the Israeli drugmaker. Last year, the stake weighed on Allergan’s stock as shares of struggling Teva plummeted. Allergan has been reducing the holding, and is still selling out of that position in an “orderly fashion,” Chief Financial Officer Matthew Walsh said.

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