Valeant Won't Let Go Of Allergan, Raises Bid For The Company

Valeant Pharmaceuticals (VRX) just isn't the one to give up on a bid for a company that it really wants to acquire. Today Valeant had decided to raise its bid for Allergan (AGN)  in terms of cash by an additional $10 per share or $58.30 in cash. This is a 20% increase in cash payment, and would bring the current bid to $49.4 billion dollars for Allergan. The CEO of Valeant Michael J. Pearson isn't going ahead with the deal alone  because it has the support of Pershing square Capital which currently owns about 9.7% of Allergan.

Bill Ackman who leads Pershing Square Capital broke News earlier this year that it wanted to acquire Allergan with Valeant Pharmaceuticals, and Allergan's share price immediately rose by 23 percent on that news. Many investors called to question the ability for Ackman to be able to announce the acquisition of Allergan together with Valeant considering that Pershing Square Capital already owned 9.7% of Allergan. Regardless of the ethics for this deal, Allergan had stated that the bid severely undervalued the drug makers current prospects. Also Allergan didn't like the fact that Valeant continues to operate just by acquiring other companies. Allergan claims that it is not a sustainable business model for Valeant, and that future R & D is and will continue to suffer in the coming years because of it. We tend to agree with Allergan because pharmaceutical companies are all about research and development of new drug compounds.

What if the ability for Valeant to acquire pharmaceutical companies comes to an end? We believe it is far superior to build a nice R & D pipeline while continuing to acquire only when it is absolutely necessary. Valeant wants Allergan to come to the table to so that they can make some sort of agreement with each other, but Allergan believes that it can do better to build the future of its company on its own by creating new drug compounds. Allergan has been quite successful with Botox, and sales for Botox are expected to reach about $3 billion dollars by 2017. Just the sales alone from Botox is enticing enough for Allergan to be acquired but Valeant also has its eyes on another compound from the company. Allergan is working on an age-related macular degeneration compound.

This Age-related Macular Degeneration compound is currently in phase 2 clinical testing, and is known as AGN 150998. This drug compound utilizes VEGF which is an inhibitor drug compound for many eye diseases but the company makes use of an improved inhibitor for eye diseases known as VEGF- DARpin. So why is Valeant so eager to obtain Allergan so quickly? We believe this has to be because Allergan is expected to release the phase 2 results for AGN 150998 in the 3rd Quarter of 2014. Positive results in this indication would significantly increase the value of the company. Thus would make it harder for Valeant to acquire the company as it would have to bid a lot higher than its recent bid. Also Botox is currently being used for face injections but is also being used more to help develop clinical neurological products. We believe that the flexibility of Botox brings out additional value for Allergan, and thus why Allergan still has not liked any of the current bids from Valeant.

The macular degeneration market is huge so even if we take out Botox, positive results from the phase 2 AGN 150998 would make Allergan an attractive buy not just for Valeant but  many other suitors. It would then gain interest from other big pharmaceutical companies like a Glaxosmithkline (GSK). Allergan remains vigilant though, and would still refuse a higher offer on the basis that Valeant wouldn't be responsible enough with its pipeline. Allergan points to Valeant purchasing Bausch & Lomb last year in 2013 for $8.7 billion dollars, and not growing the franchise that it has acquired. Allergan is afraid that a sale of its company to Valeant would be a disservice to its shareholders, and the reason for the continuous rejection of bids. We think that Allergan is making the right decision for its shareholders and should continue to hold its ground.