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Jul 21, 2014

Allergan to Axe 1,500+, as Valeant Steps Up Takeover Pressure

Allergan to Axe 1,500+, as Valeant Steps Up Takeover Pressure

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  • Allergan today announced plans to lay off about 1,500 employees—13% of its workforce—over five years as part of a restructuring it hopes will quash interest among shareholders in the $53 billion hostile takeover, with its potential for even more drastic cost-cutting, proposed by Valeant Pharmaceuticals International.

    The Botox maker also said it will also eliminate an additional approximately 250 vacant positions in its restructuring, which it said will not affect nearly all (94%) of “customer-facing personnel” or its current clinical-phase pharma R&D programs. Any reductions in drug discovery programs would not impact approvals during its 2014-2019 “strategic plan” period, Allergan added.

    “The restructuring will be conducted consistent with Allergan's model of driving high quality earnings growth through a customer-centric focus on net sales growth and ensuring that Allergan maintains an innovation-focused research and development pipeline to deliver sustained long-term growth,” the company said in a statement.”

    Allergan added that the restructuring will generate annual pre-tax savings of approximately $475 million in 2015: “Such savings will come from efficiencies and reductions in spend across the commercial organization, general and administrative functions, manufacturing and the research and development organization.

    The company said that its restructuring was intended in part to deliver enhanced non-GAAP diluted earnings per share (EPS) growth—and thus increased stockholder value—by focusing resources on “the highest value opportunities,” streamlining its organizational structure, simplifying processes and interfaces, optimizing site footprints, and enhancing strategic sourcing of goods and services.

    Insufficient growth has been among arguments cited by Allergan’s largest shareholder, investor William Ackman’s Pershing Square Capital Management, in supporting Valeant’s hostile takeover effort. Valeant made its first $47.5 billion bid for Allergan in April, raising its offer to $53 billion earlier this month.

    Allergan has scrambled to beat back Valeant, but the targeted company’s support among key shareholders has shrunk further. The investment manager Capital Research & Management has sold its shares in Allergan, according to a report in The Wall Street Journal today.

    In making its first offer, Valeant said it expected to make “at least” $2.7 billion in annual cost reductions, of which 80% would be achieved in the first six months after completion of a deal. Valeant also promised to undertake “at least $300 million in annual R&D spend to complete future high-probability and late-stage projects” already in Phase III, including current and future line extensions, and life cycle management programs: “The new company will continue to fund both companies' late stage development programs, including those in dry eye, diabetic macular edema, glaucoma, migraine, eye whitening, psoriasis, and other dermatology areas.”

    But Valeant also promised to sell or eliminate earlier-stage Valeant R&D programs—consistent with the company’s approach, seen after several earlier acquisitions. Under CEO Mike Pearson, Valeant has acquired some three-dozen companies at a combined cost of $19 billion, toward its goal of becoming a top-five biopharma in market capitalization by 2016.

    This month alone, Valeant completed its up-to-$500 million acquisition ($475 million upfront plus an up-to-$25 million sales milestone payment) of PreCision Dermatology on July 8. Two days later, Valeant reaped $1.4 billion cash by completing the sale to Galderma of all rights to Restylane, Perlane, Emervel, Sculptra, and Dysport, pursuant to a previously-announced acquisition of Galderma by Nestle.

    Adding fuel to the proverbial fire, Valeant today contacted U.S. and Quebec regulators contending that Allergan falsely claimed that pharmaceutical sales at Bausch + Lomb—acquired by Valeant last year for $8.7 billion—had been stagnant or declining. In a statement, Valeant said that those sales actually grew 6% during the second quarter, including a 17% jump in the U.S.

    Allergan’s restructuring comes in a year whose first half saw fewer layoffs than 2013, although that is expected to change next year as the industry sees another “patent cliff” wave of  exclusivity expirations for top-selling drugs.


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