Market, Perspective

Buzz: Will Brent Saunders split up Allergan if he loses the Restasis patent fight?

With its stock trading south of $200 after the big Restasis setback on the patent front, you can hear the growing buzz of analysts eagerly speculating about the chance that Allergan $AGN may soon be forced to break up the company to deliver for investors.

As you may have heard, a federal judge recently invalidated the Restasis patents for obviousness, the kind of slap down that has a high likelihood of standing up under appeal. So with its $1.5 billion franchise therapy teetering on the brink, it’s easy to see how hiving off Allergan’s stable and profitable aesthetics business — built around Botox — could work in its favor.

Ronny Gal took a look at the numbers, chatted about it with Allergan CEO Brent Saunders, and concluded that “if 2018 does not go well, splitting the company will become a real option.”

To be sure, Saunders cautioned that the discussion is way too premature at this point, but Gal says it seems obvious that he’s given it some thought.

Brent Saunders, Allergan

The economics of a split centers on the share price. A split may well focus a lot more attention on the value of the aesthetics division, giving investors a big payback.

Allergan, meanwhile, just out-licensed a portfolio of small molecules to Syndax after a long running deal spree in which it absorbed a pipeline of new experimental products, so the pharma side of the business with the pipeline has a good shot at standing on its own two feet quite well.

I’ll add here that Saunders has been a standout on the deals front for several years now. He created Allergan in a series of acquisitions, selling off the generics business to Teva at just the right time. While he was denied a chance at completing a merger with Pfizer, he’s a restless wheeler-and-dealer at heart. And if a strategic split at the right time makes sense, he won’t be sentimental about it.

It hasn’t helped Saunders that the patent ruling came with a severe dressing down from the judge on the company’s deal with the Saint Regis Mohawk Tribe for “renting” its sovereign immunity. That deal, paying the tribe to hold the patents and then leasing back the rights, has triggered a tempest in Washington DC, where it’s very much open season on any pharma companies that look like they’re trying to protect high branded drug prices at the expense of their constituents.

Pharma is in the business of doing good, provided it can make a considerable amount of money in the process. And Allergan has the same pressure to perform on the revenue and profit side of the business as anyone else selling a product. They can just expect to get held to a different standard for how they go about it.

This discussion about splitting Allergan is just starting. But analysts can’t speculate often enough about a big potential break up. So expect to hear a lot more about this in the months to come.



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