This Drug To Treat Double Chins Is a Perfect Fit For Botox-Maker Allergan. But Is It Too Pricey?
One thing about Allergan chief executive Brent Saunders is he doesn’t waste much time. After all, he was personally involved in setting up $97 billion worth of deals last year.
The $66 billion acquisition of the company that used to be called Allergan by Saunders’ outfit, then called Actavis, closed in March. On Monday, Actavis changed its name to Allergan, a far better known corporate brand thanks to high profile aesthetic drugs like Botox, Juvederm, and Latisse, on Monday, when Saunders rang the bell at the New York Stock Exchange. Today, Allergan is announcing that it is purchasing Kythera, the maker of Kybella, a detergent that is injected into the skin in order to dissolve fat deposits that cause double chins, for $2.1 billion.
Kybella was approved by the Food and Drug Administration in April. Clinical trials of 1,022 patients found that those who were given the drug had their double chin fat volume decrease more than those who received a placebo. Kybella can cause side effects including bruising, trouble swallowing, uneven smile, and facial muscle weakness.
The drug is obviously a great fit for a company that has staked its reputation on aesthetics, and Allergan’s Dublin, Ireland, tax domicile will help it escape U.S. taxes that Kythera would have had to pay. But given that the deal price probably assumes Kybella will reach annual sales of $500 million, could it still be too pricey? Two perspectives.
David Maris at BMO Capital Markets says that the deal looks smashing: “In order to maintain leadership in aesthetics, Allergan needs to be involved in almost all potentially game-changing technologies and with approval already in hand, one of the largest risk factors for Kybella (approval), has already been addressed. Given the experience of Botox and fillers, there is no company other than Allergan that would be better able to develop new indications and commercialize the product, in our opinion.” He adds that he hosted a conference call with Dr. Mark Rubin, an expert on cosmetic dermatology, who “spoke extensively on Kybella and was quite favorable about potential use. Dr. Rubin said he saw the reduction of chin fat a small indication, but off label use could be big, if the drug is priced less than the cost of liposuction. Dr. Rubin underscored that patients need to be warned of the swelling they will likely see, and if not, many patients will come back to the office follow-up treatments needed for the desired effect.”
Ronny Gal at Bernstein Research, though, says he can’t quite get the math to work.”We like the fact that Allergan is moving forward but this deal looks a bit pricey,” he writes in a note to investors. “It seems to factor in ~$400M in peak sales (5x sales), which is probably right where we would put peak sales; they obviously have much higher expectations than we do (and we suspect the asset was bought in an auction situation). In terms of modeling the compound, we assume $300M sales by 2020 and ~40c contribution on 70% net margin.” Why wouldn’t it hit those big numbers? Gal lists three reasons: “(i) there are very few aesthetic products which crossed $500M (Botox, fillers) and products with this treatment profile are not ideal candidates to be big sellers. (ii) The ramp-up of the product will be slow, if we look to the fillers as an example. (iii) Kybella was approved as a drug, is relatively easy to manufacture and its OB patents expire 2025-2030.” That means generics aren’t that far away. He does however, like Kythera’s next experimental drug — a treatment for male pattern baldness.
Source: Forbes
