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Allergan earnings call may focus on M&A

May 8, 2017

When Allergan  (AGN) reports first quarter earnings prior to the market’s opening Tuesday the beleaguered pharma company and its CEO Brent Saunders will likely be grilled on a host of things, but none more high profile than its M&A prospects.

With tax reform as top priority of the Trump Administration, the White House in April unveiled an executive order instructing the Treasury Department to find and review tax regulations since the beginning of 2016 and make recommendations on modifying or repealing any they see as overly complex and burdensome.

The Deal, a sister publication of TheStreet, reported that the order could potentially open the door for Pfizer (PFE) and Allergan to take another stab at the proposed merger squashed by Obama regulations in 2016.

Pfizer CEO Ian Read last week was forced to field questions about M&A and there’s a good chance Allergan won’t be any different.

He said Pfizer will continue to play an active role in industry consolidation, but the environment “needs to stabilize in order to be an advantageous market for big deals.”

 

New York-based Pfizer and Dublin-based Allergan announced in November 2015 they would merge in a transaction valued at $160 billion. Then in April of last year, the companies scrapped the deal after a clampdown on inversions by the Treasury Department. At the moment most are watching to see if Pfizer merges with Bristol Myers Squibb (BMY) .

“We believe management has appropriately re-based expectations moving forward and has made smart acquisitions to beef up its already-strong (yet underappreciated) pipeline,” wrote Jim Cramer, TheStreet’s co-founder and portfolio manager of the Action Alerts PLUS charitable trust, in a note to investors on Friday, May 5.

“[Allergan’s] growth profile, capital optionality and “six stars” (late-stage pipeline drugs offering the potential of $13 billion in peak sales) should command a higher multiple than where shares currently trade at under 15x 2017 earnings,” wrote Cramer and the AAP team, which owns Allergan.

Since the fall through of the Pfizer deal, Allergan has done a handful of deals as part of the “stepping stone” strategy described numerous times by Saunders, the CEO.

On Feb. 13 it shelled out $2.5 billion to add a top- and bottom- line generating fat-freezing company Zeltiq Aesthetics. In December the company acquired LifeCell Corp. for $2.9 billion in cash from privately-held Acelity LP.

Other acquisitions include its previously announced $639 million buyout of Vitae Pharmaceuticals, a clinical stage biotech developing therapies to treat moderate-to-severe psoriasis, a common skin condition, and mild-to-moderate atopic dermatitis and its acquisition of Tobira Therapeutics for $595 million upfront plus a potential additional consideration that could ultimately ad up to $1.1 billion.

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