Allergan steps up attack on Valeant

Allergan in 2013 spent about $1 billion on research and development, and its chief executive said it has produced huge returns. Valeant has said it would reduce that to about $300 million. Above, a patient is injected with Botox, Allergan’s bestselling product.
(Patrick T. Fallon / Bloomberg)

The billion-dollar takeover battle targeting Irvine-based Allergan is heading into high gear this week with both sides on the attack.

On Tuesday, Allergan Inc., the maker of Botox, launched a broadside against Canadian rival Valeant Pharmaceutics International Inc. a day before Valeant is set to increase its $46-billion offer for the Southern California firm.

The two companies are locked in a hostile takeover fight that is expected to be long and tumultuous.

Allergan went on the offensive this week, filing a presentation Tuesday with the U.S. Securities and Exchange Commission that questioned the viability of Valeant’s business strategy and proposed plans to reduce research and development spending.


The lengthy statement was Allergan’s first detailed critique of the offer, and Valeant promptly dismissed it as “inaccurate.”

Based in Quebec, Valeant last month teamed up with activist investor Bill Ackman in an attempt to acquire Allergan, whose best-selling product is Botox, the popular wrinkle treatment. It offered to pay $46 billion in cash and stock April 22.

In mid-May, Allergan formally rejected the offer and criticized it for being too low. It also defended itself against suggestions by Valeant and Ackman that it spent too much on research and development and that the company could be more profitable if it cut expenses.

Allergan’s presentation Tuesday is the latest salvo in the hostile takeover. It has already adopted a “poison pill” defense in an attempt to ward off a takeover, and its co-founder has urged the company’s board of directors to reject the bid.


In its presentation, Allergan said it “currently has strong, long-term organic growth fueled by innovation and marketing excellence.” By merging, the company will gain only “anemic growth driven by what we believe are unsustainable price increases — not volume.”

Valeant’s sales growth has been primarily driven by price increases, and its sales are “overstated based on changing definitions and classifications with no disclosure of key products,” Allergan said.

It also argued that Valeant’s revenue growth, including acquisitions for fiscal year 2013, was down 0.5%. That growth rate declined 1.4% in the first quarter of 2014, Allergan said.

The Irvine company also questioned the Canadian company’s intentions to reduce research and development expenses, arguing it would negatively affect future growth.

Allergan in 2013 spent about $1 billion on research and development, and its chief executive said it has produced huge returns. Valeant has said it would reduce that to about $300 million.

It also took a swipe at Valeant’s management, saying many top executives have had short tenures with the company. It said Valeant lacked the experience in “managing complex global businesses.”

A Valeant spokeswoman in a statement said Allergan’s assertions are inaccurate and plans to defend itself in its presentation Wednesday when it unveils its second bid.

“Valeant’s business leaders will provide further clarity on our historic, current and future operating performance... at our event tomorrow,” said Valeant spokeswoman Laurie Little in an emailed statement.


The merger, if it goes through, would double the size of Valeant. It would become one of the largest specialty pharmaceutical companies in the world — and a giant in the eye care and skin care business.

Allergan is a specialty pharmaceutical company that makes most of its money from Botox but also sells breast implants and a line of ophthalmic drugs, including Restasis, the only prescription drug to treat chronic dry eye.

Valeant bought Bausch & Lomb last year, making it a global leader in eye health products.

Allergan reported $6.3 billion in revenue last year, about $2 billion of that from Botox. Restasis, the dry-eye drug, generated about $940 million in revenue. The company made an additional $378 million from its breast-implant business and $100 million through sales of Latisse, a prescription drug that thickens eyelashes.

Shares for both companies closed lower Tuesday. Allergan was down $1.90, or 1.14%, to $165.02. Valeant shares were down $3.51, or 2.63%, to $129.95.

Twitter: @rljourno

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