September 29, 2014
By Riley McDermid, BioSpace.com Breaking News Sr. Editor
If Valeant Pharmaceuticals International secures its long sought after deal with Botox maker Allergan Inc. , the newly formed company could be big enough to start shopping for other biotech companies as large as Celgene or Bristol-Myers Squibb Company , said Cowen Group analysts Ken Cacciatore and Tyler Van Buren in a prescient and thorough report on the biotech industry.
Titled “Biotechnology: Our View On The Likely Accelerating Industry Consolidation–Buckle Up,” Van Buren and Cacciatore argue that Wall Street has been far too slow—and much to unimaginative—in envisioning how biotech could look if all these deals are consummated.
In the second portion of the note, the two take a close look at what other targets Allergan may try to acquire if it does consummate a deal with Valeant.
“We don’t believe investors have been nearly creative enough in their thoughts about what could happen if Valeant secures Allergan,” wrote Cacciatore and Van Buren.
Although the company would be heavily leveraged (and even more so if it secured both Allergan and Salix), the proforma Valeant-Allergan entity would likely be around $95 billion in market capitalization—making it a prime buyer in and of itself, said Cowen.
“This would make the entity sizable enough to begin to target significant potential assets perceived to have inflated infrastructure, significant cash generation and long duration assets. We see no reason why that proforma company wouldn’t target Amgen,” posited the two. “Although this may sound ridiculous to many, we would note that 12-18 months ago the thought that Valeant could make a hostile attempt on Allergan would have been inconceivable, thus a hostile attempt on Amgen by a proforma Valeant-Allergan should not be so easily dismissed.”
As for other targets, “onerous” Indiana state provisions likely would preclude a move on Eli, but Valeant-Allergan might also take a look at Celgene, or Bristol-Meyer Squibb, although given a significant amount of BMY’s value appears to be pipeline related, it would be more difficult for Valeant- Allergan to justify.
“The point we are trying to make here is that the strategic thinking of Valeant might be bolder than many currently assume. Alternatively, if Valeant is unable to secure Allergan (and we don’t believe they will), Valeant will likely find itself dramatically slipping down the hill after being so very close to emerging in an exceedingly powerful position,” they wrote.
Nonetheless, Valeant will likely turn rapidly to other, potentially significantly smaller, assets, such as The Cooper Companies, which has a similar business in contact lenses and would not appear to consolidate too much market share as to run afoul with the Federal Trade Commission.
“Other potential candidates are harder to envision, but clearly we believe Valeant, without Allergan, is in a significantly more disadvantageous position, and the long, difficult climb, will have to begin anew,” concluded Cacciatore and Van Buren. “Given our description of the potential targets (AMGN, CELG) that would be possible with the successful combination of Allergan, versus the potential targets (COO) without the combination of Allergan--it is now exceedingly clear to us why Valeant has appeared so aggressive/desperate.”
