07/08/96 THIS DRUG DEAL MAY BE ON AGAIN

THIS DRUG DEAL MAY BE ON AGAIN

A takeover of Allergan (AGN) was almost in the bag in early May, until Volvo blocked the acquisition--by drugmaker Pharmacia & Upjohn, of which the carmaker owns 14%. Now, it seems this maker of eye-care products and pharmaceuticals is back in play.
Volvo has suddenly announced it is selling the bulk of its P&U holdings. ``That removes the impediment to an Allergan buyout,'' says Bob Willens, managing partner at Lehman Brothers. He expects P&U will try again.
Volvo opposed the deal: It was based on a stock-for-stock pooling of interests, an accounting treatment that does not allow inclusion of goodwill in the deal. If a big stakeholder such as Volvo sold shares up to 30 days before the closing or 90 days thereafter, such a merger would be disallowed. Now that Volvo has registered with the Securities & Exchange Commission to sell 70% of its shares in late July, cutting its stake to less than 5%, the deal can go on, notes Willens, who thinks Allergan is now a good play. The sale should bring Volvo $1.6 billion.
Now trading around 40, Allergan is undervalued, says a manager at a New York firm that invests solely in health-care issues. This pro figures the stock is worth 50 to 60 in a buyout. Volvo's withdrawal ``is really the precursor to P&U's takeover of Allergan,'' he says.
Even with no takeover, Allergan stock is cheap, says Oppenheimer's Steve Gerber. Allergan's ``continuing appeal'' is its new-product flow, he argues. Allergan has produced new retinoid drugs--including Zorac for the treatment of psoriasis and acne, which Gerber thinks will get the FDA nod this year. ``It has the potential to become Allergan's biggest product, with annual sales exceeding $100 million,'' he says.
Another Allergan product, Alphagan, a topical glaucoma therapy, has a good chance of FDA approval by next year and could ``rejuvenate the company's important franchise in the glaucoma market,'' says Gerber.

BY GENE G. MARCIAL