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Rumors that Botox maker and eye-products giant Allergan might be a takeover target pushed the company’s shares up 4% on August 3 to $55.55. Among the oft-discussed suitors is drugmaker GlaxoSmithKline. Pharma industry CEOs tend to dismiss mergers as a bad idea, but not these two: In conversations over the past year with BusinessWeek, Glaxo’s Andrew Witty and Allergan’s David Pyott stopped short of saying they wouldn’t participate in the drug industry’s consolidation wave.
Glaxo certainly has the resources to make a big move. Just before Witty took over in mid-2008, Glaxo raised $9 billion in a debt offering, prompting the CEO to tell BusinessWeek a few months later, “we have the capacity to do some transactions.” He shunned the idea of a mega-merger, but admitted that all it would take to change that mindset would be “two people getting together in a room and deciding it’s a good idea.”
Buying Allergan wouldn’t represent nearly as a big a bite as Pfizer’s acquisition of Wyeth for $68 billion, or Merck’s purchase of Schering-Plough for $41 billion. Allergan’s market cap is a mere $17 billion. And it would enhance Glaxo’s portfolio in a few ways. Allergan would offer an entry to the market for medical devices, most importantly breast implants and gastric bands for weight-loss surgery. And it would boost Glaxo’s already-strong presence in prescription drugs and consumer products.
Over breakfast in New York in May, Pyott said Allergan had long been a rumored takeover target. Pyott warned, however, that the advantages that come from slashing costs after mergers “only lasts for so long. Then you’ve got to do something else.” The smartest deals, he said, have provided both efficiency and innovation opportunities.
Allergan has a lot to offer on the innovation front. On July 23, the FDA approved Allergan’s Acuvail for the treatment of pain following cataract surgery. The company is awaiting several more approvals, and on July 21, the FDA granted “fast-track” approval status to Allergan’s bladder-cancer drug. As for Botox, it continues to grow, largely because it’s approved not just to treat wrinkles, but also to treat medical conditions such as cervical dystonia.
Pyott has a sense of humor about the rumor mill, comparing his company to the knockout girl who’s in every playboy’s little black book. “We’re always in the bankers’ books,” he said. “I always say, it’s better to be attractive than ugly.”
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