Activist investor's new advice for Amgen: Merge with Allergan

Dan Loeb, the activist investor who once called for Amgen ($AMGN) to break itself in two, is now advising the Big Biotech to consider merging with Allergan ($AGN), according to Bloomberg.

Citing sources at a closed-to-the-press meeting in New York, Bloomberg reports that Loeb talked up the potential of such a merger to a group of investors, saying it would create new avenues for growth and cost synergies. Through Third Point, his hedge fund, Loeb owns stakes in each company.

The idea stands in stark contrast to Loeb's most recent advice for Amgen. Last year, Loeb urged the company to take a page from Abbott Laboratories ($ABT) and split in two, leaving one entity to handle Amgen's legacy drugs, like the blockbusters Neulasta and Enbrel, and forming a spinout that would carry forward with the unapproved pipeline. Echoing some industry analysts, Loeb took issue with Amgen's big spending on high-risk R&D and bemoaned a track record of buyouts that hasn't won many fans on Wall Street.

But such calls for a split have largely quieted in the year since, as Amgen laid out plans to cut roughly 4,000 jobs--20% of its payroll--and save about $1.5 billion in the process. And, on the research side, some of those moonshot projects have come to fruition, highlighted by the recent approvals of the cholesterol drug Repatha and cancer immunotherapies Imlygic and Blincyto.

Allergan CEO Brent Saunders

Still, despite its recent embrace of Big Pharma-like cost cuts and stock buybacks, Amgen stands apart from Allergan, a company that has largely eschewed early-stage research in favor of buying into new therapies when they've already demonstrated some promise. Allergan CEO Brent Saunders has recently walked back some of his more strident remarks about the folly of Big Pharma-led drug discovery, but his company is not about to become a major R&D spender. Allergan has touted its plans to put $1.7 billion into R&D this year, whereas Amgen spent $200 million more than that in the first half alone.

And Allergan is, at least for the moment, otherwise engaged. The company disclosed last month that Pfizer ($PFE) made a much-anticipated merger pitch of its own, and the two are now in self-described friendly conversation about the idea. Allergan's Irish address and attendant tax benefits make it a particularly desirable target for Pfizer, and some analysts believe a framework agreement could come this month.

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