In a lot of ways, Allergan's new deal to buy Naurex over the weekend for $560 million upfront with the rest back-ended on the success of its two lead depression drugs looks like a lot of biotech buyouts we've seen over the past few years. Investors who put up $163 million get a good multiple on their wager in a quick payback and the chance to make some blockbuster-style cash if it works out. Allergan ($AGN) gets a pair of assets that build its pipeline, particularly one headed to Phase III.
The deal also underscores that Allergan CEO Brent Saunders is a buyer in this market, which is fast distinguishing between the players who are on the field in these boom times, and those content to largely wait it out on the sidelines. And now with a $40.5 billion windfall in his pocket from the sale of Allergan's generics business, Saunders is clearly happy to spend a chunk of that cash on more deals.
In a conversation with Forbes' Matthew Herper, Saunders happily spotlighted his bolt-on buyouts with Kythera, Naurex, Furiex and Rhythm. But now he has bigger fish in mind.
"But what this does do is it accelerates our ability to think about the transformational deal," Saunders told Herper about the generics sale. "I think when you look at the past couple years in the transformational category, we've done three: Warner Chilcott, Forest, and Allergan. Each one has gotten bigger, and each one has moved up the innovation chain. So I think we'll continue to think about how we continue that path."
Compare that to recent remarks from Eli Lilly's ($LLY) John Lechleiter, who has always insisted on backing the pipeline he has while adding an occasional pact, or Severin Schwan at Roche ($RHHBY). Both see this current market as overpriced.
Don't look for George Scangos in that group. Looking at some bad numbers last week, he instantly agreed with one analyst's suggestion that the best, fastest way to revive a share price was to notch a blockbuster deal. Celgene's ($CELG) Bob Hugin has been bullishly advocating the big gamble to anyone who cares to listen for years now. And the teach-in has analysts' rapt attention.
So, yes, biotech valuations are steamy. But for the companies that have the cash, the motivation to hit the deal table for a "transformational" deal is strong.
I once knew a man in Ireland who ran a shop for tourists, who he largely despised as pissers and pricers. "All they want to know is 'how much is that?' and 'where's the bathroom,'" he told me once. The biotech market is doing its own evaluations of pricers and buyers. And you can see how each is faring. -- John Carroll, editor-in-chief (email | Twitter)