Allergan's paying $2.1B for Kythera and its double-chin drug

CEO Brent Saunders

The freshly rebranded Allergan ($AGN) is planning to spend $2.1 billion on Kythera ($KYTH), maker of an injection to reduce chin fat, in a deal designed to bolster the company's strength in aesthetics.

The price works out to $75 a share, a roughly 25% premium to Kythera's most recent close, and Allergan is putting up 80% in cash and 20% in its own stock. In exchange, Allergan gets the recently approved Kybella, an analog of natural deoxycholic acid, which the body produces to help break down fat. Injected beneath the chin, Kythera's treatment destroys fat cells, and in clinical trials on more than 1,000 patients, the drug significantly topped placebo in reducing what Kythera calls "submental fullness," or double chin.

Kythera won FDA approval for the injection in April and has said it's on track to launch the drug in the second half of this year. Analysts have pegged its peak sales potential at around $300 million, and Kythera is pitching the drug as a high-demand, nonsurgical option for double chin reduction, citing an American Society for Dermatologic Surgery survey that estimates 68% of Americans are "bothered" by submental fat.

For the new Allergan, buying Kythera fits in with both its core strengths and its guiding ethos. The company has made billions on Botox, an injection that began as a facial aesthetic product and has become more ubiquitous each year with new FDA approvals. And Allergan has since built a portfolio of similar treatments, putting the launch of Kybella firmly in its wheelhouse.

The deal also matches up with CEO Brent Saunders' vision of what he calls "growth pharma." Saunders' Actavis, which acquired the old Allergan for around $70 billion this year, made its name downplaying traditional drug discovery in favor of building a pipeline with its sizable checkbook. And that same principle has carried over into the new Allergan, which changed its name from Actavis this week. Instead of spending hundreds of millions of dollars a year on early-stage lab experiments with long odds of success, Saunders believes his company is better served paying higher premiums for products that have already established proof of concept or won FDA approval.

The buyout, expected to close in the next quarter, would also make for an impressive return on investment for Kythera and its founders. The company's share value has more than tripled since it pulled off a $73 million IPO in 2012. And, after buying out ex-partner Bayer for $84 million last year, Kythera is the sole owner of Kybella's global potential.

Outside of its double-chin treatment, Kythera is working on the early-stage setipiprant, a once-failed anti-inflammatory medicine that could have a future as a treatment for hair loss. The California biotech signed a $27 million deal with Actelion ($ATLN) to get its hands on the drug earlier this year.

- read the announcement

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