Allergan beefs up in aesthetics with implant purchase. Does M&A suitor Pfizer approve?

Big Pharma Allergan ($AGN) announced it is bulking up in aesthetics by purchasing London's Northwood Medical Innovation, maker of the earFold device for the correction of prominent ears, with or without asymmetry, in patients 7 or older. The deal marks the third Allergan device deal in recent months.

Allergan plans to commercialize the CE-marked device beyond its home market in the U.K. and said it will continue to explore regulatory pathways for approval in the U.S.

The metallic earFold is implanted using an introducer device and reduces the prominence of the ear by gripping the cartilage. The procedure takes 15 to 20 minutes and can be conducted in outpatient settings, Allergan says, adding that it does not require a general anesthetic like otoplasty or pinnaplasty.

"EarFold technology adds another innovative product to our medical aesthetics product portfolio, especially for the plastic surgeons we serve today, and has the potential to expand the number of patients interested in corrective surgery as it provides an alternative treatment that may appeal to those who have been reluctant to undergo traditional surgical procedures," said Paul Navarre, president of Allergan's international brands unit, in a statement. "Many of Allergan's plastic surgery customers currently perform otoplasty procedures, emphasizing our commitment to serving the unmet needs and practice of plastic surgery."

The announcement coincides with word that Pfizer ($PFE) is nearing an agreement to purchase Allergan, a move that would create a behemoth with $66 billion in sales and enable Pfizer to more cheaply access overseas cash from its new headquarters in Ireland--the same tax inversion tactic used by Medtronic ($MDT).

Given the timing, the obvious question is whether Pfizer approves of Allergan bulking up in devices, an arena that the bigger pharma doesn't play a large role in. And the suitor has a history of ridding itself of businesses outside of its core drug competency, such as the sale of its consumer healthcare unit to Johnson & Johnson ($JNJ) for $16.6 billion in 2006 and spinoff of animal health company Zoetis ($ZTS) in 2013.

But after Pfizer decided to purchase Hospira for about $16 billion to gain ground in biosimilars (generic versions of biologic drugs), John Young, president of Pfizer's global established pharma business, said Hospira's infusion pump and associated consumables will "provide Pfizer with novel capabilities in an adjacent area and a new source of revenue growth," and added that the business will be run out of his division.

In fact, Pfizer is considering someday splitting in half, creating one company with established products and another dedicated to innovative drugs. The company's urge to get bigger, as evidenced by the failed deal for AstraZeneca ($AZN), is likely driven by that long-term goal, and adds more intrigue around Allergan, and the landing point of its various components within the potential new company, including devices.

Overall, Allergan's purchase of the earFold isn't large enough to alter Pfizer's thinking about the potential deal, but it will supplement a growing devices unit whose fate will be unclear if the acquisition occurs.

In September, Allergan announced it will purchase glaucoma microstent company AqueSys for $300 million upfront plus undisclosed approval and sales milestones. And in July, Allergan announced the acquisition of clinical-stage dry eye device startup Oculeve for $125 million plus undisclosed commercial milestone payments. Oculeve makes an investigational noninvasive nasal neurostimulation device that increases tear production in patients with dry eye disease. Both moves bulk up an ophthalmology portfolio that includes over-the-counter eye drops and the branded drug Restasis.

Allergan's other devices are centered on aesthetics. They include dermal fillers, breast implants and, soon, the earFold. Crucially, they too complement Allergan's pharmaceuticals, like its most famous product, Botox, as well as Kybella, the only FDA approved nonsurgical therapy for double chins.

As a result, Pfizer could view Allergan's devices as another adjacent area in a manner similar to Hospira's drug delivering infusion pumps. They could also provide an additional physician access point that can be leveraged to sell more drugs within the eye-care and beautification arenas.

- read the release

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