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Allergan to Buy MAP Pharmaceuticals

Zacks Equity Research

In a bid to strengthen its position in the neurology and migraine specialty fields, Allergan, Inc. (AGN) recently inked a deal with MAP Pharmaceuticals, Inc. (MAPP) to acquire the latter. As per the terms of the deal, Allergan will acquire all the shares of MAP Pharmaceuticals for $25.00 per share.

The offer price represents premium of 60% over MAP Pharmaceuticals’ closing price on Jan 22, 2012. The deal is expected to be worth approximately $958 million. The transaction, which has been cleared by the boards of directors of both companies, is expected to close either towards the end of the first quarter or in the second quarter of 2013.

The acquisition will give Allergan sole rights of migraine candidate Levadex in the US. Levadex is currently under regulatory review for treatment of adults suffering from acute migraine. The US Food and Drug Administration is expected to render a decision on the approval of the candidate by Apr 15, 2013.

We note that Allergan and MAP Pharmaceuticals are no strangers to each other. In Jan 2011, both the companies entered into an agreement to develop and commercialize Levadex.

Assuming the approval of Levadex, Allergan expects that the purchase of MAP Pharmaceuticals to be accretive to its earnings by the second half of 2014. The deal is expected to negatively impact Allergan’s 2013 earnings by 7 cents per share. Currently, the 2013 Zacks Consensus Estimate is pegged at $4.75 per share.

Our Take

We are positive on Allergan’s decision to buy MAP Pharmaceuticals .We believe that if Levadex manages to gain approval then it will be a major boost for Allergan and complement the company’s portfolio, which includes Botox (onabotulinumtoxinA). Botox is indicated for several indications including treatment of chronic migraine headache. Additionally, label expansion plans of Levadex are also on the cards.

However, we remain concerned about the below-par performance of the obesity intervention segment at Allergan over the past few quarters. The company is considering a potential sale of the obesity intervention segment as an option in its efforts to maximize the returns from this business.

Allergan was in news recently when the FDA approved Botox for the treatment of patients suffering from overactive bladder with symptoms of urge urinary incontinence, urgency and frequency. While we view the approval of Botox for the treatment for OAB as a major positive for Allergan, we remain concerned about Botox’s sales post the re-entry of Merz Pharmaceuticals Xeomin in the market. In Mar 2012, an injunction against Xeomin was issued, which was valid till Jan 9, 2013.

Allergan carries a Zacks Rank #3 (Hold) in the short run. Pharma companies that currently look better-positioned include Eli Lilly (LLY) and Sanofi (SNY). Both are Zacks Rank #2 (Buy) stocks.

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