Allergan continues to shape product portfolio with $2.48B acquisition of Zeltiq

February 14, 2017 – 8:21 AM | By Andrea Gonzalez | No comments yet

By Omar Ford, Staff Writer

Botox specialist Allergan plc is acquiring body-contouring product maker Zeltiq Aesthetics Inc. in a deal for about $2.48 billion. Shares of Pleasanton, Calif.-based Zeltiq Aesthetics Inc. (NASDAQ:ZLTQ) were at an all-time high, up 13.2 percent closing at $55.93 on Monday. Zeltiq has developed the Coolsculpting system, an FDA-approved technology that uses a cooling mechanism to reduce the appearance of stubborn fat.

Dublin-based Allergan, which has been on a buying spree since its failed merger with Pfizer Inc. last April, said it would close the Zeltiq acquisition in 2Q17.

For the past few years Zeltiq has had strong growth, Allergan executives said. In 2016, Zeltiq had sales of $354 million, a 38 percent increase vs. the year before.

“Zeltiq is a very strong, complementary fit for our existing medical aesthetics therapeutics area business,” said Brent Saunders, chairman and CEO of Allergan, during a call discussing the pending merger.

Zeltiq’s Coolsculpting system is not supported by insurers and operates in the “cash-pay arena,” which Saunders said was very appealing to Allergan. The company uses this model for some of its Botox sales and other aesthetic offerings.

“We find it interesting that this is Allergan’s second straight acquisition on the aesthetics side, giving Allergan a stronger presence in the cash-pay business at a time when there are increasing concerns around drug-price payer pressure,” said Vamil Divan, an analyst with Credit Suisse.

Allergan estimated that body contouring is a $4 billion annual market opportunity.

“Body contouring in our view is where facial injections were 10 years ago,” said Bill Murray, Allergan’s chief commercial officer. “It has excellent future growth rates. In many ways Coolsculpting is the Botox of body contouring.”

COMPETITIVE MARKET

Zeltiq was founded in 2005 and first gained FDA approval for its Coolsculpting system in 2010. (See Medical Device Daily, Nov. 9, 2010.) The device works by gently cooling targeted fat cells in the body to induce a natural, controlled elimination of fat cells without affecting surrounding tissue, and the treated fat cells are gone for good. Two scientists at Harvard University in Cambridge, Mass., created the process after noticing that some children who ate popsicles got dimples in their cheeks. The duo found that the popsicles were eliminating small pockets of fat cells.

To date Zeltiq has garnered eight different indications and six different applicators, Allergan executives revealed during a Monday conference call discussing the transaction.

One of Zeltiq’s most compelling indication expansions came about two years ago. FDA granted an expanded indication for Zeltiq’s Coolmini applicator to treat smaller pockets of fat including the submental, or chin fat area, more commonly referred to as the double chin. (See Medical Device Daily, Sept. 24, 2015.)

The company competes against Westford, Mass.-based Cynosure Inc. that makes the Sculpsure – a hyperthermic laser treatment to induce adipose lypolisis – while Zeltiq uses cryolypolisis.

Another competitor is Tustin, Calif.-based Andrew Technologies LLC’s Hydrasolve, an application that combines natural saline solution with low levels of temperature and pressure, to liquefy only targeted fat tissue.

Zeltiq’s Coolsculpting technology has often been pitted against Allergan’s Kybella, a solution made from deoxychololic acid, a chemical produced in the body, to help absorb fats. Allergan picked up Kybella when it acquired Agoura Hills, Calif.-based Kythera Biopharmaceuticals Inc. for $2.1 billion two years ago.

Allergan executives stressed that Coolsculpting and Kybella focus on two totally different markets – facial aesthetics and body sculpting.

“We view this business as very distinct from Kybella,” Saunders said. “They are different technologies, with different economic models and have different side-effect profiles and recovery times. Kybella is minimally invasive, but not surgical, where Coolsculpting is completely noninvasive.”

LIFE AFTER CANCELLED PFIZER DEAL

Allergan has made a number of transactions after a $160 billion merger with New York-based Pfizer Inc. was terminated. The decision was driven by the actions announced by the U.S. Department of Treasury on April 4, 2016, which the companies concluded qualified as an “Adverse Tax Law Change” under the merger agreement.

Since then, Allergan has been reinventing itself and reshaping its product portfolio. Late last year, the company revealed a plan to acquire Branchburg, N.J.-based Lifecell Corp., a regenerative medicine unit owned by privately held Acelity LP, for $2.9 billion in cash. The acquisition gave Allergan access to products that would support its portfolio of medical aesthetics, breast implants and tissue expanders. The company closed on the deal earlier this month.

In January, Allergan purchased an exclusive option right to acquire Lysosomal Therapeutics Inc., a company focused on small-molecule research and development in the field of neurodegeneration. The deal gave Allergan an entry into the Parkinson’s disease treatment market.

“It is very clear that Allergan is in the midst of a now very well-known transition, as these mature franchises Restasis Namenda and Asacol face the very normal product lifecycle and absorb the well understood branded and generic threats,” said Ken Cacciatore, an analyst with Cowen and Co.

He added, “these new products Linzess, Viberzi, Vraylar and Kybella, combined with Allergan’s other core growth franchises, should provide for a very nice earnings inflection beginning in 2017 to 2018.”

UNDER FIRE FROM SEC

The Zeltiq deal comes at the same time as Allergan has been sharply criticized by the Securities Exchange Commission over the way it calculated its adjusted earnings per share.

The SEC’s letter to Allergan was made public last week, and the agency noted it would consider issuing additional guidance on tailored financial measures.

The calculation of adjusted earnings per share is a metric that doesn’t conform to U.S. generally accepted accounting principles; such figures are known as non-GAAP.

The agency has been moving forward with its efforts to curtail the use of tailored accounting. As a result of the measure, many company executives have changed their presentation of results and cut back the use of adjusted figures.

 

 

 

 

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