(Irvine, Calif.) — Allergan (NYSE:AGN) has been around these parts since there were more orange groves in Orange County, Calif., than pink Rolls Royces.
For 60 years the medical aesthetics giant has called Orange County home, with Irvine serving as a centerpoint for the robust medical technology sector that has sprung up around it and become one of the top-performing medtech clusters in the world.
That may change, after news this week that Actavis (NYSE:ACT) trumped the hostile takeover bid for Allergan by Canada’s Valeant Pharmaceuticals (NYSE:VRX, TSE:VRX) and William Ackman’s Pershing Square Capital Management, offering $219 per share for the Botox maker in a deal valued at $66 billion.
At MassDevice.com‘s DeviceTalks West event in Irvine yesterday, medtech executives were mostly optimistic that the Actavis/Allergan deal would have a limited impact on the community, despite the fact that the company’s headquarters will not reside in this zip code anymore.
Tony Sine, a former Allergan executive and current executive vice president at Alphaeon, explained that the difference in choosing Actavis over Valeant may bode well for those left at the company, in terms of how deep the cuts will run locally.
"Actavis and Valeant are very similar in a number of ways, both are tax inversion plays, both are roll-up strategies and both have a generic base that they build on with branding, but they’re very different in how they treat companies," he said during a panel on M&A. "[Actavis CEO Brent Saunders] at Bausch & Lomb added a lot of value. He did some initial cuts but then was very focused on the brands."
Saunders was the former CEO of Valeant until this summer.
"Valeant’s model is to go in and cut a lot. So what this means is that Valeant is going to have to do a lot more transactions, especially in the medical device space. For Allergan there will definitely be some cutting, about $1.5 billion to $2 billion of expense will have to come out. Those are big numbers, but when you take Actavis’ generic business and layer on Allergan’s branded business, it gives a great portfolio going forward," Sine said.
The effect in Orange County, he added, may be more muted because of the Allergan products based in Irvine.
"This is the hub of their Botox franchise, which is more than ½ of their high-volume and high-margin business," he said. "They have a great volume of high-volume projects that are going to need to be done here, and my guess is there’s going to be as little disruption as possible with keeping these businesses growing."
Other local medtech execs were just as optimistic about the Actavis/Allergan union impact on the Orange County medtech cluster.
Joe Kiani, whose company Masimo (NSDQ:MASI) is also based in Irvine, said he didn’t think the Allergan buy would have any impact on the local ecosystem.
"I know David [Pyott] had a very strong passion for making Allergan bigger and bigger and I wish they had left him alone to do i. I think we would have been better off with letting him do it," Kiani said. "I think you’ll find that more start up companies will spring up out of the people who leave Allergan once the acquisition is complete. I think Orange County will be fine."
