Allergan’s Acquisition of MAP Pharmaceuticals is a Bargain

Our recent analysis of MAP Pharmaceuticals (MAPP) highlighted the market potential of the orally inhaled Levadex for the treatment of acute migraine and the high likelihood of success on the upcoming PDUFA date. Allergan (NYSE:AGN) and MAP On Tuesday evening jointly announced that they have entered into a definitive merger agreement, whereby AGN will acquire 100% of the shares of MAP Pharmaceuticals for a price of $25.00 per share or a total equity value of approximately $958M on a fully-diluted basis. The surprise is not necessarily in the buyout, but in the timing ahead of the April PDUFA, with the offer not contingent upon FDA approval. It’s common for the share price of an acquiring company to fall with the announcement of a buyout (cash outlay), but we see Levadex strengthening the Allergan migraine/neurology portfolio and adding significantly to the Allergan bottom line over the next few years.

While the offer of $25.00 per share represents a 60% premium to Tuesday night’s closing price, Allergan has made an astute business move as MAPP has about $100M in cash, and Allergan would have to pay MAP $77M in milestone payments on Levadex approval. Furthermore, for the reasons outlined in the previous article, AGN is not taking on undue risk given the high probability of approval. We are of the view that Levadex will add significantly to AGN revenues and profits, as Allergan already plays a role in the migraine treatment space with Botox; cost synergies should be considerable. Although follow-on indications in adolescents and cluster headaches can be quickly achieved at low cost, the real immediate value driver is the 25% of the 4 million U.S. adult acute migraine population that does not respond to triptans. Capturing just 15% of this population could lead to revenue of $600m and a conservative total of $1.2B including the E.U. and rest of the world. Uptake of Levadex will be fast due to the high dissatisfaction with the current treatment paradigm, leading to a steep initial sales curve. Levadex future revenues could comfortably add $1 in EPS for Allergan based on the company’s current ~20% profit margin (Levadex should improve on this significantly), making the billion dollar acquisition a bargain.

Allergan will host a conference call at 11:00 AM EST. And read PropThink's original MAPP report, which was published in early January and has returned 60% following Tuesday's announcement.