Allergan hopes Map buyout does not bring more headaches

Investors who had Map Pharmaceuticals as an early-year bio run-up play will be gleeful today after news that Allergan will pay nearly $1bn for the company, giving it full access to the acute migraine drug Levadex. The orally inhaled product is a few weeks short of its second try at FDA approval, and the California group decided that it was worth the gamble to extract more value from the 2011 co-promotion deal to have its sales force detail Levadex alongside Botox to headache specialists (Regulatory worries dampen enthusiasm for Map's Levadex deal, February 2, 2011).

With Botox having established itself as a pipeline within a product, Allergan is looking for ways to drive more patients to its use as a treatment for chronic migraine prevention, and having an acute treatment to work hand-in-glove will not hurt. What could hurt is another complete response letter. The usual respiratory safety worries did not emerge in Levadex’s first-pass rejection, but they are always a risk with inhaled drugs (Map reads quick resubmission from complete response letter, March 27, 2012).

Healthy premium

Allergan’s offer of $25 a share represented a 60% premium over Map’s closing price on Tuesday. At $958m, the deal is roughly equivalent to Levadex’s net present value of $923m for Map, as calculated by EvaluatePharma using analysts’ consensus sales estimates.

Thus, Allergan is betting that the product will outperform analyst expectations; Allergan will also have averted some payout of regulatory and commercial milestones in buying Map outright. The consensus forecasts $531m in sales in 2018, of which $364m is in the US. The earlier partnership between the two covered the US and Canada.

Shares of Allergan were down slightly to $105.36 in early trading today. The company said the purchase would be dilutive to earnings per share by 7 cents this year, and become accretive by the second half of 2014.

The transaction will be a disaster for a significant share of the investor community: 16% of Map’s free float had been sold short in anticipation of another complete response letter. News on the FDA decision must come by April 15 – another rejection would have proved the short sellers right, but would be little comfort after the takeout.

When Map announced the complete response letter last year, it disclosed that questions about chemistry, manufacturing and controls (CMC) and inhaler usability had held up approval. With no call for new clinical trials, optimism for a second-pass approval is probably warranted – but of course, not necessarily guaranteed.

Unanswered questions

Levadex is an inhaled version of dihydroergotamine mesylate, an injectable migraine treatment normally used in hospitals, but which has not been used in the retail market. Its chief advantages are effectiveness in patients who do not respond to triptans, ability to relieve migraines in progress, and prevention of rebound headaches.

Migranal, a nasal spray version, has been marketed by Valeant Pharmaceutcials International; analysts from Bernstein Research note that in clinical practice this has been unsuccessful because of poor efficacy – the hypothesis is that the nose has insufficient absorbent surface area – and localised nasal pain in clinical practice.

The hope is that the lung will provide more surface area for the active ingredient to absorb. In addition, Map has been able to show that the inhalable product has lower peak plasma concentrations, which the company hopes will avert some of the side effects of the active ingredient in its injectable form, including fibrotic complications and drug interactions with antibiotics.

For Levadex to live up to its promise, it needs to have a better side-effect profile than either of the other two formulations. As for efficacy, the lower peak plasma concentration could make it a less effective medication, particularly in the triptan-refractory population.

Analysts from Bernstein forecast potential annual sales of $500m if the clinical profile seen in trials is validated in clinical practice, but, if not, Levadex could “falter”. UBS analysts were more circumspect, forecasting a “niche” product at $200m a year.

Allergan’s belief is stronger. Whether its bet on a full takeout was a brilliant gambit or an M&A misadventure might not become clear for several weeks; a $1bn mistake will not be taken well by its investors.

To contact the writer of this story email Jonathan Gardner in London at [email protected] or follow @JonEPVantage on Twitter

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