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Allergan to sell obesity unit to Apollo EndoSurgery

Apollo Endosurgery will pay an up-front cash payment of US$75 million

After months of speculation, Allergan has announced that it has entered into a definitive agreement to sell its obesity intervention business to Apollo Endosurgery. The news was released as part of Allergan’s ‘Third Quarter 2013 Operating Results’.

According to 28th October agreement, Apollo Endosurgery will pay an up-front cash payment of US$75 million, subject to certain adjustments, and certain additional consideration, including a US$15 million minority equity interest in Apollo and contingent consideration of up to US$20 million to be paid upon the achievement of certain regulatory and sales milestones. The transaction is expected to close in 2013, subject to customary closing conditions.

According to the company’s website: “Apollo Endosurgery, Inc. is dedicated to revolutionizing patient care through the development of endoscopic surgery, which is emerging from the convergence of laparoscopic surgery and therapeutic gastroenterology. Flexible surgery minimizes the trauma of surgical access by taking advantage of natural orifices to deliver surgical tools to targeted areas. All of Apollo’s products are compatible with existing flexible endoscope platforms. Through the combined efforts of the Apollo Group —widely considered the world’s most respected thought leaders in therapeutic gastroenterology—and our Scientific Advisory Board —comprised of international experts in minimally invasive surgery— Apollo has developed a new class of flexible surgical tools. They will enable surgeons and gastroenterologists to offer less invasive treatment options for a variety of gastrointestinal disorders.”

"The acquisition of the LAP-BAND and ORBERA' technologies will provide Apollo Endosurgery with a strong revenue stream that will enable us to expand our investment in innovative solutions that focus on improving patient outcomes in both the bariatric and endoscopic spaces," said Dennis McWilliams, President and CEO of Apollo Endosurgery. "The addition of these devices will complement Apollo's portfolio to include less invasive bariatric product offerings while expanding our domestic sales channel and increasing our global reach into more than 40 countries."

In the third quarter of 2013, Allergan recorded an additional non-cash pre-tax disposal loss of US$58.7 million (US$37.6 million after tax) from the write-down of the obesity intervention business unit assets held for sale to their estimated fair value based on the terms of the sale agreement.

"We are pleased to enter into a definitive agreement with Apollo Endosurgery regarding the sale of our obesity intervention business," said David E I Pyott, Chairman of the Board and Chief Executive Officer, Allergan. "We are confident that Apollo Endosurgery has the management expertise, industry experience and commitment to innovation that will be essential to the continued clinical development and future advancement of the LAP-BAND® and ORBERA' franchises."

Speculation has been rife since the company announced they were planning to sell the unit in October 2012, with some sources on Wall Street suggesting that the unit will be snapped up by a private equity firm, others have claimed a more well established medical device firm, whilst it has also been suggested a pharmaceutical company (with obesity drugs in the pipeline) may take the plunge.

Apollo certainly faces a tough challenge turning round the units fortunes, which has seen its share of the bariatric surgery market dropped from a high of around 40% to as little as 30%, according to some estimates. Industry analysts expect that the unit’s share of the market will continue to fail given the rise in the number of sleeve gastrectomy procedures.

Nevertheless, it is certainly an interesting acquisition by Apollo Endosurgery and one which the whole bariatric community will watch very closely over the coming years.

Allergan acquired the Lap-Band business in 2006 as part of a US$3.1bn merger with medical aesthetics company Inamed, along with a line of breast implants.

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