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Allergan closes in on sale of obesity intervention unit

Speculation as to who will buy the unit

Allergan has re-affirmed its decision to sell its obesity intervention unit by the end of the second quarter (June) 2013. The company made the announcement as it reported its first quarter operating results.

As a result of Allergan's approved plan to sell its obesity intervention business unit, the financial results from that business unit are reported as ‘discontinued’ operations in the company’s financial results. Prior year amounts have also been retrospectively revised for the discontinued operations.

“Allergan has begun to consider offers for the sale of that business unit and currently expects to execute a signed agreement by the middle of 2013,” the company said in a press release. “In the first quarter of 2013, Allergan also reported a separate non-cash pre-tax disposal loss of US$346.2 million (US$259.0 million after tax) from the write-down of the net assets held for sale to their estimated fair value less costs to sell.”

It is interesting to note that the company “expects to execute a signed agreement by the middle of 2013”, suggesting that although an agreement is not in place, it is more than likely a deal will be finalised sooner rather than later.

Who will buy the obesity intervention unit?

Speculation has been rife since the company announced they were planning to sell the unit in October 2012.

Some sources on Wall Street say that the unit will be snapped up by a private equity firm, others have claimed a more well established medical device firm (not necessary with a history or strong presence in the market) could make a bid, whilst it has also been suggested a pharmaceutical company (with obesity drugs in the pipeline) may take the plunge. However, the latter seems mere speculation.

Whoever does buy the company (and however much they pay) will know they face 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.

Analysts expect that the unit’s share of the market will continue to fail given the rise in the number of sleeve gastrectomy procedures.

And such a drop in market share has impacted revenues: sales in the obesity intervention division were projected at $160m for 2012, almost half of their 2008 high of $296 million, and down 22% from the fourth quarter of 2012 compared to 2011.

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