Understanding the SMART DEALS: Sale of Allergan’s lap band business in 2013

Understanding the SMART DEALS: Sale of Allergan’s lap band business in 2013 to Apollo Endosurgery

Apollo Endosurgery paid approx $110 M for the lap-band. 
The purpose of this exercise is to dig deep into the deal and teach a lesson to medical device investors and deal makers how to "lose and win at the same time". I think this is a great opportunity to evaluate the purchase and sale of the lap band business. 
To make this deal lucid we are going to use approximate numbers. Also, keep in mind that this is a learning tool or exercise for all the medical device entrepreneurs.
This exercise is not to evaluate the merits of lap band. 
This is not an assessment of the stock or the performance of the company. I do not own any stock of Allergan and do not have any financial interest in the company. Again, this is a study exercise.

Let's go back approximately 7 yrs ago and look at the purchase of the lap band from Santa Barbara based company called Inamed in late Dec 2005 or early 2006. Allergan purchased Inamed for approximately $3 B. The announcement came in Dec 2005 when the stock was  trading between $99 to $104

In Jan of 2006 the stock was trading around $114 to $115. Avg volume was 2.5 M stock and an outstanding stock of approx 300M. If you look at the stock price difference from Dec to Feb which is approximately a gain of $15. Simply multiply $15 X300 M = $4.5 B gain!

Fast forward, year 2013 Allergan announces to sell lap-band and aesthetic business end of Oct 2013. Before the announcement Stock was trading at $92-$95 in the next 50 days the stock jumps to approx $114. Assuming the outstanding stock of 300M. The math turns out to be $20 X300 Million = $6B. Similar to the transaction in 2006 making this a ‘ultra smart deal’.  

It appears that Allergan was not able to see the growth in the band business because they had only one product and towards the tail end of its life cycle. Lap band had seen $250 Million + revenues year after year but could not keep up with the botox and the latisse brands. Sale of lapband was the best decision. But look how much they made of the deal of just purchasing and selling the band business. Plus it sold band for 6 yrs with great revenues The top year was $350 M.
Obesity technologies are super hot. Now, we have to see how Apollo can leverage the lap band business, the fact is Apollo might need some next gen technologies to enhance the lap band business. 

Strategic players including drug companies in the US  and outside US are considering  to be the medical device weight loss business. 

The timing the weight loss technology sector cannot be better. AMA (American Medical Association) announced obesity as a disease in 2013 just after Allergan had decided to get out of the weight loss business. Insurance companies and payers are exploring the cost benefit and considering to cover obesity treatment, regulators worldwide including FDA are fast-tracking the approvals, patients are amenable to new treatments and are ready to take surgical risks in order to reduce the long term disability,  productivity and improve quality of life. 
The rates of obesity and diabetes has increased worldwide. Emerging countries like India, Brazil, China, Russia , Mexico, Argentina, Chile have seen unprecedented obesity rates. India and Mexico has seen 10% and 30% growth in obesity rates in adults and children. Countries like Australia, NZ, Canada, UK, Germany, Italy, Saudi, UAE and Kuwait are seeing obesity in epidemic proportions translating the medical device market to exceed over $139.5 Billion by 2017 according to Medical Device DiagnosticIndustry (MDDI).

In 2014, The life science sector may see a surge of institutional investments in medical technologies treating obesity and diabetes. The upward trend of IPOs  will continue, we may see several pre-revenue companies filing for IPO in this sector with high valuations. 2014 -2020, we may continue to see more smart transactions in the life science sector. Please post your comments and limit your thoughts related to this transaction or new technologies that might be the next gen technologies. 


The information in the blog is my study exercise. These calculations are based on my understanding of the deal and my own opinion. This blog is not an investment advice or research