Bid Beefs Up Stock of Chin-Fat Drug Developer

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Shareholders of Kythera Biopharmaceuticals Inc. have twice as many reasons to hold their chins high these days.

The Westlake Village company’s chin-fat removal drug, Kybella, received approval in April from the Food and Drug Administration, and last week, Irish pharmaceutical giant Allergan, formerly known as Actavis, announced that it would buy Kythera for $2.1 billion.

That news fattened up Kythera’s stock. Shares rose more than 31 percent for the week ended June 17 to close at $74.11, making it one of the biggest gainers on the LABJ Stock Index. (See page 42.)

Allergan’s drug portfolio already includes several facial aesthetics products, including Botox, and Kythera Chief Executive Keith Leonard said the deal makes sense from a marketing perspective.

“The acquisition of Kythera would immediately enhance the breadth and depth of resources available for the U.S. launch of Kybella,” said Leonard in a letter filed with the Securities and Exchange Commission last week.

Umer Raffat, an analyst at Evercore Group in New York, said it makes sense for Kythera to sell to a bigger firm that can more effectively market and distribute Kybella.

“It’s like having a new energy drink and having Coke market it for you,” he said.

The deal values Kythera at $75 a share, a hefty 24 percent premium to the stock’s trading price before the Allergan deal was announced.

Allergan plans to buy Kythera mostly in cash, with 20 percent being paid in Allergan stock.

The deal is expected to be finalized in the third quarter of this year and is subject to approval by Kythera shareholders.

According to filings with the SEC, Allergan has stated that it expects to maintain a presence in Westlake Village, though how many of Kythera’s roughly 100 employees will still have a job once the deal closes remains unclear.

Kybella, which is delivered through an injection, is the first nonsurgical treatment for double chin.

Patients can get up to six treatments, receiving as many as 50 injections during each treatment, Evercore’s Raffat said.

While one analyst predicts that Kybella could have a global market value of $1 billion, Raffat said the limited course of treatment might dent overall sales.

“The real challenge for them is this is not a repeating regimen,” said Raffat.

Brent Saunders, Allergan’s chief executive, told CNBC last week that he had a Kybella treatment June 17, the day the acquisition was announced.

Kythera is also developing a treatment for male-pattern baldness.

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