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Allergan Could Pay $1 Billion for Chase Pharma

'Milestone payments' could boost deal's $125 million announced price.
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(A longer version of this article ran at 10:30 a.m. ET on our sister site TheDeal.com, which covers the M&A industry in depth. To get great M&A coverage like this even earlier in the trading day, click here.)

By Sarah Pringle

The $125 million purchase price on a deal that Allergan (AGN) announced Monday to acquire privately held Chase Pharmaceutical Corp. could ultimately expand eight-fold to $1 billion, TheDeal has learned.

Allergan didn't disclose the value of additional potential regulatory- and sales-related milestone payments for Chase's lead candidate drug CPC-201, but Chase CEO Doug Ingram told The Deal those payments could add up to an additional $875 million.

That's good news for Chase given that Ingram said the company was only worth about $15 million a year ago.

Chase is a clinical-stage drug developer, and CPC-201 is a potential Alzheimer's disease drug. Allergan's bet on the firm comes at a time when pharmaceutical giants are struggling to find treatments for Alzheimer's disease, which affects more than 5 million people in America alone.

Just this week, Eli Lilly & Co. (LLY) saw its shares plunge on news that its promising drug solanezumab for Alzheimer's patients with mild dementia failed to meet a late-stage clinical trial's primary endpoint.

Ingram told TheDeal that amid a "continued graveyard of failed development programs" for Alzheimer's drugs, no player looked more capable than Allergan in bringing Chase's in-development therapy to the finish line. He said that's largely why Chase opted not to run a formal auction process for the company.

For Irish-based Allergan, the deal is consistent with its "stepping stone" M&A strategy. The company has picked up several smallish early stage assets like Chase since closing the sale of its generic-drug business to Teva Pharmaceutical (TEVA) in August. Following a lengthy regulatory review process, Allergan ultimately received $33.4 billion in cash and $5.4 billion in Teva stock for that deal.

Jim Cramer and TheStreet's Chief Investment Strategist Jack Mohr bought more Allergan shares on Monday for the Action Alerts PLUS charitable portfolio. Click here for a free 14-day membership to the AAP investment club and read why, as well as to get access other exclusive content like special monthly conference calls with Cramer and Mohr.

Employees of TheStreet are restricted from trading individual securities. Action Alerts PLUS, which Cramer and Mohr co-manages as a charitable trust, is long AGN.