Description:
Allergan (AGN) is a global specialty pharmaceutical company with head-offices in Irvine, California, USA. Its annual sales amount to about USD 5.9 billion. The company develops, manufactures and markets therapeutic eye care products and medical devices, such as breast implants and gastric bands. It also has a large cosmetic portfolio that includes key products such as Botox, Juvederm dermal fillers, and Latisse for eyelash growth.
In 2012 net revenue rose by about 11%; a figure Allergan has maintained consistently in recent years. Key division sales also increased in 2012, e.g. pharmaceutical products rose by 11% and medical device sales by 7%. About 40% of Allergan’s sales occur overseas, and for a number of its products, Allergan maintains a substantial and worldwide market share: for Botox it is 76% and for eye care products it is about 50%. Because of the PIP scandal , the sales growth of 6% observed for Breast Aesthetics products should be considered a one-time event.
Some of the company’s key products such as Botox and Restasis, have the potential to deliver further double digit growth figures in the years ahead. The company’s growth story warrants a higher P/E than the average pharmaceutical company. Furthermore, the company has sustained EPS growth in the mid-teens. We believe that the present company valuation does not accurately account for the strong product pipeline nor the R/D going forward as Allergan has a good number of assets in Phase II, (e.g. osteoarthritic pain treatment) and in Phase III, (treatment for cerebral palsy).
Strengths and weaknesses analysis / Fundamental analysis:
Strengths:
- Strong fundamentals, with a diversified revenue base and above average EPS growth for the years 2014 and 2015,
- The company has an unmatched portfolio of products for cosmetic purposes,
- The stock has a low beta (0.73) and is presently dealing at its long-term support level,
- AGN is a takeover target
- AGN continues to expand its businesses in migraine and overactive bladder treatments, these areas should provide turnover well above USD 2 billion in 2014.
Weaknesses:
- Johnson & Johnson and Valeant have formed an alliance to work together in the aesthetics space. This alliance is hoping to neutralize the loyalty and volume benefits AGN offers its customers in the aesthetics market,
- The market tends to overreact to the issuance of news such as the announcement of delays in the R&D division,
- A large part of the company’s products are related to consumer staples. Given this, Allergan is more sensitive to economic cycles than the average pharmaceutical company,
- As one of the smaller Pharmas, how can AGN maintain its high revenue growth and margin structure?