EUR 850.00 For Business Accounts Only

Morningstar | Allergan Suspends Textured Breast Implants in Europe on Safety Concerns

While we still think wide-moat Allergan looks considerably undervalued, we admit that the company can’t seem to escape negative headlines. Allergan announced it has suspended sales of its textured breast implants in CE mark countries within Europe following a recall request from French regulatory authority ANSM and nonrenewal of its certificate. Concerns have recently surfaced over rare cases of anaplastic large-cell lymphoma arising from these specific implants. We plan to reduce our forecast for the company’s breast implant franchise, which may lead to a modest reduction in our fair value estimate. While we think concerns about further negative implications are warranted, we also think the market reaction seems overdone at this time on an already depressed stock price.

Textured breast implants in Europe represent about $60 million in sales (less than half a percent of total revenue), but we imagine the market is probably (and justifiably) extrapolating a similar regulatory issue and potential liabilities in the United States. While the safety risk behind the implants has not been extensively investigated and could feasibly lead to Allergan’s ability to relaunch the products, the media headlines are likely to diminish the market opportunity even in this optimistic outcome. The company’s global breast implant business represents about 3% of sales, but this doesn’t affect all of Allergan’s products. Smooth-textured implants would probably backfill a portion of lost textured implant sales, especially in the U.S. where Allergan, Johnson & Johnson, and Sientra are the only major approved breast implant manufacturers.