EUR 850.00 For Business Accounts Only

Morningstar | We Think Allergan Possesses a Solid Business Despite Upcoming Competition on Botox and Restasis

Allergan has used acquisitions to transform into a major pharmaceutical contender. Management’s decision to sell its generics and distribution segments to Teva looks prescient and has deleveraged the balance sheet with ample cash to initiate a dividend and pursue pipeline acquisitions. Allergan continues divest noncore operations, including the recent sale of its medical dermatology business while still seeking buyers for its women's health and anti-infective segments. Even though Allergan's planned merger with Pfizer fell apart due to tax inversion rules released by the U.S. Treasury Department, the company still looks decently positioned for long-term growth. Despite the near-term hit from generic Restasis, we think Allergan’s diverse portfolio of defensible products, broad pipeline, and future acquisitions will sustain healthy earnings growth. Allergan's acquisitions of Warner Chilcott and Forest Labs enhanced the company's branded drug portfolio with a significant presence in the primary care markets of women’s health, gastrointestinal, urology, and central nervous system therapeutics. Meanwhile, Allergan's considerable scale in niche markets of ophthalmology and aesthetics offers a long runway for growth thanks to defensible products (especially Botox) and a sufficient pipeline. We expect Allergan will remain focused on expanding its branded pipeline and salesforce productivity through small acquisitions and licensing partnerships. For example, recent deals for oral CGRP molecules from Merck for migraine, NMDA modulators for depression from Naurex, Zeltiq to enhance the aesthetics franchise, LifeCell for regenerative medicine, and Tobira for a potential NASH treatment should provide new growth opportunities. New dry eye and glaucoma products in development along with Allergan's licensed anti-VEGF DARPin in trials for wet AMD should help preserve the company's leadership in ophthalmology. In our view, Allergan also has one of the stronger industry partnerships with Amgen for developing biosimilars, which face stringent manufacturing, regulatory, and marketing hurdles. The partnership includes biosimilar versions of Erbitux, Rituxan, Avastin, and Herceptin.