By:
Brian Holland, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
- Allergan plc (NYSE:
AGN) is a global
pharmaceutical company focused on the research, development, and manufacturing
of pharmaceutical products for patients around the world. Allergan operates in 3 segments: US
Specialized Therapeutics, US General Medicine, and International. The company is Headquartered in Dublin, Ireland. Allergan was found in 1984 and operates
in over 100 countries.
- The Allergan brand delivers treatment in areas
such as: Dermatology, Aesthetics, Central Nervous System, Eye Care,
Urology, Gastroenterology, Cardiovascular and Infectious diseases. Two of Allergan’s leading drugs are
Restasis, with 393.1 million in revenue in Q4 of 2016, and Botox, totaling
199.4 million in revenue in Q4 of 2016.
Restasis is a part of the Eye Care franchise and Botox is a part of
the Facial Aesthetics.
- Allergan recently received positive results
from a Phase III studies. The drug
being tested, sarecycline, is used in the treatment of moderate to severe
acne. After news of the success,
Allergan plans to file a New Drug Application (NDA) by the end of 2017. Allergan estimates that peak sales could
reach 250-300 million.
- Allergan also received approval from the FDA on
the drug Rhofade in January. The
drug is used to treat facial erythema associated with rosacea. Rosacea is the flushing or reddening of
the face, resembling sunburn. The
drug is expected to be available for commercial supply in May of 2017.
- Allergan has consistently hit earnings over the
last 2 years, only missing earnings in 1 quarter during that time
period. This quarter was Q3 of
2016. Allergan rebounded nicely
posting earnings of $3.90 in Q4 of 2016, up from $3.32.
Key
Points
Allergan’s
management had an announcement in November of 2016 that could symbolize strong feelings
about the future. This announcement was
the initiation of a 10 billion dollar accelerated share repurchase. The repurchase of 10 billion dollars in
shares could symbolize that the company believes the stock is undervalued. Allergan plans to complete the repurchase by
Q3 of 2017 at the latest. Since the
beginning of November, the stock has risen almost $30.
Another
positive sign for investors came when Allergan announced the declaration of
their first dividend. The ex-dividend
date was scheduled for February 24, 2017 and the dividend was paid March 28,
2017. The cash dividend is to be paid
quarterly at $0.7 per share.
Allergan
currently has an Open Science Pipeline of over 70 programs. This shows Allergan’s dedication to developing
new drugs and an extraordinary opportunity for growth. At the end of fiscal year 2016, Allergan had
6 drugs in Phase III testing and 6 more in Phase II testing. As reported above, 1 of these drugs,
sarecycline, has already returned positive results in Phase III. Rhofade has already been approved and is
almost ready for release. The success
seen in previous years, coupled with the positivity surrounding the drug
pipeline, demonstrates Allergan’s strong and diversified portfolio of
treatments.
On
January 11, 2017, the SEC sent a letter to Allergan criticizing the industry’s
use of non-GAAP accounting. The SEC
believed that companies in the industry were using non-GAAP measures in order
to overstate performance. However,
Allergan came out with a statement on February 13, 2017 explaining they would
amend the reporting methods used. Both
the fiscal year and Q4 of 2016 were reported in accordance with the SEC
change. The change did not seem to have
a large effect on the performance of Allergan.
What
has the stock done lately?
Allergan’s
stock has reacted well to the FDA approval of Rhofade. Since the announcement of the approval on
January 19th, the stock has risen from $214.58 to $238.84. This resembles an 11% jump in price. Looking back further, the company has
fluctuated between $184.50 and $261.27 in the last year. Recently, the stock has slowed down quite a
bit. In the last month, the stock has
ranged from $233.99 to $240.34. This
represents a maximum of a 3% change in the last month.
Source:
FactSet
My
Takeaway
Allergan
is a company with a strong and diverse drug portfolio and pipeline. With a new drug coming to market in around a
month, as well as positive results from Phase III testing, investors should
feel confident. The large stock
repurchase in November revealed the confidence in management that the stock was
undervalued. With strong base products,
new products soon to be in supply, and management’s decision to repurchase
shares, I believe Allergan may reach a new 52 week high in the coming
future. For these reasons, I believe
Allergan deserves to stay in the AIM portfolio.
